Question 1

What is the R&D Tax Incentive?

Accepted Answer

The R&D Tax Incentive is the largest single Australian Government incentive program for business. It aims to encourage and support businesses in undertaking R&D activities that they may not otherwise be willing to attempt. The program works by providing a tax offset or tax refund for companies claiming eligible R&D expenditure

Question 2

Who administers the R&D Tax Incentive?

Accepted Answer

The R&D Tax Incentive is jointly administered by AusIndustry (on behalf of Industry Innovation and Science Australia), and by the Australian Taxation Office (ATO).

AusIndustry is an operational division of the Department of Industry, Science, Energy and Resources (DISER) and is responsible for the applicant’s technical compliance.

The ATO is responsible for financial and taxation compliance.

Question 3

Why should I consider the R&D Tax Incentive?

Accepted Answer

The R&D Tax Incentive works by providing a tax offset or tax refund for companies claiming eligible R&D expenditure. To access the R&D Tax Incentive, you first 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.

Question 4

When can I claim the R&D Tax Incentive?

Accepted Answer

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.

Question 5

Who qualifies for the R&D Tax Incentive?

Accepted Answer

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.

To qualify, you need to be an R&D Entity as defined by the Australian Taxation Office.

Basically, you need to be 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.

Question 6

Am I eligible for the R&D tax incentive?

Accepted Answer

If you are an eligible R&D entity, and you are conducting eligible R&D in Australia, then yes. So, you first need to know if you qualify as an eligible entity (see above). Then you need to know of your R&D fits the requirements of the R&D Tax Incentive.  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.

Question 7

Do I have to register my R&D activities with AusIndustry each year?

Accepted Answer

Yes, you do. New applications to AusIndustry and to the ATO need to be made each year that you claim. However, AusIndustry, in particular, makes it easy to to ‘roll-over’ your application form from one year to another, which can be a significant advantage where you have long-term R&D activities that span multiple years.

Question 8

Is the R&D Tax Incentive worth it?

Accepted Answer

Some companies are put off by the apparent complexity or effort involved in submitting an R&D Tax Incentive application. However, you should not be put off by the program’s requirements, as we can help navigate the application process. While there is some effort involved in applying for the R&D Tax Incentive, the benefit more than outweighs the effort. There is a small base fee, but the largest part of the fee comes out of the refund as a small percentage of it. So there is minimal out of pocket cost.

Question 9

How is the R&D tax credit calculated?

Accepted Answer

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.

Question 10

How much do I need to spend on R&D?

Accepted Answer

You can apply for the R&D Tax Incentive yourself, but it is strongly recommended that you engage an R&D Tax Incentive specialist to ensure a successful outcome, as the requirements are vague and can be difficult to understand (but they are published). It is also important to present the technical details of your claimed R&D in a way that is readily assessed as compliant by AusIndustry.

To maximize your R&D Tax Incentive claim, you should also consider structuring your R&D to maximise your eligibility. Your R&D Tax Incentive specialist can assist you in structuring your R&D appropriately.

Question 11

What is the R&D tax offset?

Accepted Answer

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.

Question 12

What is the R&D tax credit?

Accepted Answer

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.

Question 13

What is involved in applying for the R&D Tax Incentive?

Accepted Answer

If you do engage an R&D Tax Incentive specialist, then your effort is considerably reduced. However, you still need to do some preparation and planning. The consultant will look after the actual application, but you are still responsible for the planning, execution and documentation of your R&D – with guidance from the consultant.

To maximize your R&D Tax Incentive claim, you may also need to make slight adjustments to the structure of your R&D activities. Largely, this is about keeping records for your claimed R&D activities separate from other activities and keeping adequate records for the claimed R&D – both technical and financial.

Question 14

I don’t have a product yet – can I still access the R&D Tax Incentive?

Accepted Answer

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.

Question 15

Is R&D tax offset taxable?

Accepted Answer

No – it is a refundable tax offset and is not taxable.

Question 16

Is the R&D Tax Incentive risky?

Accepted Answer

There has been considerable recent publicity concerning an ongoing government initiative to ‘clawback’ some R&D Tax Incentive payments. This has led to a misconception that the R&D Tax Incentive is risky, and best avoided. However,   our competent R&D team will ensure that you only claim eligible R&D activities and will prepare an application that can readily be assessed as compliant by AusIndustry.

Question 17

What R&D activities are eligible for the R&D Tax Incentive?

Accepted Answer

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.

Question 18

What expenses can I claim under the R&D Tax Incentive?

Accepted Answer

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. Not every accountant can make this distinction. This is where our team can help.

Question 19

What documentation do I need to prove my eligibility?

Accepted Answer

The R&D Tax Incentive is a self-assessment programme, so you are responsible for your eligibility. However, AusIndustry or the ATO may check (review) your application, either at the time of submission or in future years. If your application is reviewed, you will need to prove that your claimed R&D is eligible under the programme. This means showing that you satisfy the requirements of the programme

Question 20

Can I claim multiple years in the R&D Tax Incentive?

Accepted Answer

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. See What is a Core Activity in the R&D Tax Incentive? If you are intending to continue work in a Core Activity into the following financial year, it is a good idea to say so in the application.

Question 21

Why Wilson & Assoc Chartered Accountants can help and what we do to help?

Accepted Answer

AusIndustry and the ATO both publish guidance on the requirements of the R&D Tax Incentive, and how to apply for the programme.  However, the documentation requirements are quite stringent and the application process is quite onerous. Your application is liable to be compromised and even jeopardised if you are not experienced with it.

We help ensure your application is fully compliant and your eligible amount is legally maximised and stand the test of reviews and audits by AusIndustry and the ATO.

Question 22

Why Wilson & Assoc Chartered Accountants can help and what we do to help?

Accepted Answer

AusIndustry and the ATO both publish guidance on the requirements of the R&D Tax Incentive, and how to apply for the programme.  However, the documentation requirements are quite stringent and the application process is quite onerous. Your application is liable to be compromised and even jeopardised if you are not experienced with it.

We help ensure your application is fully compliant and your eligible amount is legally maximised and stand the test of reviews and audits by AusIndustry and the ATO.

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