For a company to access the Federal Government’s Research & Development tax incentive program, a number of eligibility criteria must be satisfied. In addition to a claimant being an R&D entity by virtue of having a complying legal status, rather obviously the activity undertaken and expenditure incurred need to be of a required type in the eyes of both AusIndustry and the Australian Tax Office respectively.

A general principle is that R&D activities must be conducted in Australia, although AusIndustry has a discretion to extend the incentive program to offshore activity if specified conditions are met.

Legislation for this tax incentive considers two types of qualifying expenditure, being core (such as experimental, scientific and logical in approach, leading to new knowledge and technology) and supporting (where the dominant purpose directly relates to producing a good or service).

Although government agencies have issued guidelines aimed at clarifying whether expenditure is properly core or supporting, not surprisingly this aspect of the legislation is perhaps most contentious. Eundo advises Australian companies on how to review their R&D activity, how to systematically categorise expenditure and how to document their intended tax position. This advisory work is performed by an experienced tax professional who is a registered agent with the ATO. Eundo can also represent a client in any dealings with Federal agencies.

Finally, eligible expenditure in any R&D claim year must exceed $20,000, or a lesser amount if paid to a Research Service Provider or Co-operative Research Centre may also qualify. There is no upper limit on expenditure.

The Federal Government’s Research & Development tax incentive program, introduced by income tax law effective from 1 July 2011, is open to all sorts of businesses with activities in Australia. Predictably, a number of eligibility criteria need to be met, and it makes sense for a Taxpayer to satisfy these aspects of compliance early in the R&D process.

To begin, it’s worth noting that potential claimants must submit to the jurisdiction of two separate Federal Government departments. In the first instance registration of an entity undertaking R&D activity must occur annually with AusIndustry (on behalf of Innovation Australia). Subsequently, because any R&D claim is made in an entity’s income tax return, then the Australian Tax Office is also involved. Although this two-prong process threatens to be unwieldy, experience suggests otherwise and claimants should merely be aware, not concerned.

In this commentary we consider but one of the eligibility criteria, specifically the legal status of a claimant. Generally speaking only corporate structures will be considered eligible for the R&D incentive. Such a company might be wholly Australian based, or foreign but with tax residence in Australia, or foreign but carrying on business in Australia through a permanent establishment defined in a double tax agreement. Consequently individuals, partnerships, exempt bodies and most trusts do not qualify.

Since businesses normally anticipate R&D expenditure, and subsequently make a claim under the incentive program, Eundo can review any legal structure early on so that this fundamental requirement is assured. All advisory work is performed by an experienced tax professional who is a registered agent with the ATO.

To quote Federal Minister for Industry & Innovation Mr Greg Combet, “we need to be an innovative country to realise our aspirations for prosperity and business growth ….”

In keeping with current fiscal policy the Federal Government’s new Research & Development tax incentive program has operated from 1 July 2011. What is particularly relevant just now for any eligible company with a 30 June financial year-end is that a first claim under the new incentive program may still be made in respect of activity during the financial year ended 30 June 2012 or later.

For eligible companies the tax incentive is a must in that, by delivering upon the Government’s purpose to encourage R&D activity, it provides an additional tax benefit, either 10% or 15% of expenditure depending upon annual turnover.

An eligible entity has up to ten months after a financial year end to register its R&D activities with AusIndustry, and thereby move towards making a valid claim in the income tax return for that financial year. Therefore, to be amongst the first successful claimants in the new program, registration with AusIndustry must occur before 30 April 2013. Of course, entities that balance later than 30 June 2012 have even more time to register.

Eundo can assist Australian companies in all phases of an R&D tax claim by establishing eligibility through to calculating the ultimate outcome. All advisory work is performed by an experienced tax professional who is a registered agent with the Australian Taxation Office. Ancillary legal and technical support is also co-ordinated where necessary.