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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.
Calculating your R&D tax refund can be complex, but it doesn’t have to be. With our tax refund calculator Australia, you can quickly estimate your eligible refund and plan your next steps. Whether you’re a small startup or a large corporation, understanding your refund potential is crucial for budgeting and reinvestment.
Our tax refund estimator is designed to provide accurate insights into your refund eligibility. By inputting key details about your R&D expenses, you’ll receive an instant calculation tailored to your specific circumstances.
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