When I meet business owners and explain there is a ready source of government funding to help grow their business, they want to know where to sign up. When I explain the funds are available through a tax-based incentive scheme, I often see their expression change from one of interest to one of doubt.
The scheme I’m referring to is the Research and Development Tax Incentive which rewards innovative small to medium companies that are bringing new and improved products and processes to the Australian market.
Thousands of companies (with an annual turnover of less than $20 million) already access the 45c in the dollar refundable tax offset for money spent on R&D. Many do not.
The main objection I hear is that, where the Tax Office is involved, the process is too complicated. There’s too many conditions.
Bottom line is, no one wants to get on the wrong side of the tax man by making a mistake in their reporting or their claim and this is a shame. The R&D Tax Incentive is designed to tap into the ingenuity and responsiveness that many in business possess. Where there is a defined technical problem to solve, the R&D Tax Incentive has a part to play in sharing the risk associated with the investment.
The process shouldn’t be a deterrent.
In my experience, companies that successfully use the R&D Tax Incentive to grow their business have certain characteristics.
Firstly. They aim to keep their house in order, financially speaking. They know where their money is spent and have good record-keeping practices in place. This takes away some of the uncertainty when it comes to investment in research and development and minimises the pain when it comes to tax time.
Secondly. Successful businesses include research and development activities as part of their overall business plan, not as an afterthought. Sometimes innovation happens on the fly but, most of the time, it happens through systematic progression.
Third. They keep track of paperwork. One of the main requirements when claiming the R&D Tax Incentive is being able to link claimable expenditure to eligible R&D activities in your documentation.
Trying to justify activities as part of research and development when you are sitting with your accountant and looking back over the past 12 months is much more difficult.
It really does pay to take the positive approach.
If you view the Australian Tax Office as a partner and investor; and the tax offset as a business grant, why wouldn’t you explore your own company’s potential to grow and expand?
If you don’t follow this approach, it is like being offered a big pile of money… and leaving it on the table.
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