The R&D Tax Incentive is a rebate you get for developing new products and services. The program works by providing a tax offset or tax refund for your eligible R&D expenditure.
If you are undertaking R&D in Australia, there is a good chance that at least some of that R&D will qualify for the R&D Tax Incentive. To qualify, you need to spend more than $20,000 on R&D that is eligible under the program. You can claim up to 43.3% of that expenditure back from the Australian Government as a tax refund or tax credit.
If you are undertaking eligible R&D, then you should claim the R&D Tax Incentive. Unlike other Government (grant) programs, the R&D Tax Incentive is not capped and is not from an allocated pool of funds, so if you qualify, you will receive a benefit. You aren’t competing with other companies.
The R&D Tax Incentive works through the tax system, by providing a tax offset or tax refund for companies claiming eligible R&D expenditure. To access the R&D Tax Incentive, you need to spend more than $20,000 on eligible R&D activities and then claim a tax refund or tax offset for that expenditure. You need to register your R&D activities with AusIndustry first, and once you have your registration number, you can claim the tax offset or refund from the Australian Taxation Office.
You can submit your R&D Tax Incentive application to AusIndustry from July 1 for the preceding financial year. You must submit the application to AusIndustry by April 30 for the previous financial year.
You don’t need to be doing cutting edge research to access the R&D Tax Incentive! You don’t need to be a large (or even a medium-sized company). Even average small Australian businesses can qualify – you just need to be doing something new or different. If you make or develop products with an interesting twist (or have plans to do so) – you may well have eligible R&D.
An eligible R&D Entity is a company, incorporated in Australia, or incorporated in a foreign country, but a resident in Australia for income tax purposes. Other categories are also defined. For a full description of who is eligible, refer to the ATO website.
See Australian Taxation Office Eligible Entity
If you are an eligible R&D entity, conducting eligible R&D in Australia, incurring eligible R&D expenditure, then yes. Generally speaking, the R&D Tax Incentive is intended for eligible R&D conducted in Australia, but you can apply for recognition of R&D conducted in another country.
Eligible R&D
If your company has an aggregated turnover of less than $20 M, then you can claim up to 43.5% of every dollar you spend on eligible R&D. Depending upon whether your company made a loss or a profit, you will receive either a refund, a tax credit or a combination of these to a total of 43.5%.
For companies with an aggregated turnover of over $20 M, the benefit is 38.5% – as a tax credit.
The benefit from the R&D Tax Incentive can be ‘paid’ as a tax offset or a cash refund. A tax offset occurs when you have a tax liability to the ATO, or your company turnover is more than $20 M. The tax liability is reduced by the R&D Tax Incentive benefit. If the tax liability is less than the R&D Tax Incentive benefit than you will receive a cash refund if your company turnover is less than $20 M, or as a tax credit if your company turnover is more than $20 M.
This is where the company turnover is more than $20 M. If the tax liability is less than the R&D Tax Incentive benefit, any residual amount will be carried forward as a tax credit.
To maximises your R&D Tax Incentive claim, we take a holistic approach and ideally start with planning the right structure of your R&D activities. This early planning also enables the right documentation and record-keeping for your R&D activities – both technical and financial.
Yes, you can. The criteria for the R&D Tax Incentive is activity-based, not outcome-based. You may be working towards having a product, or you may still be in the research phase. The key thing is that you are conducting experimental activities and looking for new knowledge that you cannot access any other way. You may never achieve a product – as long as your experimentation results in new knowledge you may be eligible.
No – it is a refund or tax credit and is not taxable.
Your only investment in claiming the R&D Tax Incentive is the relatively small upfront base fee. Most of our fee is a percentage of the incentive amount. As such, there is no risk involved.
AusIndustry publishes a considerable amount of material to aid claimants in determining eligibility. See Research and Development Tax Incentive. In principle, it is possible for you to answer this question for yourself. In practice, however, it is difficult, and it is very easy to make a mistake.
Eligible expenses need to be directly associated with the experimental R&D activities being claimed. There are strict rules that define what can and cannot be claimed. It is important to note that these R&D Tax Incentive rules are distinct from the rules governing what can be claimed in your company’s tax return. This means that your company accountant may not be familiar with this distinction.
An R&D Tax Incentive consultant does not replace your company accountant (the roles are quite distinct) but will work closely with your accountant in managing your R&D Tax Incentive application.
Yes, you can. It is very common for R&D projects of significant size to span multiple years. In fact, the same Core Activity may span more than one year. As long as you are conducting eligible R&D, you are fine.
The important thing to note is that each Core Activity should have a common focus, and be concerned with a related series of experiments. Don’t start new R&D in an existing Core Activity unless it really is closely related – start a new one.