The Research & Development Tax Incentive commenced from 1 July 2011 , which provides eligible companies engaging in R & D with either:

• a 45% refundable tax offset for entities with turnover under $20 million (and not controlled by a tax exempt entity), or
• a 40% non-refundable tax offset for all other eligible entities.

The tax incentive is equivalent to a 150% deduction for smaller businesses, and a 133% deduction for all other entities.

Eligibility

To be eligible you must be a company which conducts:

• core R & D activities: experimental activities whose outcomes cannot be known or determined in advance on the basis of current knowledge, information or experience, and are conducted for the purpose of generating new knowledge;
• supporting R & D activities: an activity that is directly related to core R & D activities or has been undertaken for the dominant purpose of supporting core R & D activities.

The amount of the expenses related to R & D activities must total at least $20,000 for the year.

Applying

To be eligible for the R & D Tax Incentive, companies must register their R & D activities with AusIndustry within 10 months of the end of the company’s income year. For most companies this will be by 30 April 2013 for the year ended 30 June 2012.

To assist companies, AusIndustry has recently released a publication on registration requirements to help inform companies on what is needed for registration.

The approved application form to be released in June 2012 will be a SmartForm, which will help applicants navigate questions that are relevant to their circumstances.

Claiming the R & D Tax Incentive

The incentive is claimed back through the company’s tax return for the year. This means that the new R & D Tax Incentive will be claimed back through the 2012 tax return (when released by the ATO).

To complete the claim schedule, the company will need its unique registration number obtained from AusIndustry before being able to claim the incentive.

Specific R & D records

As the application to AusIndustry, and the claim through the tax return, are through self-assessment, it is vitally important that adequate records are kept to verify both the amount of the expenses incurred towards the R & D activities, as well as details of the nature of the activities carried out.

If in any doubt, speak to Value Beyond and make sure you maximise the claim you are entitled to!

From 1 July 2012 the depreciation rules for businesses with aggregated turnover of less than $2 million are changing.

Currently the rules allow for an immediate deduction for assets costing less than $1,000 each (net of GST). They also provide for the pooling of assets, with  the pool to be depreciated at 30% for assets with an effective life of less than 25 years (15% in the first year, regardless of when they were acquired), and 5% for assets with an effective life of greater than 25 years (2.5% in the first year).

The new rules will now allow small businesses to:

• claim an immediate deduction for assets costing less than $6,500 each (net of GST);
• put all assets (regardless of effective life) will be consolidated into one pool written off at one rate;
• claim an accelerated initial deduction of $5,000 (plus 15% depreciation in the first year) for motor vehicles acquired in 2012-2013 and subsequent years.

Planning opportunity

As these increased immediate deductions will greatly improve the tax position of many small businesses, there is an opportunity to delay the purchase of assets until 1 July 2012 to be able to take advantage of the additional concessions.

This is particularly relevant for assets costing more than $1,000 and less than $6,500, as the purchase of these items after 1 July 2012 will provide an immediate deduction in the 2013 tax year. Purchasing these items now will allow them to be depreciated under the current rules i.e. 15% in the first year, and 30% in subsequent years.

Is it worth waiting?

Take the example of a car purchased for $30,000 with 100% business use.

If purchased on 1 April 2012, this will give a depreciation deduction of $4,500 in the 2012 tax year, and a deduction of $7,650 in the 2013 tax year if treated under the current small business depreciation rules.

If purchased on 1 July 2012, the deduction in the 2013 tax year will be $9,500, being $5,000 plus 15% of the cost of the car.

This means by waiting 3 months to purchase the car, the deductions over the period April 2012 to June 2013 will be $2,650 lower than if purchased now.

For a $40,000 car, the difference increases to $5,200.

For an asset costing $6,000, the immediate deduction available from 1 July 2012 brings forward $3,300 in deductions compared to purchasing it prior to 30 June 2012. This can provide a substantial benefit, particularly if a number of items are to be purchased.

Other considerations

Of course, while tax deductions are great, they are not the only consideration.

If you wait to buy that particular piece of equipment, does it mean missing out on business opportunities which might see you generate extra revenue? Maybe that item will allow you to provide extra benefits to your customers, or improve the quality of your work.

The delivery of additional benefits to customers could see more repeat orders, or better referrals coming through which will see a growth in your business which will far outweigh the benefit of any tax deduction.

As always, consider all aspects of your business performance when making investment decisions.

And if in doubt, talk to your accountant or advisor to work out the best approach for you.