You have no doubt heard about, talked about or perhaps read about the Government’s Tax Incentive Scheme for the “super deduction” of any expenditure relating to Research & Development (R&D)? You may even have considered applying for the incentive, but don’t exactly know how to go about the task and how easy/hard it is really, and more importantly, whether it is actually worth it?
The R&D program has been refined extensively in the past, but in its recently revised form, which came into effect in January 2014, it’s interesting to look at the current status and offer insight into the benefits and limitations of this new bill.
The R&D programme’s primary benefit to companies that comply with the requirements is a 150% deduction of all expenditure relating to R&D activities from the company’s taxable income, i.e. R1,50 tax deduction for every R1 spent.
Its main aim is to encourage the private sector to invest in R&D activities and increase the national R&D spending, thereby aligning the private sector spending to that of government. The scheme is a great one, a much-needed one, given the necessity for job creation, a boost to our economy and positioning SA as being internationally competitive.
Simply put, the R&D Tax Incentive Programme covers scientific and/or technological innovations or patents and/or improvements to those that already exist.
The R&D programme is overseen by two reputable bodies, namely the Department of Science and Technology and SARS that emphasize the importance of compliance through the application process.
In this regard, there are two crucial aspects – the first being a pre-approval application for the go-ahead with the DST and, once successful, the submission of your annual tax returns backed with the required supporting documentation.
The application forms to the DST have been simplified but by having an advisory body/ tax professional on board to assist with all the necessary detail a company, will (a) significantly cut short the time it takes to complete the necessary forms, and (b) be informed and advised of ALL the requirements and tax benefits of the Scheme.
Louwtjie Venter, at Hobbs Sinclair Advisory, a Cape Town-based tax and accounting firm, comments, “Compliance is key and applicants need to know if they comply, how to position themselves, and to have an understanding of tax in order to benefit from all the incentives.”
The National Survey of Research and Experimental Development (R&D) is undertaken annually to monitor the country’s investments in R&D. Naledi Pandor, Minister of Science & Technology, indicated in the report that she was pleased with the increasing levels of awareness amongst companies with respect to the programme, but thinks more still needs to be done.
- The uptake from companies is still relatively low, thus there is a need for an increase in awareness creation activities about the programme and the availability of government support programmes
- Improved streamlining of administration between SARS and the DST is needed to minimize uncertainty about the prospects of company R&D incentive claims
- Additional promotion of South Africa as an R&D destination should be done
- There needs to be improvement of the current offering of R&D incentives to SMEs
So, if you comply but have not done anything about it yet, maybe it’s time to take advantage of this tax incentive that works 150%!
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