Biotechs missing out on tax perk: E&Y

Small to medium-sized biotechnology companies are missing out on an important source of cash by failing to claim the Federal R&D rebate, according to a tax specialist.

Ernst & Young Innovation and Incentives team tax principal Alun Needham said that the offset, introduced as part of the government's Backing Australia's Ability package, provided a cash rebate equal to the value of the 125 per cent R&D Tax Concession.

Needham said the initiative was put in place to encourage biotech SMEs, particularly those in a tax loss position, to invest in R&D.

But he said a lack of awareness meant that many eligible companies were missing out on the benefit, which was now available for expenses incurred in the last financial year.

"In our experience, it's the smaller companies, particularly those who would benefit most from the cash rebate, who are simply unaware of its existence," Needham said.

"Smaller companies tend to have had less direct contact with AusIndustry, particularly if they felt that they didn't have a project that might qualify for the R&D Start grant program.

"As well, they may be currently more focused on GST and completing the Business Activity Statement, rather than identifying and securing new benefits such as the R&D cash rebate.

"It is important cash flow that these often cash-strapped companies may miss out on".

Industry body AusBiotech agreed, saying that many of its members had identified several issues associated with the scheme.

Information and marketing services manager Fiona Corrie said awareness was just one of the problems smaller businesses faced.

"The second thing is the level of complexity of the process for specifically small businesses, where they just don't have the resources to take care of it," Corrie said.

"While it is a step in the right direction, the amount of effort that's required to take advantage of the concession sometimes negates the idea."

She said future concession schemes should be developed in conjunction with industry to ensure such issues could be addressed and problems averted.

To qualify for the rebate, the company must be entitled to a deduction under the Concession provisions, have an annual group turnover of less than $5 million and an annual group spend of up to $1 million. After meeting these criteria, companies are entitled to claim 30 per cent of eligible R&D expenditure as a cash rebate.

Needham said that this meant a rebate of 37.5 cents in the dollar for a company entitled to a 125 per cent deduction under the concession, or $375,000 cash back for the maximum R&D spend of $1 million.

Those companies qualifying for the 175 per cent premium concession can claim up to $525,000 for $1 million of eligible R&D expenditure.

Access to the scheme requires registration of the company and its eligible R&D activities with the Industry Research and Development (IR&D) Board within 10 months of the end of financial year.

Needham also pointed out that companies considering applying have to be registered with the board before lodging their annual income tax return. He said the rebate was payable after lodgement of the company's income tax return and directly reduced the tax payable by that company.

In cases where the offset amount is more than the amount of tax payable, the excess was refundable as a cash rebate.