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What Does COVID-19 Mean for Your R&D Tax Incentive?

Find out how businesses undergoing R&D activities and receiving the benefit of the R&D Tax Incentive may be impacted by COVID-19.

COVID means a lot of things to a lot of people but, despite the many challenges, it’s safe to say it has opened up opportunities. Many businesses are diversifying into new markets, creating new products, or developing new models for engaging their customers.

Research and development has seen a recent surge in activity, with the search terms “research and development funding” up 200% and “research and development tax relief” up 140% since the virus really impacted economies worldwide in March 2020 [Google Trends].

But for businesses already undergoing R&D activities and receiving the benefit of the R&D Tax Incentive, you may be wondering how COVID has impacted your eligibility or the delivery of the scheme.

Postponed legislative changes to the R&D Tax Incentive

We hope that, in light of COVID-19, the Australian Government will re-think controversial changes that seek to introduce a cap on smaller firms and implement an intensity measure. If the proposed changes go ahead, they will be applied retrospectively for the 2019-20 financial year. This would mean companies that claim the R&D Tax Incentive before the legislation is passed are likely to see the size of their offset reduced as a result of the changes.

Extension to the R&D Tax Incentive deadline

The deadline for applications has been extended from 30 April 2020 to 30 September 2020 for 30 June 2019 claims, allowing businesses more time to prepare their R&D Tax Incentive claim.

How the JobKeeper scheme impacts the R&D Tax Incentive

R&D claimants that receive the JobKeeper payment for R&D employees may be required to adjust their R&D claims downwards by an amount related to their JobKeeper payments. The amount will depend on when those R&D employees were conducting R&D activities and what proportion of their time was spent on those activities.

Instant Asset Write-Off for R&D expenditure

Medium business entities (with an aggregated turnover of between $10m and $500m) can access the enhanced immediate write-off for assets and claim the R&D portion of the write-off as R&D expenditure. Companies with an aggregated turnover of less than $10m must choose either the instant asset write-off with no R&D allocation, or standard depreciation where the R&D portion of the depreciation can be claimed as R&D expenditure as normal.

Accelerated depreciation for assets used in R&D activities

Companies with an aggregated turnover of less than $500m are eligible to access the additional 50% immediate depreciation for a new depreciating asset under the accelerated depreciation incentive. This potentially also allows R&D claimants to claim the increased depreciation in the first year for those eligible depreciating assets used in R&D activities. This applies to assets acquired on or after 12 March 2020.

Payroll tax relief 

This reduces the company’s outgoings on what could have been included as eligible R&D costs, reducing the claimant’s R&D expenditure. 

Other Grants and the R&D Tax Incentive

Companies should always keep in mind that if additional grant funding is being received and used for R&D activities, they are subject to clawback provisions so that there is no double claiming grant money on any activity. This will also apply to any COVID-19 stimulus packages or grants received where the funding was spent on R&D activities. 

If you would like to discuss your particular R&D Tax Incentive scenario or are keen to apply to support new R&D activities within your business, please get in touch with our specialised R&D Tax Incentive team.

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