R&D Tax Incentive - The Risk of Self-Diagnosis
Ask 10 different people to define research and development (R&D) and you’re likely to receive 10 different answers. So the moment a government incentive program includes “R&D” as a primary identifier, there’s a good chance that people will very quickly determine their eligibility based on their preconceived definition of what R&D means, instead of the legislative definition of R&D, which is what actually matters.
Doctors undergo years of training and education to be able to diagnose patients with specific physical symptoms. Yet despite this, millions of people rush to Dr. Google in the hope of making a quick and accurate diagnosis based purely on their observation of obvious physical symptoms.
This approach fails to take into consideration any influencing external factors outside of those entered into Dr. Google’s one line text box, and removes the opportunity for a qualified professional to ask relevant questions which may assist the diagnosis.
The same principle applies to R&D Tax Incentive eligibility. There are experts who have the necessary legal, technical and financial skills to determine whether a company’s activities will qualify under the program, yet thousands of businesses make this decision themselves, based on their preconceived definition of research and development.
If your company actively invests time and money in developing new or improved products, processes or services, there’s a very high likelihood that those activities qualify for the R&D Tax Incentive. Any company that intends to continue growing in future years will most likely be investing in these activities, yet the numbers of companies claiming the Incentive does not reflect this fact.
At last count, less than 0.6% of all companies currently operating in Australia applied for the Incentive, which offers $1.5 billion annually. Based on these figures, only 1 in every 166 Australian companies is actively investing in improving their products or services.
That’s difficult to believe.
If your business is investing in its future, then there is a high likelihood that you will be eligible for a government incentive. Recent government figures from the government show that 81% of funds went were allocated to companies operating in manufacturing, mining, professional services, financial services and the telecommunications and technology sectors. There are even companies operating in the Arts sector who claim the Tax Incentive.
Ruling yourself out of the R&D Tax Incentive may be costing you tens, or possibly hundreds, of thousands of dollars, annually.
Self-diagnosis can be very expensive. Is it time your business had an Incentive health check? If so, please contact your relevant ESV engagement partner on 9283 1666.
Article by Alexander O'Han