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New Quarterly R&D Tax Credits for cash-strapped SMEs released

From 1 January 2014, the R&D quarterly credits regime will be a new option for small cash-strapped companies wishing to claim under the R&D tax incentive.

On Monday, Treasury released its proposed workings of the regime.

It will allow companies eligible for the R&D refundable tax offset to obtain the benefit of the offset on a quarterly basis during an income year, rather than waiting until an income tax return is assessed.

Are you eligible for quarterly credits?

To qualify for the regime, an entity must:

1.     be conducting R&D activities and otherwise eligible for the R&D tax incentive

2.     not be grouped with any other entities with an aggregate turnover over $20 million

3.     have claimed the R&D tax Incentive at least once in the last 5 income years

4.     apply each quarter it wishes to claim, no later than on the 14th day after that quarter

How do I claim?

Each Quarter, an entity may claim under:

• the Standard approach (Conservative method with ‘safe habour’ protection); or
• the Variable approach (Excludes a ‘safe habour’, designed for entities that can accurately predict their offset)

What is Standard Amount?

Each Quarter, the Standard amount will be calculated as the lesser of:

1.     25% of the total of those tax offsets for the most recent income year in which it was assessed as being entitled to any of them; or

2.     25% of the refund from all its refundable tax offsets that was assessed to the entity for that year.

The ‘safe habour’  will apply under this approach as the refund the entity got for the same offset in the previous year will be assumed to be a sufficiently reliable predictor of what it will get in that same period of the current year.

What is Variable Amount?

Subject to certain exclusions, an entity may claim under the Variable Amount method at the taxpayers discretion.

• On conclusion of the income year, any overpaid or ‘negative varied amounts’ are to be repaid to the ATO with general interest.
• The Commissioner may disallow ‘front load’ amounts, a process where an entity overpays itself in the first quarter and artificially deflates the Variable Amount in each of the subsequent quarters with a view to converge on the correct amount of entitlement.

When will I get paid?

The tax office will issue an advance payment where, for that quarter, the entity had a Positive Variable Amount or where it nominated the Standard Amount.

• The ATO will aim to pay the quarterly amount by the 28th day after the end of the quarter; and
• The ATO will credit the entity interest on late payments.

When do I have to repay an overpaid amount?

• In the event an entity has varied to a negative varied amount for that quarter, it must pay that amount to the ATO no later than the 28th day after the end of the quarter; and
• The ATO will charge general interest on late payments

Final Reconciliation

At the end of the year at the time of assessment, each payment will be added and reconciled with that years actual R&D tax refund.  At this time, where the entity has been overpaid any amounts, those amounts will be repaid with interest. Conversely, where an amount is due to be payed by the ATO, that amount will be paid as if it was a normal offset.