Quarterly tax return a welcome boost for innovative firms

Small businesses will have an additional reason to undertake research and development, in the form of a quarterly tax return for businesses involved in innovation.

From 1 January 2014, small businesses turning over less than $20 million a year - with no profit - will be eligible to receive 45 cents for every dollar spent on R&D, which is equivalent to a 150 per cent deduction.

There is no limit on the amount of R&D expenditure that firms can claim, but R&D activities must fall into either 'core' or 'supporting' categories. Core R&D activities are experimental in nature with no knowledge of the outcome, and usually aim to generate new knowledge in the form of new or improved materials, products, devices, processes or services.

Supporting R&D activities can include producing goods or services related to core activities, for example market research, drilling for minerals for the purpose of discovering deposits and conducting surveys.

The tax refund injection will provide a welcome and more frequent boost to cash flow for smaller businesses, particularly start-ups. Previously, the ATO processed these returns on an annual basis only.

"Rather than waiting until an income tax return is assessed by the ATO, companies can choose to obtain the benefit of the offset on a quarterly basis during an income year," said a press release issued by the Minister for Industry and Innovation Greg Combet and the then-Acting Minister for Small Business Chris Evans.

In addition, businesses that have R&D operations in Australia but hold intellectual property for the activity overseas will be able to access government support through the R&D Tax Incentive.

This initiative is part of the government's broader R&D Tax Incentive to help small businesses boost competitiveness and improve productivity.

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