R&D Tax Incentive

If your cash is running out faster than you can build your product, hopefully you already know about the R&D Tax Incentive.

Just in case you don’t: The R&D Tax Incentive program is run by the Australian Government and it is one of the largest sources of funding for startups.

If you meet the eligibility criteria, your company (and you must be set up as a company) can receive up to 43.5% of your research and development (R&D) expenses back as cash, through the tax return process at the end of the financial year.

Are you eligible for the R&D
Tax Incentive?

You’re likely to be eligible if you:

  • Are a company undertaking innovative, unique, non-trivial software or hardware development
  • Can describe this development as a series of experiments with unknown outcomes from which you have learned as you’ve progressed
  • Have spent at least $20,000 on R&D during the year, including employees and Australian contractors and their costs such as equipment, rent and other R&D related overheads

But my cash is running out now

Waiting until after tax time doesn’t help if you need the money now, right?

In that case, a reasonably new concept called R&D forward financing could be the lifeline you need to keep going throughout the year.

What is R&D forward financing?

There’s an emerging group of financiers in Australia who provide advance funding against future R&D tax incentive claims.

These funders will lend you the money during the year – typically after you’ve spent the money in any given quarter – against the refund you’re expecting to get from your R&D tax incentive at the year.  You then pay the loan back once your claim comes in.

But I haven’t lodged an R&D Tax Incentive application before

That’s okay. Financers (for example, Radium, who we work with) do consider first-year claimants subject to some extra rigour, such as providing a forward cashflow.

It sounds too good to be true

We know. But Australian startups really are using this source of funding as a lifeline, including many that we work with as their R&D Tax Incentive consultant.

Tell me more

To learn more, visit the ATO’s site for an R&D Tax Incentive overview.

This doesn’t cover forward funding though. If you want to discuss that, or need help with your next R&D Tax Incentive application, contact our expert, John.

And as always, please don’t take our articles as personal tax or financial advice.

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