If you are preparing to claim the R&D Tax Incentive, note some of the benefits…
R&D Tax Incentive Advance Finding: Will I need one?
For many businesses the financial certainty provided by an Advance Finding can be a major difference. For activities conducted overseas, this is mandatory.
Considering that the R&D Tax Incentive (RDTI) can provide a 43.5% cash rebate to eligible companies in a tax loss position, being certain about this cashflow is a big deal. As the RDTI is a self-assessment program, it is important to note that receipt of a refund or adjustment to a company’s tax position doesn’t mean that the activities registered or the expenditure claimed is eligible, only that the company has followed the required administrative process.
In contrast, requesting an Advance Finding will provide certainty that the R&D activities intended to be performed are eligible Core or Supporting R&D activities according to the legislation (or not). An Advance Finding can be sought in relation to activities being conducted in the current income year as well as proposed activities to be conducted in the subsequent two income years.
Information provided by applicants to support their eligibility will include things like the purpose of the R&D project; how experiments associated with the activities were planned, conducted, and analysed; and how the company established (or will establish) that the outcome of the experiments cannot be known or determined on the basis of publicly available knowledge. An assessor will use this information to make recommendations to a decision maker, who will make a decision as to whether the activities are eligible, ineligible, or partially eligible; or the decision maker may refuse to make a finding. In all instances (except refusal to make a finding), a finding certificate is provided to the applicant and copied to the ATO. This finding certificate will state whether all or part of an activity is a Core R&D activity, a Supporting R&D activity, or neither a Core nor a Supporting R&D activity.
One of the great advantages of having an Advance Finding is that the ATO are bound by the finding for the income year and/or the next two income years in which it is emitted. This certainty is particularly attractive for a company relying on the Advance Finding to guarantee backing, such as financial backing, for the project the finding pertains to. Other circumstances, such as where the eligibility of certain activities is particularly contentious, makes applying for an Advance Finding even more attractive, though it comes with the risk of the activities being found to be ineligible.
Of course, if you are confident that an R&D activity satisfies the regulations for the RDTI, there is no need to apply for an Advance Finding: you simply register the activity within 10 months of the end of the income year in which the activity is conducted.
Please also note the following important clarification: even though having an Advance Finding is like a pre-approval for certain R&D activities, you still must register the activity within 10 months of the end of the income year in which the activity is conducted to receive the rebates you’re entitled to as part of the R&D Tax Incentive.
Your company can undertake several R&D projects concurrently; however, a separate Advance Finding application would be required for each activity, because each project’s specific circumstances need to be known when considering the eligibility of activities.
Are there situations in which an Advance Finding is mandatory?
Yes. You must have an Advance Finding when some or all of the R&D activities are intended to be conducted overseas and you intend to claim the RDTI for those activities as part of the R&D project in Australia. You would have to provide evidence to support your reasons why the proposed R&D activities could not be performed in Australia. In this case there will be two findings: the Advance Finding, and the Overseas Finding. The former (which will be obtained first) will state the eligibility of activities conducted or proposed to be conducted overseas; while the latter will state whether certain conditions are met for those overseas activities to be supported under the RDTI (for convenience, there is a single form for applications for an Advance Finding and Overseas Finding).
A company will only be protected by an Advance Finding if it conducts the approved R&D activities in a way that is consistent with the Advance Finding granted. In other words, the Advance Finding will not be considered if the activities actually conducted are materially different to those described in the Advance Finding.
If you’re spending a good portion on R&D, you know you need the best people around you to unlock the most opportunties available. Fullstack’s R&D Tax Incentive team has the detailed knowledge and expertise to keep you on the right path by ensuring you receive the right advice and all the grants, incentives, and rebates you’re entitled to.
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Stuart Reynolds is the founder of Fullstack Advisory, an award-winning accounting firm for businesses leading the future. He is a 3rd generation accountant who specialises in tech companies, crypto and entrepreneurs.