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DST delays R&D tax break

Read time 1min 30sec

The Department of Science and Technology has pushed out the effective date of a tax break that software developers should have been able to benefit from as of April.

The tax benefit is aimed at boosting SA's research and development (R&D) investment from less than 1% of the gross domestic product, to 1.5% by 2014.

In a “communiqu'e” sent out by the department, it states the effective date will now be 1 October, six months after the tax boost was meant to come into effect.

A January amendment to the Income Tax Act makes it easier to qualify for the break, which will benefit local software developers, who claim back 150% of R&D expenses against tax.

The change, which clarifies the previous position, is expected to stimulate local innovation and create jobs among SA's estimated more than 1 000 software development firms.

Lost money

However, the delay will take away half-a-year's worth of benefit. “This has a huge impact on software developers - they can now only claim from October of this year. As they cannot backdate the claim, they are effectively losing out on six months of qualifying expenditure,” says Catalyst Research Solutions MD Dov Paluch.

While the provision allowing claims against R&D has been in effect since 2007, it previously excluded software companies creating management or internal business software processes, such as accounting packages, Paluch previously explained.

Paluch has said the companies creating code to sell can now benefit from the tax break after the January amendment. Previously, claiming back on R&D was too complex, and many companies were not aware of the provision, he noted.

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