Whether trusts can make R&D tax claims has to be one of the most common issues I encounter each week.  It is a common issue because accountants love to automatically set up trust structures for their clients as a way of protecting assets, and as a general rule, trusts are not allowed to make R&D tax claims.

However, before we simply dismiss all trust entities as being ineligible for R&D tax claims, it is worth knowing that there are some circumstances where trust entities can make R&D tax claims. Here’s a discussion on how.

1) Public Trading Trusts can make R&D Tax Claims

This rule is easy and explicit in the tax legislation. However, it is unlikely to be the structure of a small business entity.

2) Trustee Companies Can Make R&D Tax Claims

If a trustee company conducts R&D activities on its own behalf and not on behalf of a trust, it will be eligible to make R&D tax claims.  This requires a number of tests to be satisfied. The starting point is that the trustee company must be lodging its own Company Tax Return and holds its own ACN/TFN and is registered for GST.  Next it is a requirement to show that the beneficiary of the R&D activities is the trustee company and not the trust.  Intellectual Property should be owned by the trustee company. The trustee company should have its own bank account and company records. Ideally it should be the only trading entity with the trust being dormant, but it is also possible for the trustee company to be set up as an R&D company only.

AusIndustry and the ATO have released a Fact Sheet that explains the requirements in more detail.

Whether your trust structure will be eligible will depend on the facts of your situation. With the queries I receive approximately 50% find they are eligible, and the rest, unfortunately not. But of those that aren’t eligible, with the valuable information that structure is the only thing holding back their eligibility, they often act quickly with their accountant to make changes to be better set up for next year.

Here’s some tips if this is the situation you find yourself in:

1. If possible, set up a a new separate company to conduct R&D, thus avoiding all trust issues altogether

2. Before going down the path of making changes for your existing trustee company for the past financial year, ensure that the cost of these changes doesn’t outweigh any potential R&D benefit you will receive

3. Seek advice! Contact us or your local R&D consultant to get clarity, or if you require additional confirmation, head straight to the top and contact the ATO via the business info line.

R&D SmartTax is happy to help businesses or their accountants to better understand the R&D eligibility rules and how they apply to you. Feel free to contact us for any of your R&D tax queries and we will make sure you make the most of your smart ideas.

Government money is one of the best funding sources for a company seeking to put itself beyond the norm in the name of technology advancement. Generally in Australia there are two main types of government funds available being 1) Government Grants and 2) R&D Tax Breaks. There can be a lot of appeal in trying to access Government Grants due to the funding amount being often up to 50% of a project’s value. This represents money that you don’t otherwise have to come up with and can certainly lessen the financial burden of an investment into new technology.  However, grants do have their downsides too, and if I had to pick a government funding program for my business, I know which one I would choose – R&D Tax Breaks. Here’s why.

1. R&D Tax Money is Guaranteed and Grants are Pot Luck

If you are in the technology development space, it is assumed that you have eligibility for the R&D Tax Offset program.  Submit two forms at tax time and your R&D Tax Money is guaranteed. On the other hand you could spend months preparing a grant application for grant funding only to be knocked back by the assessors at the end of it all. In fact Commercialisation Australia’s programs are currently putting through less than 15% of all applications. That is a pretty poor success rate and could mean that a lot of your time and money have been wasted for no funding result.

2) R&D Tax Money is Tax Free while Grant Money is Taxed

When your R&D Tax Cheque arrives in the mail your company can bank it as is and then spend it on whatever you like. On the other hand your Grant money is classed as Assessable Income in your Company Tax Return which can bite at tax time possibly leading to a bigger tax bill than anticipated.  I genuinely have clients that have faced this problem. With the R&D Tax Offset benefit being 37.5% potentially rising to 45% in 2012, and the after tax benefit of a 50% Grant being as low as 35%, I know which money I would rather have.

3) R&D Tax Money is Spent As You Like; Grant Money is Spent As Per the Grant Agreement Terms

You may not realise that R&D Tax Money is provided by the Government on a purely market driven basis. This means that you and your company are in full control of your projects and the directions they head in, and as long as you still meet the definition of R&D, you can still claim each year. On the other hand, if you have somehow lined up your resources to commence your project when the Government Grant money comes in, you must follow the terms of your Grant Agreement for the way your project progresses which can make it difficult to adjust to changing market forces and project needs.

Now these are three great reasons as to why I would choose R&D Tax Money over Grant Money. However if you still decide that Grants are for you, let me share one last piece of advice with you; you can do BOTH. Yes, it is possible to get a Government Grant and also claim the R&D Tax Offset for the same project. This is because of a tax provision called Clawback. Basically there is a formula that you apply when submitting your R&D Tax Claim to take into account any grants that you have received. And what it does is reduce the amount of your R&D Tax Offset benefit from 37.5% to 30%. But you can still receive that 30% as cash which is a nice little kicker to your project and company.

If you would like to  investigate Government Grants further, I can suggest a fairly comprehensive website called Grantslink www.grantslink.gov.au.  And if you would like to check out R&D Tax Breaks and specifically the cash-friendly R&D Tax Offset program out further, I can definitely suggest you go here: www.smarttax.com.au. Good luck!

An R&D Tax Claim is no different to any other type of tax in Australia – everything must still follow the rules for substantiation and compliance. There are two government bodies that look after compliance for R&D Tax Claims in Australia. AusIndustry administers the rules associated with the eligibility of R&D activities, and the ATO administers the rules associated with the eligibility of R&D expenditure. Your company may be contacted at some point after you lodge your R&D claim by either AusIndustry or the ATO to discuss your compliance and it is worth knowing that due to the self assessment tax regime in Australia, your R&D claim is not actually considered to be eligible until given the all-clear by these bodies. 

Fortunately there is a lot of guidance available to help you with your R&D tax compliance. Our four tips below cover the key areas you need to know about:

1. Be technical, detailed and descriptive in your R&D claim documents.

AusIndustry’s first step in its new review regime is to look at your R&D Application for any areas that require further attention. If your project Technical Objective is technical, detailed and descriptive this will reduce the chance of progressing further in the review. Similarly, your R&D Plan should also get to the heart of why your project is new or different to that in the public arena, and what activities you are doing to overcome the technical issues.

2. Document and record all R&D activities and R&D expenditure

If you have undertaken research, file your research findings. If you have undertaken trials, record and detail each trial result. Record assets used in R&D activities including why and for how long. Expenditure requires source documents such as invoices. If possible use employee timesheets, but if not, either use logbooks, diaries or create your own weekly time record for relevant staff involved in R&D activities.

3. Keep a Folder

One of the easiest things you can do is to create an R&D folder to store all your information.  Not all information needs to be especially created for your R&D Tax Claim. You can easily use documents created by day to day procedures that your company already has in place.  This especially works for your R&D Plan which can use meeting minutes, Gantt charts, design drawings, risk assessments, memos, emails or any other similar type of document that you use to share information.

4.  Get assistance

An experienced R&D tax consultant will be able to review your claim or assist you with any compliance help you require. A little work upfront could save a lot of hassle down the track. R&D SmartTax has partnered with one of Australia’s best known R&D tax firms, Michael Johnson Associates to help our customers with any additional R&D tax compliance assistance. Click Here to find out more about how they can help you.

To conclude, R&D tax compliance can be quite simple and most companies find no problem with it.  R&D SmartTax has worked with both AusIndustry and the ATO over the past decade and has used this experience to create all of its tools including the popular Templates that will help you correctly record your R&D information. If you ever have any questions or queries about R&D Tax Compliance feel free to contact us at [email protected].

Labour’s controversial new R&D Tax Credit bill looked like it was set for the green light after receiving support from all independents in the House of Representatives last week to go through to the Senate.  However support from the Senate was not so forthcoming with two Senators seeking amendments to the bill leaving Labour high and dry and with no new R&D tax legislation being passed before Christmas.

Senator Kim Carr, Minister for Innovation, Industry, Science and Research was scathing of the Coalition’s opposition to the bill, stating that ” The Coalition’s deliberate filibustering in the Senate has once again deprived thousands of businesses of vital funds to help turn good ideas into commercial reality.”

Many business groups, however, are cheering at the news that the bill failed to get through, particularly as amendments sought in the Senate include the requirement that the new R&D Tax Credit not commence until 1 July 2011 and also that the Federal Government removes the dominant purpose test. The dominant purpose test means supporting activities are only allowed to be claimed if the dominant purpose is to support research and development activities. Under this test supporting activities that had any commercial purpose to them would be ineligible.

Whether these amendments get through will require more patience from Australia’s innovation community as it now waits until parliament’s next sitting early in 2011. As the new R&D Tax Credit controversey continues to drag out and the end of the financial year draws near, it is becoming more of a safer bet that the start date will be 1 July 2011 rather than the retrospective application to 1 July 2010.

Our recommendation is business as usual for the current R&D Tax Concession and R&D Tax Offset programs.

To take advantage of the current status and claim your rightful tax refund, use R&D SmartTax’s R&D Eligibility Wizard and R&D Application Wizard. Both tools eliminate months of work in the R&D tax claim process. The R&D Eligibility Wizard helps companies to easily self-assess their eligibility and the R&D Application Wizard is a one-step tool that also completes the official application form for easy lodgement at tax time. Both tools have been created for the current R&D Tax Concession and R&D Tax Offset programs with the new R&D Tax Credit to be covered once enacted.

To read the full Press Release by Senator Carr, click on the link below:

http://minister.innovation.gov.au/Carr/Pages/COALITIONDEPRIVESBUSINESSOFRDASSISTANCE.aspx

Australian taxpayers are still in limbo over the Federal Government’s proposed R&D Tax Credit with the bill now looking like it is unlikely to be passed until late January/early February next year. 

This means Australia’s innovation community is no closer to knowing if the start date will be retrospectively applied to 1 July 2010 and also what form the controversial bill will finally take. 

The proposed feedstock and “dominant purpose” tests have been hotly debated by industry with many analysts predicting their introduction will lead to a significant decline in reported Business Expenditure on Research and Development similar to the drop seen after changes in 1996.

 Senior parliamentary members are echoing calls by businesses to view economic modelling on the proposed changes. So far the Federal Government has not produced any modelling on the new R&D Tax Credit leading to further concern about its future effect on Australian innovation. 

Businesses used to experiencing inconsistent interpretation of the current well-known R&D rules by Innovation Australia’s AusIndustry review teams are also nervous about how the proposed rules will be interpreted going forward.  One comment leaked by an insider suggested there was an intention to push the legislation through in its current format and then run a series of ATO test cases to let the courts interpret the new rules.  Such comments are only fuelling the concerns companies are having about the new R&D Tax Credit and whether the Australian Federal Government is serious about supporting business innovation here.  In wake of all this uncertainty, how 2010 shapes up for Australian innovation remains to be seen.

Our recommendation is to take advantage of this limbo by bringing forward innovation spending to the current 2011 financial year where possible. Current R&D rules are well known bringing an extra amount of certainty to R&D tax claims made in the 2010 and 2011 financial year. 

To take advantage of the current status and claim your rightful tax refund, use R&D SmartTax’s R&D Eligibility Wizard and R&D Application Wizard. Both tools eliminate months of work in the R&D tax claim process. The R&D Eligibility Wizard helps companies to easily self-assess their eligibility and the R&D Application Wizard is a one-step tool that also completes the official application form for easy lodgement at tax time. Both tools have been created for the current R&D Tax Concession and R&D Tax Offset programs with the new R&D Tax Credit to be covered once enacted.

(This article by Caroline Hughes from R&D SmartTax recently appeared in the TranZition Report published by biotechnology and emerging technology recruitment specialists TranZition www.tranzition.com.au)

We are often asked where the starting point is for a new business idea, and my answer is always the same – the Australian Institute of Commercialisation (AIC). This is a government initiative that makes the ideal first place to go to when you have first conceived your great new idea but are not sure what to do next.  The AIC is about to start its Queensland round of workshops – I would highly recommend going along to one if you can. Please see below for more information and all the best with your innovation!

Longstanding national software and services firm Business Fitness has signed an exciting new strategic alliance agreement with R&D tax software provider R&D SmartTax on the 19th of October 2010.

The strategic alliance will support the growth of software products in the accounting and innovation sectors combining the award-winning R&D Application Wizard from R&D SmartTax with Business Fitness’ flagship HowNow software.  This goal is to provide accountants and other companies a more seamless approach to managing their daily business tasks including the annual R&D tax claims.

R&D SmartTax Managing Director Caroline Hughes sees the deal as a natural progression in the way businesses see the R&D Application Wizard as an important tool in their business toolkit.

“We are excited to be working with Business Fitness as there is a clear synergy in our goals for our software and both products are very complimentary to eachother”, said Caroline.

Business Fitness Managing Director Margaret George is also happy with the deal adding that “I’m looking forward to working with R&D SmartTax.”

R&D SmartTax’s R&D Application Wizard is available now for both companies and accountants to help complete their 2010 R&D Tax Claims. 

For more information about R&D SmartTax go to www.smarttax.com.au or email [email protected]. For more information about Business Fitness please visit their website at www.businessfitness.net.

Accountants and small businesses are rejoicing now that one part of their annual taskload has been made significantly easier.

R&D SmartTax’s award-winning R&D Application Wizard is a new software tool that eliminates months of work in the annual R&D tax claim process. For small businesses undertaking smart activities in a tax loss position, the 2010 R&D tax claim can lead to a cash cheque from the ATO for up to $750,000. 

Previously companies had to either read volumes of tax legislation or engage expensive consultants at up to $1000/hour just to find out if they were eligible and to complete the official R&D Application form. This meant multiple meetings, phone calls, emails and time away from valuable business work over many months.

But now the R&D Application Wizard can do all of that in just one simple online step!  Users simply log on and immediately step through the easy questions in just a few minutes. When ready, users then elect to receive their R&D Application form by email for review and lodgement with AusIndustry.

R&D SmartTax’s online tools, the R&D Application Wizard and R&D Eligibility Wizard recently won the 2010 SMART100 award for Australian innovation run by Anthill Magazine for being the “innnovations that help other innovators”.

Feedback from accountants for the R&D Application Wizard has also been extremely positive, highlighting the critical role that they play in helping small businesses access their rightful entitlements at tax time. In addition to the R&D Application Wizard Micro and Entrepreneur versions for companies, there are R&D Application Wizard licence packs especially for accountants to use for their clients, helping them to:

• Get certainty about R&D tax rules,
• Save time reading R&D tax legislation, rulings and case law, 
• Complete R&D Applications in hours not weeks, 
• Get fast, easy identification of eligible R&D projects,
• Generate real value with vital R&D tax cheques, and
• Save thousands on consulting fees and business down-time filling out forms

The R&D Application Wizard is ready now for all R&D tax claims to be made for the 2010 financial year. This is for R&D activities undertaken between 1 July 2009 and 30 June 2010.  R&D Applications must be lodged with AusIndustry by 30 April 2011.

Click Here to get started and get your R&D tax cheque the easiest and quickest from R&D SmartTax today. Any queries please contact us at [email protected] or visit us at www.smarttax.com.au.

It only took a few minutes, but new users of R&D SmartTax’s R&D Eligibility Wizard quickly found out how much of a return on their $59 investment they made, with stunning results!

Since its release in July 2010, R&D Eligibility Wizard has averaged over $75,000 in cash benefit for its users. That’s a massive 127,018.6 ROI!!

Users of the R&D Eligibility Wizard have come from a wide range of industries all over Australia. It can sometimes be difficult to believe that programs such as the R&D Tax Concession and R&D Tax Offset can apply so broadly and to such a wide range of projects. But if your company does any work to create new or improved products, devices, services, materials and processes, then there is a good chance that these programs apply to you.

Adding up the claim expenditure can also have surprising results too. Although you may only recall purchasing a few key items for your project, by the time you add up labour costs, travel, materials and overheads including rent, electricity and other administration costs, your claim is usually much larger than you anticipated. What may have started out as a $10,000 project, might just now become a $50,000 claim.

Why not find out if you’re eligible to get cash back on your smart ideas?  Try our R&D Eligibility Wizard, it could be the best $59 you ever spend!

To find out more about the R&D Eligibility Wizard, visit the R&D SmartTax website. Or feel free to contact us at [email protected].

Highlighting the critical role they play in helping small companies access R&D tax breaks, accountants and tax agents now have a new helping hand to make R&D tax claims easier and quicker from their end.

R&D SmartTax’s 2011 R&D Tax Toolkit for Accountants has been released for use by accountants and tax agents on their own clients. It has been especially created to have seamless integration into their own business, whilst still having the comfort and reliability of being powered by R&D SmartTax and all our specialist R&D tax knowledge.

The 2011 version includes licence to use our award-winning R&D Eligibility Wizard software, our premier R&D Application Wizard software as well as a full set of compliance templates including the R&D Plan and R&D Calculations Templates. In addition the 2011 R&D Tax Toolkit for Accountants also comes with a 12 month subscription to Dial-An-R&D Expert giving you instant access to a qualified R&D tax specialist for any queries that arise. 

Click Here for more information about the 2011 R&D Tax Toolkit and how it can help you.