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Prevent academics from raiding small business R&D funds  

Business

Calls to replace the current arrangements are a money-grab that will hurt SMEs.

By Peter Tower 9 minute read

Some ambitious academics have their eyes firmly focused on getting a slice of the research an development pie that currently belongs to the SME sector.

Having suffered financially from a lack of foreign students during COVID, a number of tertiary institutions now want to renew their fortunes by injecting themselves into R&D work that’s currently being conducted by SME businesses.

In an article entitled “Ditch R&D tax concessions for direct funding” , the deputy vice-chancellor of the University of Sydney, Professor Emma Johnston, said tax concessions currently paid to SMEs should be scrapped in favour of direct federal funding (Australian Financial Review, 30 August).

This appears to be an obvious play to secure greater academic involvement in the R&D space.

Clearly, there are no benefits for academic research if R&D is only funded by tax incentives.  Academia has no way of turning those tax benefits into real money, so they want the government to stump up cash on the table.

However, this blatant pitch for greater academic involvement ignores the considerable R&D activities that are already conducted by SMEs, which often use their own funds with only a limited amount of government support.

For an SME to claim their R&D work as a tax offset, the business has to be conducted as a company.

Incorporating is not always desirable when a business is in its formative stages and they’re trying to maximise the funds they have available for their R&D activities.

Companies with turnovers under $20 million that are trading at a loss are able to claim a cash refund calculated at 43.5 per cent of the eligible R&D expenditure.  For most operations, this leaves little room for any academic involvement.The Federal government has a program known as “Innovation Connections” to help some SMEs bring in specialist academics to help them with their R&D activities.  These companies are required to have an annual turnover of at least $1.5 million to claim this assistance on a matched basis of up to $50,000.

The requirement for such a large turnover to be eligible for even a small amount of academic assistance is not viable for many entrepreneurs.

While the current system is not perfect, it does give some assistance to SMEs with their R&D projects.

Accountants and their SME clients should be concerned by any attempt to change the current system to benefit self-interested third parties at the expense of small business operators.

Peter Towers is managing director of Essbiztools.

 

 

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