Patent attorneys may assist in supporting an application for R&D tax credits.
The Tax Laws Amendment (Research and Development) Bill 2010 was passed on 24 August 2011 and will give effect to the new R&D Tax Credit program. This replaces the existing R&D Tax Concession program. The new Tax Credit program retrospectively applies to R&D activity from 1 July 2011.
What does this mean?
The new R&D Tax Credit is a two-tier system with either:
> a refundable 45 per cent tax offset for companies having a turnover of less than $20 million; or
> a non-refundable 40 per cent tax offset for companies having a turnover of more than $20 million.
Consider for example a relatively small company in its start up phase having an annual aggregate turnover of $2 million spending $1 million on eligible R&D activity. The tax offset available is 45 per cent or $450K. At a company tax rate of 30 per cent, $600K of tax is payable on the $2 million turnover. This tax which is otherwise payable is offset by the R&D activity which means in this example $150K of tax is payable. This tax saving is equivalent to a tax deduction of 150 per cent.
Eligible R&D activity
The Government is reviewing the eligibility criteria to ensure that only valid R&D activity qualifies under the new Tax Credit program. Under the new regime there will no longer be a requirement for innovation or technical risk. Instead, eligible R&D activities are categorised as either core or supporting R&D activities. Core R&D activities are experimental activities:
> whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that:
is based on principles of established science; and
proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and
> that are conducted for the purpose of acquiring new knowledge (including knowledge or information concerning the creation of new or improved materials, products, devices, processes or services).
The Bill provides a list of activities which are not core R&D activities including commercial, legal and administrative aspects of patenting, licensing or other activities”. Having said that, these excluded activities will be eligible if shown to be supporting R&D activities. Supporting R&D activities are activities directly related to core R&D activities and are undertaken for the dominant purpose of supporting core R&D activities.
How can we help?
In examining the new R&D Tax Credit program it is apparent that patent attorneys may assist in supporting an application for R&D tax credits. In particular, a patent attorney can, in conducting prior art searches and providing a novelty opinion, assist an R&D applicant in submitting that:
> the outcome(s) of the eligible experimental activity could not be known in advance based on the state of the current knowledge or information;
> the knowledge acquired through the experimental activity was “new”.
It is also possible that the grant of an Australian patent will assist in successfully asserting that the R&D activity is eligible for grant of the tax credit.
About the Author
David began his IP career in 1992 with a large IP firm in Perth. He commenced at Phillips Ormonde Fitzpatrick in July 2009.
David’s expertise is in the physical sciences, with his practice including mechanical and chemical engineering, materials science, gaming technology and medical devices.
He is the Managing Partner of the firm’s Sydney office.
To speak to David, or any of our specialist patent attorneys about assisting you with your R&D needs, please contact us at firstname.lastname@example.org