It’s easy to get caught up in the end of financial year ‘now or never’ sales campaigns for start-ups and small businesses. But what incentives and sales are really worth claiming and investing in? It’s time to take stock and spend wisely:
If you engage in R&D activities (it must be related to your core ‘experimental’ activity), you could be eligible to claim up to 45 per cent in tax offset if your turnover is less than $20 million.
In a nutshell, experimental activity is defined as those activities whose outcome could not be known in advance or are conducted for the purpose of generating new knowledge, according to AusIndustry’s Research & Development Tax Incentive.
Bianca Board, founder of Foxley, a yet-to-be launched platform to aid web designers, says the company invested a lot of time and effort in creating new algorithms and until recently, weren't aware of the R&D tax initiative.
“We're developing a website platform that uses a marketing scorecard and algorithm to enable users to create websites that drive more traffic and sales,” she says. “We met the criteria because it was a new technology that currently doesn't exist, and there's an element of risk involved in what we're doing.”
To that end, Sarah-Beth Cleaves, Senior R&D Consultant at Grow Fast Consulting says any spending should be focused on product research or testing the product.
“If you need to employ third party providers to perform that service then you should be thinking about engaging those companies as a matter of urgency for getting those tasks completed and invoiced,” she says.
Salaries for team members also come into play under the grant, she says.
“Speak with your accountant about what you can afford to pay, what the PAYG implications would be of the salary and weigh that up against what benefit they may receive from the grant.”
Equipment and software
It’s important to realise that you will only be getting a percentage back from any money spent on equipment, software and material for your business, says Dr. Adrian Raftery, senior lecturer in tax at Deakin University. And, your cashflow can suffer.
“That is, spend $20,000 and you will only save $5,700 (28.5%) in tax, meaning your bank balance reduces by $14,300.
If you are a start-up business, then it is likely that you will not be generating any taxable income this year, so the effective tax benefit could be 0%, meaning that a $20,000 outlay for some new equipment for the business, will cost $20,000 after tax,” he says.
That said, any taxable losses are carried forward to future years that can be used to offset against future profits, says Dr. Raftery.
"The only good investment is one that makes you money, it needs to either generate additional sales revenue or create cost savings. If it is there just collecting dust – then it is simply not paying its way" – Dr. Raftery.
Saxon Marsden-Huggins, Managing Director of Recruit Shop says end of financial year is a great time to review workforce planning needs.
“Up until June 30, you'll be able to find advertising deals and also find recruitment firms may offer you discounts on services or pre-purchase pack options so you can lock-in and pay for your recruitment in advance to secure savings,” he says.
Cleaves doesn’t advise spending for the sake of spending, but if areas like marketing or advertising have a clear return on investment in place, EOFY is as good time as ever to justify spending in these areas. The same goes for business strategy planning.
“If your business doesn’t have a clear strategy and direction mapped out for the next 5 years, then now would be a great time to employ a consultant to come and help get everyone in your company moving forward in the same direction," she says.
Lakshmi Singh is a freelance writer across a range of sectors including technology, business, lifestyle and health. Her work has been published in the Sydney Morning Herald, The Age and the Sunday Telegraph.