Tax Implications of the Incentives
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Added on 2020-05-16
Tax Implications of the Incentives
Added on 2020-05-16
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Running head: TAXTaxName of the Student:Name of the University:Authors Note:
TAX1Table of ContentsIntroduction:...............................................................................................................................2Definition of R&D:....................................................................................................................2Tax incentives provided:............................................................................................................3Tax implications of the incentives:............................................................................................3Following are the provisions that are laid down by the tax laws:..............................................5Relevant rules of taxation:.........................................................................................................5Conclusion:................................................................................................................................8Reference....................................................................................................................................9
TAX2Introduction:The quality of the product that is being delivered by the companies to their customersand the method of production that is being utilised by them have to be monitored andmodified on a continuous basis for the purpose fo keeping up with the changes taking place inrespect of the tastes, preferences and the requirements of the customers. For achieving thesame, the companies are indulging in research and development activities. A competitiveedge is achieved by the entities by conducting the various research and developmentactivities that are being undertaken by them. Not only do the company reap the benefits of theresearch and development activities by the society are benefitted. On instance can be stated asthe whitening of the paper of the notebooks produced by the company without the use of anyharmful chemicals like chlorine (Shen et al. 2016). This will not only help the company in theend but the environment too. However, these research and development activities a lot ofexpenditure that is mostly of capital nature. For promoting these activities, the statute of thecountry has given exemptions and deductions in respect of this expenditure that are beingincurred by the companies. The present report presents the various deductions that areavailable to the companies in this respect and the conditions they have to fulfil in order toavail them. Definition of R&D:The activities that are being undertaken by the various entities in respect of theresearch and development are investigative in nature. The activities are concerned with theimprovement of the existing products of the company or to develop new products forimproving the customer experience. The company with the help of these activities to providethe customers with the best possible product by utilising the present production facility of theentity (Edwards et al. 2015).
TAX3Tax incentives provided:Around 125% of the expenditure incurred by the company is being allowed as deductionif the same have been incurred by them before 1st July in respect of the research anddevelopment. There are some cases wherein the company can avail a deduction of around175% in respect of the expenditure that has been incurred by them. The various deductionshave been provided by the statute to the entities in this respect is to promote the companies toundertake more research and development activities (Beer 2016). The RED deductionsgenerally possess two components. They are as follows:a)In case the company is having a turnover that is less than $20 million and it is eligiblefor the deductions then a refundable tax offset to the tune of 43.5% is allowed to it. b)In respect of all the other entities that are eligible for the deductions a refundable taxoffset of 38.5% is allowed by the statute. The tax offset that is available for the entities in this respect has been reduced by the statuteto about 30% applicable from 1st July 2004 until 1st July 2024. Tax implications of the incentives:1)the improved operating efficiency of the entities:In the process of engaging in the research and development, the companies generallydiscover a product that is better than all the products formerly produced by the entity.For instance the company can develop an automated inventory management systemthat will be managed entirely bib the application of the software technology and theoperations will be carried out by the robots (Beer 2016). This will save the companyfrom managing its inventory from theft losses and the hassle of human error. Inaddition to that, the company will be able to focus on the production of the product
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