EOFY R&D Tax Incentive Considerations
State of Origin is back (go Queensland!) and it suddenly seems to be dark before the work day is done. It can only mean one thing. It’s almost 30 June people!
Yes, the end of the financial year is once again upon us, and it brings with it some important considerations if you’re planning to lodge an FY22 R&D Tax Incentive claim. We’ve summarised some key considerations you need to be across.
Payments to associates
R&D expenditure that is incurred to an associate (i.e. an entity or individual with a majority voting interest or ‘sufficient influence’ over your company – think a Director or owner of the business) can only be claimed for R&D tax purposes to the extent that these costs are physically paid as at 30 June 2022. As such, it’s important to ensure that these types of costs are actually paid prior to EOFY if you intend to include these amounts in your upcoming FY22 R&D tax claim.
Overseas R&D activities
Expenditure on overseas R&D activities can only be claimed in specific circumstances. Most critically, to claim any eligible overseas R&D activities in FY22 an Advance/Overseas R&D Finding needs to be prepared and lodged by the end of your income year. Failure to prepare and lodge an Advance/Overseas R&D Finding prior to 30 June will prevent you from including eligible expenditure on any overseas R&D activities you may have taken in FY22.
Documentation
It’s important ensure that your documentation is in good order to substantiate any FY22 R&D activities. Contemporaneous records (i.e. records prepared and collated in preparation for and as R&D activities are being undertaken) should be in place and easily accessible at the completion of FY22 to provide evidence for an upcoming R&D tax claim. We can provide customised R&D documentation recommendations and are conducting documentation workshops with clients to ensure they continue to be able to meet the expectations of regulators when it comes to evidencing their annual R&D activities and costs.
R&D tax offset changes
Be aware that R&D activities and expenditure for FY22 will be subject to new R&D tax offset rates:
For businesses with an annual aggregate turnover less than $20mill, the R&D tax offset will be 18.5 percentage points above the company's tax rate (compared with an effective rate of 17.5% in FY21)
For businesses with an annual aggregate turnover of $20mill or more, the R&D tax offset will be driven by a company’s ‘R&D Intensity’ (8.5 percentage points above the company's tax rate for R&D expenditure between 0-2% R&D Intensity, and 16.5 percentage points above the company’s tax rate for R&D expenditure greater than 2% R&D Intensity).
Contact your friendly neighbourhood R&D tax advisers at Intellect Labs if you need help understanding what actions you need to take prior to 30 June, or if you’re keen to put together an FY22 claim early in the new financial year.