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Bio Technology : October 2009
60 Australasian BioTechnology Volume 19 • Number 3 • October 2009 AusBioBUSINESS In effect, the company is receiving a further refund as a result of reinvesting the tax offset, creating an extended cash flow opportunity for the company. So what should you do now? For companies with a turnover of <$5million if you have not yet considered your R&D project expenditure, you need to consider the following questions: What expenditure has the company incurred to date? • What is your company planning on investing in R&D over the next 24 -- 36 months? • What benefit would be obtained by bringing the planned R&D expenditure forward? • For example if your company is loss making and your company has allocated an initial outlay of $1,950,000 to be spent on R&D over the next two years, consider the following two scenarios: Scenario one • The initial outlay is all incurred in the first year, being 2009/10. In reinvesting the tax offset obtained in year one and the subsequent tax credit obtained in year two, the total available funding for R&D amounts to $3,010,313, i.e. the sum of the $1,950,000 + the current tax offset of $731,250 and the new 45% refundable tax credit of $329,063 in 2010/11. Scenario two • The expenditure is split evenly over the two years i.e. $975,000 in 2009/10 and $975,000 2010/11. In year one the tax offset provides a cash refund of $365,625. This plus the second payment of $975,000 is then reinvested in R&D and a tax credit of $603,281 results in 2011. The total available funding for R&D is therefore $2,918,906. In this example, by just adjusting the timing of the initial outlay, the company can increase the available funding for R&D with no additional outlay by more than $90,000. These examples just consider the impact of the first two years but in continuing to invest in R&D year on year; your company will continue to benefit from the refund on the refund. A simple modelling exercise of the R&D projects should be undertaken to assess the impact on your company of the timing of investing in R&D. In an environment where global sales of generic medicines are declining1, increased competition is putting pressure on pricing and the general economy is struggling to stabilise, all companies must take every opportunity to make the most of benefits available to them. With a potential cash refund exceeding 54% obtainable by merely making an offset claim in 2010, can your company afford to miss out on claiming the R&D tax offset? ` FT.com 1 Contacts at Deloitte: Melbourne: Serg Duchini, R&D Taxes & Incentives Practice Leader firstname.lastname@example.org Sydney: Karen Stein, R&D Taxes & Incentives Partner, email@example.com Brisbane: Jason Dunnachie, R&D Taxes & Incentives Partner, firstname.lastname@example.org Perth: Ron Van Beek, R&D Taxes & Incentives Principal, email@example.com Adelaide: Mark Reuter, R&D Taxes & Incentives Partner, firstname.lastname@example.org Reinvested R&D refund resulting from the 2009/10 tax offset $ 731,250 Tax credit at 45% $ 329,063 less: tax deduction forgone (loss making company and thus no tax liability) $-- equal: net tax credit benefit (Cash) $ 329,063 Maximum combined benefit of the tax offset in 2010 and refundable tax credit in 2011 $ 1,060,313 Maximising the beneft of the 2009/10 offset Where a company was eligible to claim the offset in 2009/10, and the company reinvests the related refund in their R&D activities undertaken in 2010/11, the company will be able to maximise the new refundable tax credit, furthering its return on investment. The benefit is twofold. If we look at the previous tax offset example above and reinvest the refundable offset of $731,250 into eligible R&D activities, the company will receive an additional refundable cash tax credit in 2011 as follows: