United States
New findings in the federal budget papers reveal that small companies spend more of their revenues on research and development than large ones.
To be precise, the budget papers attribute the surge in spending on R&D to more activity by companies with turnover of less than $20 million. The federal budget also forecasts that the spending on R&D will jump from $2.9 billion in FY15-16 and FY16-17 to 3.9 billion in FY19-20. These figures are approximately double the forecasts that were outlined in the 2014 budget, which proposed to cut the R&D tax incentive offset from 45 per cent to 43.5 per cent for firms with turnover of less than $20 million, and to 38.5 per cent credit for larger firms.
The jump in R&D spending can largely be attributed to the R&D Tax incentive, which encourages companies to take the risk in conducting R&D activities to improve their businesses. In certain cases the incentive entails a 45% cash back on eligible R&D projects and it is great opportunity for Australian companies to invest in their own products or services.
Aside from the R&D tax incentive, the surge in R&D by small firms is being driven by post-mining shift and the lower dollar making local research more competitive. Digital disruption, in particular, is having a large impact on the shift. Essentially, disruptors redefine markets by introducing new products and services that, while not immediately as sophisticated as currently available product, offer other benefits such as simplicity, convenience and lower prices and that appeal to new, less demanding customers. Over time, these new products gain a foothold and improve in quality and eventually set a new benchmark for the minimum viable product that defines a category.
In summary, the figures outlined in the budget papers reveal the impact that the R&D tax incentive can have on R&D spending for small companies. However, the R&D Tax Incentive is a frequently overlooked opportunity for smaller companies, with many SMEs mistakenly believing this is exclusively for large corporations or those engaging in ‘white coat research’. By capitalising on these prospects, companies can produce generous tax savings, including generating cash for their past and future investments or developments. Overall, it is great opportunity for Australian companies to invest in their own products or services and get up to 45% cash back on their investment when they lodge their next tax return (i.e. if their aggregated turnover is less than $20 mil per annum). Don’t miss out on generating cash benefits for your research investments this tax season.
Contact AusGrant today if you would like more information on how the R&D Tax Incentive works and if you qualify.
