Using R&D Tax Incentive to Make the Most of Downtime During COVID-19 Disruptions

April 6th, 2020

The current COVID-19 pandemic presents business with a difficult and uncertain period.

The disruptions are multifaceted, and may impact upon:
  • A company’s ability to legally trade or demand for their output;
  • Logistics of transporting a company’s supply inputs, output or people;
  • Access to cash and working capital from customers and investors;
  • Working arrangements and the togetherness of company staff

These challenges present the need for companies to rapidly adapt their business models in order to survive.

Swanson Reed has been encouraged to hear that a number of clients whose businesses have been placed in turmoil have stated that they plan to use the R&D Tax Incentive during downtime in order to:

  • Embark upon completely new product lines rendering the need for generation of new knowledge and resolution of unknown outcomes by experimentation within the scope of the R&D Tax Incentive;
  • Accelerate existing or previously dormant R&D Projects to bring them to fruition more swiftly;
  • Commence early compilation of FY20 R&D claims (and gathering of documentation) such that lodgement can be made swiftly after 30 June to expedite receipt of R&D Tax Offset entitlements. These offsets for FY20 may potentially be augmented by increased tax losses during FY20;

Swanson Reed also notes comments by Nev Power to the AFR this week in respect of his appointment to the National COVID-19 Coordination Commission aiming to devise a long-term strategy to deliver a competitive, best-in-class manufacturing sector. Nev noted that:

  • Australian companies are presented with an enormous opportunity to reboot the manufacturing sector by taking advantage of crippled global supply chains and a lower currency;
  • Re-establishment of manufacturing would reduce our reliance on single point failures in our supply chain;
  • Australian manufacturing must be modern, efficient, high-tech and focused on the things we need;
  • Government may play a role in providing seed funding but believed things could be structured to make businesses appealing for private funding.
Swanson Reed appreciates that not all businesses may have the resources to use this time to be undertaking commercially and technically risky R&D Activity. We do however encourage all our clients to:
  • Use this time to take stock of the business’ strategic direction;
  • Where applicable, make use of the R&D Tax Incentive in conjunction with various government stimulus measures available to them, including
    • The federal government’s job seeker programme;
    • Various concessional loan schemes offered by state governments;

This crisis will inevitably mean that many Australian businesses may fail, however it presents an opportunity for those that remain, and who use any downtime wisely to accelerate out of any recovery period with a stronger market position than they previously had.

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