Living with the new R&D tax incentive changes

In the budget the Federal Government tightened the rules around the R&D tax incentive – so what’s the impact on SMEs in the new financial year?

The Government targeted the small and large ends of the incentive tree, promising to “better target the program and improve its integrity and fiscal affordability.”

The question is whether this is code for slashing R&D spend, or whether there’s still room for SMEs and startups to innovate and claim.

Either way, it’s a change.

READ: More on the R&D changes 

While these proposed changes might seem to be on the more unfavourable side of things, it’s not all doom and gloom.

There are some elements of these changes that are likely to separate the wheat from the chaff when it comes to R&D claims – and that’s ultimately a good thing.

It doesn’t mean that your startup or SME is being left high and dry – it’s all about adapting to the new rules.


Being genuinely innovative


One of the changes the Government outlined is a tighter focus on eligibility, particularly around a claim being for something truly innovative.

With the enormous increase in technology-based businesses over the past few decades, the things that used to be considered “innovative” are now considered routine.

In order to be classified as ‘innovative’, the activities that are being claimed need to meet the following three standards:

  1. Novel on a global scale
  2. Experimental in nature
  3. Involve technological risk

The fact that the Government are putting a strong focus on making sure companies are meeting the eligibility criteria of the incentive, ultimately means that it’s asking companies to take their innovation to a new level.

The way to set yourself apart from other businesses is to be different.

Trying new things by conducting experiments, testing the boundaries of technology and taking on the risk required to do so, are all sure ways to create the most innovative products and experience success.

“Innovative technology helps people push the boundaries of what is possible to create that didn’t exist before,” CEO of Veltronix, Aaron Cleaver, told The Pulse.

Veltronix is a company that enables engineers to design electronics that can run a task in 6 microseconds what used to take 1.5 milliseconds in software (or 250 times faster).

“Ideally this has a waterfall effect where the new capabilities are used to create other products that in themselves have new capabilities,” said Cleaver.


Double down on rigorous document keeping


Hopefully you were doing this anyway, but the changes to the R&D tax incentive mean that it’s now more important than ever to keep your documents organised.

Because when the Government say that it’s going to be focusing on improving the program’s integrity, they essentially mean that it’s going to allocate additional resources to be reviewing more claims than it was before.

When the Government review these claims, the first (and most important) area it requests to review is the documentation that the company kept throughout the claimed projects to substantiate everything that is listed on the application form.

READ: Thinking about getting your R&D claim in?

These supporting documents can be an incredible asset for any business, and now businesses claiming the incentive will be more inclined to keep them.

Rigorous document keeping can achieve the following three things:

  1. Saving hours of time when preparing the incentive application, as a lot of the information listed in supporting documents can virtually be copy-pasted into the application form.
  2. Enabling the business to keep track of progress in an organised and efficient manner, which can lead to better iterations and decisions.
  3. Allowing the business to use their well-organised documents for other purposes like investment opportunities, customer proposals and other grant applications.

When it comes to keeping rigorous documents, the team over at Definium Technologies are a good example of a company with the right attitude.

“It’s better to characterise need for good documentation habits (and they need to be encouraged as habits) as necessary rather than just worthwhile,” said Mike Cruse, Definium’s CEO.

“In the absence of good documentation, every grant you apply for, every customer proposal you present will be a major effort that almost has to start from scratch and will have limited consistency. This will at some point (usually fairly early on) limit the company’s potential.”