💡 ✪ R&D TAX INCENTIVE - CORE TECHNOLOGY EXPENDITURE ✪ 💡
The R&D Tax Incentive is a valuable program for Australian businesses investing in research and development. However, when it comes to core technology expenditure, the rules can be complex, and businesses often find themselves unsure about what they can and cannot claim. This video breaks down everything you need to know about claiming core technology under the R&D tax incentive, ensuring your business stays compliant and maximises its claim.
🚀 ✪ WHAT IS CORE TECHNOLOGY EXPENDITURE? ✪ 🚀
In the context of the R&D tax incentive, core technology refers to pre-existing technology that is essential to a company's research and development activities. It could be software, equipment, or processes that are crucial for performing your R&D but weren’t developed by your business. This is an important distinction because while businesses may rely heavily on such technology, it isn’t always claimable under the incentive. Instead, you can generally only claim the depreciation on these assets, not the full cost of acquisition.
✨ ✪ HOW DOES THE LEGISLATION TREAT CORE TECHNOLOGY EXPENDITURE? ✪ ✨
The Income Tax Assessment Act 1997 (Division 355) provides the framework for the R&D tax incentive, and it specifies that core technology expenditure is excluded from being a notional deduction. This means you cannot claim the full cost of core technology acquired for R&D. The only exception is if the technology is a depreciating asset-in this case, you can claim the decline in value over time.
🔍 ✪ DEPRECIATION AND CORE TECHNOLOGY ✪ 🔍
Depreciation plays a key role in how you can claim core technology costs. While the upfront acquisition cost of core technology is ineligible for the R&D tax incentive, the depreciation or decline in value of that technology can be claimed. This applies to assets like software or specialised equipment that is critical to your R&D project. The depreciation must reflect the portion of the asset’s use directly related to R&D activities, so keeping accurate records is vital.
📑 ✪ THE DIFFERENCE BETWEEN CORE ACTIVITIES AND CORE TECHNOLOGY ✪ 📑
Many businesses confuse core activities with core technology. Core activities are the experimental processes that form the heart of your R&D, where you develop new products or systems. In contrast, core technology is the pre-existing technology used to support these processes. It’s important to understand that while you can claim costs related to core activities, core technology costs are subject to stricter rules and limitations.
🚨 ✪ COMMON MISTAKES TO AVOID ✪ 🚨
A common mistake businesses make is assuming that all technology used in R&D can be claimed. However, if you are further developing pre-existing technology, those costs won’t be eligible as core R&D activities. Similarly, if the technology is used for both R&D and non-R&D purposes, you must apportion the depreciation and only claim the portion directly related to R&D.
🛠️ ✪ CASE STUDY: ABSOLUTE VISION TECHNOLOGIES V INNOVATION AND SCIENCE AUSTRALIA (2022) ✪ 🛠️
In this case, Absolute Vision Technologies attempted to claim the development of an enterprise resource planning (ERP) system as core R&D. However, the Administrative Appeals Tribunal (AAT) ruled that modifying or adapting existing technology does not qualify as R&D for tax purposes. The project was deemed to lack the experimental approach required to meet the core criteria for R&D activities. This case highlights the importance of correctly distinguishing between adapting technology and conducting true R&D.
💡 ✪ WHY SEEK EXPERT ADVICE? ✪ 💡
Navigating the complexities of core technology and the R&D tax incentive can be difficult. From ensuring your core technology costs are eligible to understanding how to correctly apportion depreciation, getting it wrong could lead to rejections or audits. With over 500 successful applications and 250+ 5-star reviews, Bulletpoint has the expertise to help your business maximise its R&D tax claim. We’ve handled complex cases involving core technology and have guided businesses through every step of the claim process.
📞 ✪ READY TO DISCUSS YOUR R&D TAX CLAIM? ✪ 📞
If you’re unsure whether your core technology qualifies, or if you need assistance with your R&D tax incentive claim, get in touch with us today. Book a time to chat with us or call 1300 658 508. Let’s ensure your claim is both compliant and maximised!
🌟 ✪ MORE INFO ✪ 🌟
Want to learn more about the R&D tax incentive and how core technology expenditure fits in? Read our full blog post on this topic and dive into the case of PKWK v Innovation and Science Australia (2021) for more insights.
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