Tax relief is proposed for R&D intensive start-up companies and has been announced as effective in the 2014 Budget. 

By Applied Support Services 

New tax relief for research and development

Tax relief is proposed for R&D intensive start-up companies and has been announced as effective in the 2014 Budget. Loss making start-up companies will be able to "cash out" all of their tax losses from R&D spending. In addition, all businesses will be allowed tax deductibility for R&D "black hole" spending, which is currently neither deductible nor able to be depreciated. Both new policies are expected to take effect from the 2015/16 income year.

Loss making R&D intensive companies

Loss making companies will be able to “cash out" all tax losses from their R&D spending. The scheme is mainly targeted at loss making start-up companies. This measure means R&D intensive companies will have "early access to all or part of their tax losses in the form of a cash receipt, rather than carrying those losses forward”. Officials propose eligible R&D companies would be able to cash out the lesser of:

  • 1.5 times the company’s R&D expenditure on salaries and wages;
  • Total losses; or
  • Total qualifying R&D expenditure;

The cap on eligible losses for the relevant year will initially be 28% of $500,000 of losses, rising overtime to 28% of $2 million of losses.

Businesses will have to prepare a statement of R&D activity and expenditure. This will include detail and evidence that shows activity and expenditure meets the accounting definition of R&D. Claims will be screened to discourage fraudulent claims. Enough detail will need to be provided to allow checks to take place. 

All businesses R&D tax deductibility

All businesses will be allowed tax deductibility for R&D "black hole" spending which is currently neither deductible nor able to be depreciated. This measure means that all capitalised costs on depreciable, intangible assets such as patents will be deductible over time. Currently, only the legal and administrative costs of registering such assets are deductible. In addition, businesses will be entitled to a one-off deduction on capitalised development spending on intangible assets that are subsequently written off. 

How we can help

This scheme bears similarities to the R&D Tax Credits. When the scheme was operating, Applied Support Services helped many companies file and receive R&D Tax Credits.