The most recent Australian Bureau of Statistics figures on business enterprise expenditure on R&D (BERD) show that South Australia sits in the middle of the states in terms of BERD as a proportion of GSP, at 0.74 per cent for the 2017-18 financial year.
Melissa Fardone, Director R&D and Grants at BDO, says that figure will likely increase when data is released for the 2019-20 and 2021-22 financial years, as there is a huge amount of R&D being undertaken in SA across all sectors.
“The impact of the pandemic has seen an increase in R&D as the need for better IT-based tools has increased. As South Australia has moved away from the traditional manufacturing industry, R&D activities have also shifted to new sectors, encouraged by government policy”, she says.
“Given the large numbers of small businesses in SA, one of the biggest challenges continues to be that business owners just don’t have the time to prepare the level of detail required to complete a claim. Hopefully, it’s something that can be addressed by an improved educational focus from the regulators.”
Changes to the R&D tax incentive came into effect on July 1, but they are unlikely to have a significant impact on most small businesses.
Under the changes, tax offset rates are now fixed at 18.5 per cent above the company tax rate for companies with an aggregated turnover of below $20 million, and 8.5 per cent above the company tax rate for companies with an aggregated turnover over $20 million.
A new intensity test has also been introduced for companies that have a turnover of over $20 million, allowing them to access a benefit of up to 16.5 per cent on eligible R&D spend.
However, the intensity mechanism disadvantages companies with high cost of goods sold, such as those in manufacturing and agriculture, which may seem counter-intuitive at a time when the government has recognised the urgent need for supply chain resilience.
The R&D expenditure threshold has been increased from $100 million to $150 million to annum.
Fardone says the changes will, however, create a mixed bag of impacts for companies with an aggregated turnover of over $20 million per annum.
“The new intensity test might see some able to access an increased benefit in the future, while others in sectors with high cost of goods sold could be seeing a decreased benefit,” she says.
“This is a concern, as we hope this change doesn’t lead to some larger companies looking to take certain R&D activities offshore.”
Fardone’s top tips for small to medium business owners is to keep good records and don’t be afraid to talk to the regulators or to seek help from an experienced R&D adviser.
According to the OECD’s Horizon 2020 report, SMEs accounted for 87 per cent of R&D tax relief recipients in Australia, whereas large firms represented 13 per cent in 2018. Relevant data on the distribution of government tax relief for R&D by firm size are currently not available.
CEO of SA engineering and management consulting firm 2XE Nick Palousis says the R&D tax incentive claims process can be daunting for business owners, with a lot to take in when making a claim for the first time.
“In particular, knowing what’s considered eligible or ineligible activity can be a challenge and there’s definitely benefit in getting an advisor on board who has a proven track record in the R&D claims process.”
“The benefits to be gained from taking that first step are well worth the effort.
“The R&D Tax Incentive has been helpful in giving us the confidence to invest in our own R&D projects to support our company’s exciting growth trajectory.”
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