In Australia, we have a generous tax-based incentive scheme for companies engaged in research and development (R&D). The scheme is only available to Australian businesses that are incorporated.
When setting up your business, did you talk to your accountant about the structure your business should take? What was their advice?
If you had a good accountant, they would have taken you through your business plan and personal circumstances and recommended a set up that worked for you – a partnership, trust or company. Maybe you were given the advice to operate as a sole trader while developing your idea. Most likely, your choice would have been weighted toward protecting your financial position, limiting your liability or securing your share in the venture.
There is another potentially far-reaching consideration and some business owners only find out about it when it is too late. The way you decide to set up your business impacts on whether the Australian Government can make an investment in you.
What is this investment?
In Australia, we have a generous tax-based incentive scheme for companies engaged in product and process development called the R&D Tax Incentive. The scheme is available to eligible companies that are involved in technical innovation as they develop new and improved products and processes for commercialisation.
Companies with an annual turnover of less than $20 million are eligible for the 45% Refundable R&D Tax Offset for money spent on new and improved products and processes. And this offset is available in the form of a cash payment if the company is in tax loss.
Did you notice the catch?
The incentive is for registered Australian companies only. Trusts are not eligible and not all practising accountants are aware of this rule.
Whether an organisation is big or small, in start up mode or established, the Australian Government insists on working with incorporated businesses and the R&D Tax Incentive has been designed accordingly.
So keep this in mind when talking to your accountant. There is another crucial point about eligibility for this program and it impacts start ups in particular. The R&D Tax Incentive only applies from the date you incorporate your business. The scheme is blind to the money and time spent proving your concept prior to your company becoming incorporated.
This is of particular relevance to mobile app and web technology developers who work in their spare time and use personal savings until the right venture capitalist comes along. By becoming a company, you become eligible for the 45% Refundable R&D Tax Offset even before you turn a profit.
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