Archivision Conference RD Tax Concession Presentation Amanda Hocking

Archivision Conference R&D Tax Concession Presentation Amanda Hocking, Partner Pricewaterhouse. Coopers Adelaide Pw. C

Today’s Agenda • Overview of the R&D Regime • How does R&D apply to the architecture industry? • Methodology for making an R&D claim Pricewaterhouse. Coopers July 2010 │ 2

Overview of the R&D Tax Concession Pricewaterhouse. Coopers July 2010 │ 3

Overview of the R&D Tax Concession • A self assessing, entitlement-based government concession • Jointly administered by Innovation Australia and the Australian Taxation Office • Enables eligible companies to claim a basic deduction of 125% which is equivalent to 7. 5 c per $1 spent on R&D activities No claim 125% Base R&D Benefit 30 c 70 c Pricewaterhouse. Coopers 62. 5 c 7. 5 c Net Cost to Company Normal Tax Benefit July 2010 │ 4

Overview of the R&D Tax Credit • In the May 2009 budget, the Commonwealth government announced its Powering Ideas platform, which included replacing the existing R&D Tax Concession with an R&D Tax Credit. • The Federal Government has tabled new legislation dealing with the R&D Tax Credit, but this did not pass through the Senate in its June sitting. Two core components (increasing the base benefit) • a 40% non-refundable R&D tax offset (equivalent to 10 c in the dollar net cash benefit) • a 45% refundable R&D tax offset if R&D entity’s aggregated turnover is less than $20 million (equivalent to 15 c in the dollar net cash benefit) Pricewaterhouse. Coopers July 2010 │ 5

What is Eligible R&D? – “Tax R&D” Under the R&D Tax Concession: SIE activities • The activities must be undertaken in a systematic, investigative and experimental manner • They must contain elements of innovation or high levels of technical risk • They must be conducted for the purpose of acquiring new knowledge or creating new or improved materials, products, devices, processes or services Directly related activities • Other activities carried on for “a” purpose directly related to the SIE activities Pricewaterhouse. Coopers July 2010 │ 6

What is Eligible R&D? – “Tax R&D” Under the R&D Tax Credit: Core R&D activities are experimental activities: a. whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that: i. is based on principles of established science; and ii. proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and b. that are conducted for the purpose of generating new knowledge (including knowledge about the creation of new or improved materials, products, devices, processes or services) Pricewaterhouse. Coopers July 2010 │ 7

What does “innovation” mean? Activities are innovative if they involve an appreciable degree of novelty. Innovation may be present where: • • • The work is seeking previously undiscovered phenomena, structures or relationships The work is attempting to apply existing knowledge or techniques or technology in a new or different way The outcomes are likely to benefit more than one organisation In the architecture industry this could include: • Environmentally sustainable design (achieving AGBR and Green Star ratings) • Façade design and complexities associated with other floor plate considerations Pricewaterhouse. Coopers July 2010 │ 8

What does “technical risk” mean? Technical risk addresses the principle of uncertainty. Accordingly, high levels of technical risk may be present where: • • It is uncertain which technical option may yield the desired outcome Whether the technical objective will be achieved The methodology to success is unknown in advance There is a risk of failure In the architecture industry this could include: • Technical challenges in the design of structural and functional design elements • Complexities in the integration of various design elements to the clients overall requirements • Interaction of geotechnical considerations within broader design constraints • Trialling and testing of proposed designs or solutions, and making modifications as required Pricewaterhouse. Coopers July 2010 │ 9

R&D Plan Documentation Requirements To claim the R&D Tax Concession, companies must have R&D Plans in place Part A – R&D Plan Authorisation • A list of all R&D projects proposed to be undertaken including an overview of the company’s strategic business objectives and a signed statement of approval Part B – R&D Project Plans • State the technical objective of the project and the background of the technical gap or problem to be overcome by the project and the nature of the technical risk or innovation A company can refer to, and use, existing project documentation Pricewaterhouse. Coopers July 2010 │ 10

R&D Application & Expenditure R&D Application • To claim the R&D Tax Concession, companies must lodge an R&D Application with Aus. Industry within 10 months of the financial year end Types of Expenditure that can be claimed • • Salary Plant depreciation and plant leasing Contractors Other – Expenditure “directly” related to carrying on the R&D activities, including a portion of overheads Pricewaterhouse. Coopers July 2010 │ 11

How does R&D relate to the architecture industry? Pricewaterhouse. Coopers July 2010 │ 12

R&D Projects Indicators of R&D projects in the architecture industry The design and development of novel structures integrating many design elements, such as: • Incorporation of Evidence-based Design (EBD) in the overarching design and construction • World class facilities – unique design (e. g. sports grounds) • Stimulating environments • Sustainable development – integrating efficient and ecologically sustainable use of resources and energy • Combining multiple buildings of synergistic sizes and scale to create a new space • Special vibration, acoustic and lighting considerations • Occupational health and safety considerations • Security and accessibility issues • And many more…. . Pricewaterhouse. Coopers July 2010 │ 13

R&D Activities Typically, R&D activities include: • Project identification and initiation • Conceptualisation • Design and Development • Testing and trialling • Post-trial modifications and enhancements • Conclusion of the project Examples of R&D activities relating to the architecture industry: • Brief and schematic design • Design development • Preparation of construction documentation • Contract administration Pricewaterhouse. Coopers July 2010 │ 14

Methodology for making an R&D claim Pricewaterhouse. Coopers July 2010 │ 15

R&D Methodology Pw. C have a proven methodology for undertaking R&D tax concession claims Our overall approach is outlined below: Step 1 Identify and scope eligible R&D Step 2 Step 3 Review & prepare R&D Project Plans and supporting documentation Pricewaterhouse. Coopers Step 4 Preparation & lodgement of R&D Tax Concession Application Identify eligible expenditure & preparation of documentation Step 5 Debrief & recommend modifications to existing processes July 2010 │ 16