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In Year 1 of operations a software startup company generates no income ( in the 2021 financial year ) but spends $1,000,000 in engaging contractors to help build the prototype of a new online game and several modifications (with 80% relating to R&D activities) & another $50,000 in setup and admin costs in the Year 1 2021 financial year.
| SOFTWARETECH PTY LTD | TAX CALCULATION |
|---|---|
| Income | $0 |
| Less: R&D expenses | $800,000 |
| Less Deductible expenses (non-R&D) | $250,000 (i.e $50k+20% of $1M) |
| Total Expenses | $1,050,000 |
| =Taxable income | $0 |
| Tax liabiltiy (26% company tax rate in 2021) | $0 |
| R&D Taxt Incentive Calculation: | |
| Cash Refund (43.5% of R&D Expenses) | $348,000 |
In Year 2 the software development startup generates $750,000 in income (in the 2022 financial year) but also spends $450,000 on developer’s wages (including on-costs) to develop new online gaming technology to potentially on-sell to clients in the future. Their other expenses are $200,000 in overheads (such as admin, customer service & marketing).
How much is the cash refund benefit of their R&D Tax Incentive per the spend on R&D in financial year 2022?
| SOFTWARETECH PTY LTD | TAX CALCULATION |
|---|---|
| Income | $750,000 |
| Less: R&D expenses | $450,000 |
| Less Deductible expenses (non-R&D) | $200,000 |
| Total Expenses | $650,000 |
| =Taxable income | $550,000(i.e $750-$200k) |
| Tax liabiltiy (26% company tax rate in 2021) | $137,500 |
| R&D Taxt Incentive Calculation: | |
| Eligible R&D expenditure | $450,000 |
| Refundable Tax Offset (43.5%) | $195,750 |
| Net Cash Refund | $58,250 |
When the company is making revenue of up to $20m, it receives a reduced cash refund because it generates a tax liability on the Taxable Income.
This often occurs where a company combines existing profit-making activities with R&D on new innovative activities.
We specialise in R&D claims and assisting clients with an annual turnover below $20 million every step of the way to optimise their R&D process from:
R&D claim preparation, compliance and lodgement; and /or
Tax Return preparation, compliance and lodgement
We charge on a no win no fee basis.