7 signs you’re doing research & development (and don’t even know it)

March 13, 2017

7 Signs You're Doing Research & Development

By Alan Baghdasarayan, Senior Manager, R&D Services

 

Statistics show that 70% of eligible Australian businesses aren’t receiving the Australian Government’s Research and Development Tax Incentive. There is a chance that your workplace may be carrying out research and development (R&D) activities without even knowing.

The Incentive helps support new knowledge generation by providing a generous tax offset to Australian businesses developing innovative products and new ways of doing things for the benefit of Australia. Keep reading to discover seven R&D activities you might have overlooked.

Does your business/workplace:

1. Design and develop products from start to finish?

 

Existing solutions, often referred to as ‘off-the-shelf’ products, are usually the cheapest and quickest answer to a problem: you don’t need to reinvent the wheel and you’ll avoid spending time and money on development. But, if your business has looked into using or customising existing products, services, devices, processes or materials without success, then chances are your next move is to design from scratch. If this is the case, you may be eligible for the Incentive.

 

2. Outsource research activities?

 

Does your business use a specialised firm to carry out research? If the outcome of your research activities can’t be determined in advance – but can only be substantiated by carrying out an experimental progression of work – then it may well be eligible for the offset.

Research is a highly dedicated field, and even the biggest companies outsource enquiry to external providers to hunt for new knowledge. For example, we work with telecommunications companies that use specialised external agencies to conduct scientific research into their products.

 

3. Have lots of expenses, but little sales?

 

A common trend for businesses undertaking R&D activities is a high expenditure to sales ratio. Claiming the R&D Tax Incentive has generous benefits available for companies that are investing in this way for the long-term.

This kind of ratio is expected in the early days of a start-up – where investing money both upfront and during the development phase is anticipated. But, if you run an established business that’s still operating at a loss, it’s because you need help managing your financials, or you’re investing in R&D for a long-term benefit.

 

4. Try to solve a common industry problem?

 

Commonly, a business launches because the owner(s) thinks they can offer something new or improved to the market. But, this isn’t as easy as it sounds. Instead, entrepreneurs may try solve an industry problem, which can make them eligible for the R&D Tax Incentive.

In the software industry for example, companies are having an increasingly difficult time with designing and developing new complex algorithms to interrogate its big data in order to form a specific module of a client service offering. These new complex algorithms are better than the industry standard. By doing so, companies like these are attempting to solve a common industry issue in a unique manner with superior capabilities, i.e. handling big data analytics, and may be eligible for the offset.

 

5. Have job titles like Innovation Manager, R&D Engineer, and Research Scientist?

 

It may sound obvious, but if your business employs people with job titles such as “Innovation Manager” or “Product Developer” then you’re on your way to being entitled to the Tax Incentive.

These roles are often focused on researching, designing, or developing something new or improved, and, as long as you can prove it, your company may be eligible for The Inventive.

Tip: When preparing your application, it’s important to include position descriptions of the employees conducting R&D to substantiate your claim. Ask us for help.

 

6. Undertake trials that lead to large amounts of dumped goods?

 

Does your company have excessive ‘wastage and dumped goods’ costs on its profit and loss statement?

Sometimes, you can’t know the result without undertaking trials and testing. We see this a lot in the fast moving consumer goods industry. For instance, if a health food company is looking to engineer a new type of soy milk that’s markedly different from those available, it’s going to go through extensive testing. While the milk might be suitable in lab trials, there could be issues during large-scale testing and production, resulting in thousands of litres of stock being flushed down the drain. If your company has substantial costs attributed to dumped products until it successfully designs a product, it could be a sign you’re conducting eligible R&D activity.

 

7. Licence new technology and trial its use?

 

Is your company pursuing the use of innovative technologies? If your company is acquiring or licensing technologies to build a better process off the back of it, it could be an indication it’s undertaking R&D.

For instance, some companies are working with IBM’s Watson – a cognitive system enabling partnership between people and computers – to address a problem. Using Watson’s intelligence and forecasting capability, one of our clients is trying to improve traffic flow and reduce car congestion.

We can help

Get in touch today if you think your company may be entitled to the R&D Tax Incentive. The deadline for FY16 R&D Tax Incentive submissions is 30 April 2017.

 

 

 

Why should US companies consider Australia for R&D?

December 3, 2014

Australia is finally being noticed as a strong market opportunity for US technology companies embarking on their global expansion. English speaking, a stable economy with a penchant for technology spending – Australia is a strong (and easy) customer in itself and a perfect test-bed for new product releases. Many US technology companies have caught on in the past year including Dropbox, Survey Monkey, Datastax and more. Most commonly US companies enter the Australia with sales, marketing and customer support staff to start servicing the local market.

What they may not know is that Australia also is a strong candidate for conducting R&D activity.

In many respects Australia has programs that are highly supportive of innovation undertaken in Australian borders. The Australian government encourages innovation with the Research & Development Tax Incentive, a program that has been around in many forms since the 1980’s. Not industry specific, the R&D Tax Incentive allows Australian companies to secure significant cash and non-cash benefits when undertaking eligible R&D activities in Australia.

At a high level – if experimental work is being undertaken with a view to generating new knowledge for which the outcome is unknown – then a company is generally seen to be engaging in eligible R&D.

The R&D Tax Incentive is a refundable tax offset program (for companies with associate turnover less than AUD$20m) – meaning that these additional tax losses can be ‘cashed out’. The program in its current format allows for a 45% refundable tax offset for eligible companies. The second is a non-refundable 40 per cent tax offset to eligible larger entities.

So for example, if a US technology or medical device company set ups an Australian entity, spends $100,000 on eligible R&D activities and is pre-revenue, the Australian Taxation Office will write them a check for $45,000. For ‘small’ companies i.e. those with company turnover (including associates) of less than $20m, this makes the Australian R&D scheme one of the best in the world.

Citrix Case Study

An example of a larger company taking advantage of the 40 per cent tax offset, is Citrix. The most recent changes to the R&D tax incentive have made it possible for multinational companies to claim the tax credit by changing the definition of R&D as well as the definition of sales activity. Read more on the Citrix case study here.

If you are a US company, don’t miss out on the talent Australia has to offer.

Australian universities now have 8 entries in the top 200 universities in the world. The pool of talent graduating from Australia is at a level never seen before. And local and global companies are partnering with Australian universities to develop innovative solutions for eventual commercialization. What’s more, with the cost of engineers and intense competition in Silicon Valley, companies are taking advantage of Australian engineering talent.

CharterNet named in BRW’s prestigious Fast Starters 2014

December 3, 2014

Australia’s 100 Fastest growing start-up companies have been revealed

CharterNet Advisers, is a BRW Fast Starters company and is ranked 94 on the 2014 list.

The BRW Fast Starters list ranks Australia’s fastest growing, public and private, small and medium start-up businesses. The quality of the 2014 BRW Fast Starters list was as high as ever, as businesses and entrepreneurs from all of Australia’s major vertical industries presented the solid business practices required to deliver growth.

Companies and entrepreneurs on this year’s BRW Fast Starters list have increased their revenue and continue to grow and outperform their competitors.

CharterNet Advisers represents a growing boutique accounting presence in Sydney’s CBD, with a clientele across the country. With a wide range of customers across a number of industries, CharterNet has a track record of advising growing Australian businesses and individuals. We collaborate with our clients and are proactive in our approach, ensuring ‘hands-on’ advice and assistance.

CharterNet is your trusted business adviser. Our relationships are based on open dialogue and continuous communication. We listen, identify your needs and deliver practical solutions that exceed expectations.

Our partners and senior management are all experienced from the “Big 4” and mid-tier firms. We deliver this expertise, without the price tag.

The complete BRW Fast Starters list can be found online at www.brw.com.au/lists/fast-starters/2014/

For further details, please contact one of the friendly CharterNet team on (02) 8999 1199 or team@chartered.net.au

7 things for US companies to think about when investing into Australia

June 5, 2014

Australia has enjoyed 23 years of consecutive growth. Recently multiple US companies have chosen to take advantage of Australia’s strong economy, diverse talent and love for innovation. Dropbox, AdRoll, AppNexus, Twitter and others have chosen to open offices in Sydney the Australian hub of technology.

If you are a US company thinking about exploring the APAC and Australian market, here are a few things to consider:

 

1. Appropriate Company Structure

Ensuring you choose the right structure when thinking of investing in Australia is perhaps the most crucial consideration. The wrong structure can lead to inefficient outcomes, both commercially and from a tax standpoint.

Businesses generally operate in Australia through a corporate structure i.e. a public or private company. Other vehicles are available for foreign investors such as a foreign branch, trust or other special purpose vehicle.

 

2. Financing options

Debt or Equity? The decision for which of these is most appropriate for your business is generally one regarding availability, quantum and tax efficiency. Foreign investors may wish to lend funds to the Australian operation or increase their equity stake through the issue of further shares. Mechanisms are available that are a combination of the two e.g. convertible notes or Redeemable Preference Shares.

 

3. Tax Implications

Tax is major consideration when investing in a foreign country to ensure that obligations in that country are not only met, but efficiently and allow for the effective repatriation of profits to the head company.

Australia has numerous Double Tax Agreements with foreign countries that seek to minimise any potential double taxation scenarios and provide for credits to the extent that tax is withheld in Australia. For example, dividends paid from the US to Australia and vice versa can attract withholding tax ranging from 0% to 15% depending on the nature of the entities involved, however a full credit for this amount is available to the recipient of the dividend. The same rules applies to payments of interest and royalties.

Australia’s tax system is on a self-assessment basis. The Australian Taxation Office is responsible for the levying and enforcement of corporate tax in Australia, which is payable at 30% and withholding tax applies where funds are repatriated via dividends, interest or royalties.

Furthermore, any transactions between related entities must be conducted on an arms’ length basis.

 

4. Government Grants and Incentives

The Australian Government has various grants and tax incentives available to Australian businesses. These include the following:

  • Research & Development Tax Incentive – a 45% refundable tax offset (up to 45c in the dollar) for companies engaging in innovation and experimental activities;
  • Commercialisation Australia – grants are available for companies looking to commercialise new and innovative products. A matching requirement applies and is available in the following areas: Skills & Knowledge, Proof of Concept, Experienced Executives and Early Stage Commercialisation.
  • Export Market Development Grant – grants available for Australian companies looking to export their IP or products. Grants are provided for primarily marketing expenditure.
  • Australian Renewable Energy Agency – grants are provided for projects in the renewable energy space.

 

5. Employment Issues

There are various employment issues to consider in Australia including employment taxes, visas, superannuation (retirement withholding) and more.

Australia’s industrial and workplace relations laws have undergone significant change in recent times through government initiatives designed to make the labor market more flexible and efficient.

Broadly speaking, Australian employment law is derived from common law (notably the employment contract and implied duties imposed on employers and employees), the statutory and regulatory framework and industrial instruments, such as modern awards and enterprise agreements.

US employment law differs to Australian employment law. In California for example, contracts are “at-will”, while in Australia both parties need to provide up to four weeks notice when terminating a contract. There are plenty of local lawyers that can draw up employment contracts when you start to hire locally. Remember that in Australia employees are entitled to 20 days leave and 10 sick days!

On the other hand, in Australia employers are not required to provide health insurance for employees, as people take out their own policies privately.

 

6. Oversight and Management

Australian companies require an Australian resident director to represent the company. This person can either be solely for disclosure/signing purposes or serve to act as a representative of the foreign company in Australia.

There are also various sources in Australia that can assist you with finding the right person to expand operations into Australia from recruitment firms to domestic Chambers of Commerce.

 

7. Exit

Given Australia’s lucrative demographic, many businesses enter the Australian market with a view to exit. Structuring the business in the right way to ensure that it is appropriate for a future trade sale, listing or private equity buyout is important.

The Australian Stock Exchange (ASX) is the national stock exchange and other smaller exchanges are also operational. Australia also has a deep venture capital and private equity market across various industries so the options are plentiful in terms of potential partners or trade buyers.

Building this network through your financial and corporate advisors in Australia is a good way to position the business for a potential future sale.