What is R&D Tax Funding Strategy?

Companies working on research and development help in the economic development of the country and help in wealth creation. But running a business under the R&D sector and sustaining it is a big challenge. Not only small and medium sized companies, but also large companies face a big challenge in sustaining such businesses and projects. This is because of the huge amount of capital expenditure that the research activities demand. The other crucial aspect is the end result of such research activities – The end results are not always determinable.

Hence to help companies overcome such problems and to encourage companies to take up R&D activities, the government of Australia, through AusIndustry (an entity that acts on behalf of Innovation Australia) has come up with the scheme called the R&D Tax Credit. With the help of this R&D tax credit you can claim for your operational costs, material costs and staff costs as well. This scheme is not only applicable to large companies but also applicable to SME (Small and Medium Enterprises) including start-ups.

With the help of this scheme, companies working in this sector benefit greatly from the government. It is given either in the form of tax credit options – meaning you can pay a lesser amount of corporate taxes or it can be availed as a credit in the form of cash payment from the government. For both of these options, the only criteria is that your company should be working on research and developmental activities which will help the larger section of the society. Also, you need to remember that your company and the project that you have undertaken should be registered with the AusIndustry. You need to register your activities for every income year that you want to claim the R&D tax credit.

This means that you need to give a detailed report of all the activities that you have performed, the costs incurred in research activities, the list of employees, contractors and sub-contractors involved in the research. All this report needs to be provided at the time of claiming the credit from the government.

Since all your research activities require huge capital flows, there are some companies that are ready to take-up the costs of your research – meaning there are companies that are involved in financing your research activities. They provide cash payments to your company in the form of loans. The loan can be repaid to the parent company on receiving the R&D tax credit from the government. This type of R&D tax funding strategy is very important to efficiently run your business. However, you need to remember that the money that you avail from the R&D tax funding should only be used for research activities.

To help you in your research activities and also to help you in the process of claiming the Research and development tax credit, you can take the help of RSP (Research Service Providers). But remember, that the RSPs should also be legally registered with the AusIndustry.

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