To claim expenses paid to associated entities (by reason of family or business connections) you must have “paid” the amounts by the 30th of June 2014. If for any reason you do not pay the amounts incurred to an associate, you can either:
- claim the expenses as a standard deduction in the year they are incurred (forgoing the benefits under the R&D Tax Incentive) or
- after registering the eligible activities and expenses with AusIndustry, defer claiming the expenses to the following year when they are actually paid.
Note: The income tax law meaning of the word “paid” also includes constructive payments. If expenditure is incurred on goods and services provided by an entity that it is connected or affiliated with you, the R&D notional deduction is reduced to the actual cost. Any ‘marked-up’ value is ignored, however the ‘mark-up’ amount may be deductible under ordinary deduction provisions.
R&D Start-up owners – taking a salary is the better option
If you are not taking a salary this year as you are trying to keep costs low whilst you kick off your R&D start-up business, think again as this is probably not in your best interests. The R&D Tax Incentive reimburses up to 45% of eligible R&D costs, so if you are spending most of your time doing R&D you should consider paying yourself an annual salary before the 30th of June to accurately value your contribution to R&D in your company which is evidenced by payment of the PAYG tax payable in mid-July. The associated superannuation guarantee levy related to any salaries paid should also be paid to avoid any penalties. As the ATO puts no limitation on what you decide to do with the net portion of your salary you may decide to loan it back to your company, by doing so the benefit would be the differential between the personal tax rate paid on the salary and the 45% tax offset earned by the company.
Note: Directors fees are not eligible under the R&D Tax Incentive.
Applications for Advance findings must be lodged by June 30th
If an R&D entity requires a legally binding ruling to ensure that its 2013-2014 financial year R&D activities are in fact eligible, it must seek approval by lodging an Advance finding application by the 30th of June 2014. A positive Advance ruling can be sought covering the current income year where an application is made and the subsequent two consecutive claim years. For consolidated groups, it is the head company of the group that must apply for the Advance finding on behalf of their subsidiary, if the subsidiary is the one conducting the R&D activities.
Note: An Advance finding is not a pre-condition of registration. Companies will still be required to register their activities at the end of each income year that the activities were conducted.
Applications for Overseas findings must be lodged by June 30th
If an R&D entity wishes to claim costs related to overseas R&D activities that occurred in the 2013-2014 financial year, it must seek approval to do so by lodging an Overseas finding application by the 30th of June 2014. To be eligible to claim overseas R&D costs, the overseas R&D activities:
- must have a significant scientific link to the Australian based core R&D activities
- are unable to be conducted in Australia
- and their related costs must be less than the R&D costs incurred in Australia
If you would like to discuss any of these matters further please contact: Gerry Frittmann – Managing Director TCF Services email@example.com or the relevant consultant you deal with at TCF Services.