Contact us if you have a question that isn’t answered below.
First of all, what exactly is the R&D Tax Incentive?
The R&D Tax Incentive can be claimed by any Australian publicly limited company conducting R&D across any industry.
There are two different components:
- a 43.5% refundable tax offset for eligible entities with an aggregated turnover of less than $20 million per annum, provided they are not controlled by income tax exempt entities
- a 38.5% non-refundable tax offset for all other eligible entities (entities may be able to carry forward unused offset amounts to future income years)
The general aims of the incentive are to provide businesses with innovation support, increase competitiveness in the marketplace and encourage more R&D to facilitate growth and stimulate the Australian economy.
Is my company eligible to claim the R&D Tax Incentive?
To be eligible to claim the 43.5% refundable tax offset, your company (or company group) must have an annual turnover of less than $20 million and annual R&D expenditure of at least $20,000. Companies with an annual turnover of more than $20 million and annual R&D expenditure of at least $20,000 are eligible for a 38.5% non-refundable tax offset.
In addition, your company must be either:
- Incorporated in Australia, or
- Incorporated in another country but be an Australian resident for tax purposes, or
- Incorporated in a country with which Australia has a double tax agreement, and undertake R&D activities through a permanent establishment in Australia.
Trusts are not eligible – except if they are a public trading trust with a corporation acting as a trustee. Companies that are exempt from tax are also not eligible.
What sort of companies can claim the R&D Tax Incentive?
The R & D Tax Incentive can be claimed by Proprietary Limited companies and Limited companies. It is open a variety of industry sectors, particularly for businesses looking to introduce innovative new or significantly improved materials, products, devices, processes or services that have a technical edge or overcome a technical problem that is novel on a worldwide level, may be conducting R&D. The R&D Tax Incentive is specifically designed to assist and encourage a wide range of companies, including the following sectors:
- Innovative mining and minerals operations
- Mining support
- Innovative Oil and Gas operations
- Oil and Gas support
- Manufacturing, engineering and fabrication
- Innovative agriculture programs
- Life sciences
- Information Technology
- Renewable Energy
- Waste Management
How would my company register for the R & D Tax Incentive Program
Companies need to register annually with AusIndustry in order to be able to claim under the R&D Tax Incentive.
Eligible R&D activities need to be registered within 10 months of the end of the income year in which the activities were conducted.
When do we need to register for the R&D Tax Incentive?
To claim a tax offset under the R&D Tax Incentive program, you must register your R&D activities with AusIndustry within 10 months of the end of the income year in which they were undertaken. Please note that some companies have non-standard accounting periods, so the submission is 10 months after the end of their specific accounting period.
What is the minimum R&D spend to be able to claim?
To claim the tax offset, your total R&D spend for the income year must be at least $20,000.
Is there a limit to the amount of benefit we can claim?
Yes, for R&D expenditure in excess of $100 million regardless of turnover, the tax offset will be limited to the company tax rate (i.e. 30%).
How much can my company get back from the R&D Tax Incentive Program?
In summary, for companies turning over less than $10 million:
- 16% TAX OFFSET ON R&D EXPENDITURE FOR COMPANIES RUNNING AT A PROFIT
- 43.5% TAX REBATE ON R&D EXPENDITURE FOR COMPANIES RUNNING AT A TAX LOSS
For companies turning over between $10 – 20 million.
- 13.5% TAX OFFSET ON R&D EXPENDITURE FOR COMPANIES RUNNING AT A PROFIT
- 43.5% TAX REBATE ON R&D EXPENDITURE FOR COMPANIES RUNNING AT A TAX LOSS
In summary, for companies turning over more than $20 million:
- 8.5% TAX OFFSET ON R&D EXPENDITURE FOR COMPANIES RUNNING AT A PROFIT
- 38.5% TAX CREDIT ON R&D EXPENDITURE FOR COMPANIES RUNNING AT A TAX LOSS
How do I know if the activities my company conducts are eligible?
This is best determined by one of our experienced Project Managers.
Please contact us on firstname.lastname@example.org.
What activities are ineligible for R & D?
Certain activities are not eligible as R&D. They may however be eligible as supporting activities but are subject to the dominant purpose test.
The following activities are not considered core:
- Market research, testing or development or sales promotion (including customer surveys)
- Prospecting, exploring or drilling for minerals or petroleum for the purposes of:
- Discovering deposits;
- Determining more precise location of deposits
- Determining size or quality of deposits
- Management studies or efficiency surveys
- Social sciences, arts or humanities studies
- Commercial, legal and administrative activities for purpose of patenting, licensing or associated procedures.
- Compliance activities for statutory requirements or standards including:
- Maintaining national standards
- Calibrating secondary standards
- Routine testing and analysis of materials, components, products, processes, soils, atmospheres etc.
- Any activity related to the reproduction of a commercial product or process:
- By physical examination of existing system or
- From plans, blueprints, specifications or publicly available information
- Modifying, developing or customising computer software for internal administration by:
- The entity (developer)for which the software had been changed
- An entity connected to the developer
- An affiliate of the developer or an entity the developer is an affiliate of
What qualifies an activity as core?
Core R&D activities are essentially experimental in nature. The direct outcome of these activities cannot be known or determined in advance on the basis of current and available knowledge, information or experience but can only be determined by applying a systematic progression of work.
This work must be based on the scientific experimental method of hypothesis formation leading to experimentation, observation and evaluation after which logical conclusions are drawn.
These activities can be conducted to generate new knowledge, be it about a whole new product or significant modification to an existing product.
Candidates must ask these four questions to determine the status of an activity:
- Was an experiment or set of related experiments undertaken?
- Could the outcome of the experiment be known or determined in advance?
- Was the scientific method employed?
- Was the purpose of the experiment to generate new knowledge?
Once the objective has been reached, a core activity ceases to be eligible even if it is continued once the new knowledge has been generated.
What qualifies an activity as supporting R&D?
Supporting R&D activities must be directly related to core R&D activities.
However, if an activity is on the excluded core R&D activities list, produces or is directly related to producing goods or services it can only be counted as supporting if its dominant purpose is supporting core R&D activities.
What is meant by ‘dominant purpose’?
An activity conducted for more than one reason has a main, prevalent purpose, otherwise known as the dominant purpose.
To identify the dominant purpose, consideration of the extent of commercial and production outcomes in addition to assisting the core R&D activities and their importance must be undertaken.
What is meant by ‘directly related’?
An activity needs to have a direct, close and immediate relationship with the core R&D activity to be considered directly related.
Directly related supporting R&D activities can occur at a different time and place, so long as they directly and relatively immediately support the core activities.
What legislation covers the R&D Tax Incentive?
The R&D tax Incentive is administered under:
- Division 355 of the Income Tax Assessment Act 1997; and
- Division 328
- Part III of the Industry Research and Development Act 1986
Who administers the R&D Tax Incentive?
AusIndustry (on behalf of Innovation Australia) and the ATO jointly administer the R&D Tax Inventive. AusIndustry registers R&D activities and makes sure they comply with current legislation while the ATO determines whether or not the expenditure being claimed as R&D is eligible.