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It’s that time of year again! With the End of Financial Year rapidly approaching there are several things to consider when claiming the Research & Development (R&D) tax incentive which we have outlined below.

R&D tax incentive claims for the current year ended 30 June 2021 can be lodged anytime from 1 July 2021. Getting organised early and accessing the government’s 43.5% R&D tax incentive cash rebate could provide a vital form of funding to assist your business get past the current COVID-19 situation.

If you can’t wait until after 1 July 2021 there may be an ability to obtain R&D finance now to enable you draw down up to 80% of what you have already spent this year on eligible R&D activities.

Overseas R&D Activities

If you have conducted R&D activities overseas during the current 2020-2021 financial year you must lodge an application by 30 June to have your overseas activities assessed and potentially approved.

Claims for R&D activities undertaken overseas must be registered and approved by AusIndustry’s Innovation Board, resulting in an ‘Overseas Finding’. Please note, specific criteria are required to be met in order to claim costs incurred on overseas activities.

Payments to Associates

Payments to associates need to be made by 30 June.

Associates may include shareholders of the company, company directors, and related legal entities such as Trusts. If amounts incurred to associates are not paid prior to 30 June they can be either:

1. carried forward and claimed as under the R&D tax incentive in a future year when paid; or
2. claimed as an income tax deduction under the normal tax provisions in the year they are incurred, and the R&D tax incentive forgone.

Documentation to support R&D claims

We understand that AusIndustry and ATO review activity will continue to increase over the next 12 months.

The End of the Financial Year is an important time for companies to ensure they have the necessary documentation to support their R&D Tax Incentive claims.

If claims are reviewed, companies must substantiate to AusIndustry and/or the ATO that:

• the registered activities occurred; and
• the registered activities were in accordance with the R&D Tax legislation.

Key focus areas are likely to include the following:

• documentation and explanation of the process companies undertook prior to conducting R&D activities to determine that the knowledge sought to be generated was new, and unable to be determined in advance;
• ensuring registered activities reasonably relate to core and supporting R&D activities, not activities outside the scope of the R&D Tax Incentive criteria such as business as usual activities;
• maintenance of records available to substantiate R&D expenditure, including:
  • Accurate determination of R&D hours for employees;
  • Detailed records establishing the nexus between other R&D expenditure with the registered activities; and
  • Ensuring the base of any apportionment reflects the extent to which the expenditure has been incurred on R&D activities.

Additional information on R&D Tax Incentive documentation requirements is available below:

• ATO Industry Guidance here.
• ATO Guidance here.

This post is provided by Prime Accounting and Business Advisory Pty Ltd. Liability limited by a scheme approved under Professional Standards Legislation. This post is not a substitute for independent professional advice. We do not warrant the accuracy, completeness or adequacy of the information or material in this post. All information is subject to change without notice. We and each party providing material displayed in this post disclaim liability to all persons or organisations in relation to any action(s) taken on the basis of currency or accuracy of the information or material, or any loss or damage suffered in connection with that information or material. You should make your own enquiries before entering into any transaction on the basis of information or material in this post. Please ensure you contact us to discuss your particular circumstances and how the information provided applies to your situation.