R&D Tax Incentive ATY Advisory

What is the R&D Tax Incentive? Australian Government’s principal measure to encourage industry investment in research and development. Jointly administered by AusIndustry and ATO. It is a broad-based, market-driven entitlement program that aims to boost company competitiveness, improve productivity and deliver economy-wide benefits to Australia.

Introduction to the R&D Tax Incentive Scheme Tax Benefits of undertaking R&D Linking R&D activities to Tax Benefits Timeline of claiming Tax benefits vs. conducted R&D Up to 45% refundable tax credit Permanent benefit of 15 c per dollar spent on R&D activities Cash refund within 30-45 days after filing company tax return Provides R&D working capital by increasing operating cash flow 10 months after the end of financial year for the company when R&D activities occurred Can be obtained successively for multiple financial years

Calculation of R&D Tax Offset - Example Tax Profit/Loss $100 000 $50 000 $0 -$50 000 -$100 000 -$200 000 (Add back) R&D Expenditure $200 000 Subtotal $300 000 $250 000 $150 000 Taxable income or loss Company Tax Payable $90 000 $75 000 $60 000 $45 000 $30 000 Refundable R&D Tax Offset Tax Cash Refund $15 000

What is the R&D Tax Incentive? 45% refundable tax offset Aggregated Turnover < $20M 40% non-refundable tax offset Aggregated Turnover > $20M

R&D Tax Incentive Application Process Submission to ATO (Company Tax Return Lodgement) Submission to AusIndustry (R&D Registration)

R&D Tax Incentive Application Process – Submission to AusIndustry 7/9/2019 R&D Tax Incentive Application Process – Submission to AusIndustry Receive Innovation Australia Registration Number Upon AusIndustry approval, receive an Innovation Australia Registration Number (IR) Use the Innovation Australia Registration Number (IR) to lodge Company Tax Return R&D Registration Form Submission Lodged within 10 months of the end of financial year in which R&D is conducted. (April 30 for June Year Ends) Can declare future R&D to be done in future financial years with estimated budget expense

R&D eligibility criteria Is your Company a propriety limited enterprise? (ie not a trust, partnership, sole trader) Did you carry out eligible R&D activities in the past financial year? Did you incur a minimum of $20,000 in R&D expenditure?

R&D Activities (experimentation): Core Activity Supporting Activity Technical Objectives New Knowledge Technical Unknowns R&D Activities (experimentation): Core Activity Supporting Activity

New products or processes to be generated by conducting the project New Knowledge New products or processes to be generated by conducting the project Must not be achievable based solely on publically available information. Private information is acceptable Examples: new applications, algorithms, platforms, processes, portals etc.

Technical outcomes that cannot be known without conducting experiments Technical Unknowns Technical outcomes that cannot be known without conducting experiments Must have encountered technical challenges/ difficulties (not social sciences) Examples: performance and efficiency of systems, functionality of process, integration of software etc

Experimentation Development of IT products Testing of technologies Trial runs Integration of Packages

Definitions of R&D activities Core R&D Experimentation to generate new knowledge by adopting scientific methodologies Supporting R&D Activities related to core R&D or activities related to dominant purpose of undertaking R&D Core R&D

Core R&D activities may include: Development of software Unit tests, dry test runs System integration Payments to contractors Cloud hosting/integration

Supporting R&D activities may include: Literature searches or reviews that help design the experiment Background research Planning and overseeing the experiment Designing and producing test subject, equipment, prototypes etc. to be used in the experiment

Excluded Software R&D Subject to the same eligibility requirements as other R&D but with an exclusion. Software developed for an applicant’s internal administration are excluded as core. This may include: Business applications (payroll, accounting, invoicing, ordering, quality control, reporting, information management) Managment Information Systems Enterprise Resource Planning Software

Excluded Software R&D The exclusion is not intended to apply to: Software of an applied nature (ie. that forms part of an electrical or mechanical device such as industrial equipment or consumer products) Software developed for the purpose of sale on a commercial basis Software directly related to the delivery of services to customers

Eligible expenses Staff time and corresponding wages Company Overheads License fees of software used in R&D Contractor costs – including applications developed on your behalf Travel expenses

Case Study Example Objective New Knowledge Technical Unknowns Development of a web and mobile e-commerce application Objective Development of new software and system enabled tools Development of live stocktake Development of customised search engine tool New APIs and Algorithms developed New Knowledge Integration of individual features User interface and user experience design Search engine functionality Technical Unknowns

Eligible R&D Expenditure $55,000 Case Study Example Labour Costs $20,000 Overheads $20,000 Contractor $10,000 Other $5,000 Eligible R&D Expenditure $55,000 CASH REFUND of up to $24,750

R&D examples The following examples of IT projects that may be eligible for the R&D tax incentive: Database management Server management and cloud services Software development, including Mobile and web applications Development of portals

About ATY Advisory Our team has extensive knowledge about the R&D tax incentive. Our broad experience with a variety of industry sectors will provide us with the best possible understanding to maximise your potential tax savings. To date, we have successfully claimed over $6m in R&D expenditure

ATY Advisory Team Technical Experts Financial Experts Senior Advisors Analyse technical data Prepare technical deliverables Financial Experts Analyse eligible expenditure Maximising your benefit Senior Advisors Provide insight to evaluation of regulatory systems Insight of practical and administrative protocols connected to ATO

Contingent fees Our fee structure is on a fully contingent basis. This means fees are only charged as a small percentage of a successful R&D claim, if no R&D is claimed, we will not render any fees.