R&D Tax Incentive

Grants & Incentives

R&D Tax Incentive

Did you know the Australian Government offers incentives to Australian businesses doing research and development (R&D)?

The R&D Tax Incentive program provides eligible businesses with tax offsets for the costs involved in advancing your innovation. Applications can be tricky, but we’ll help you chop through the complexity. Hi-yah!

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Overview

What is the R&D Tax Incentive?

Innovative businesses should know about the Research and Development Tax Incentive.

The Australian Government offers the R&D Tax Incentive to entice businesses to invest in research and development. This is one way our government recognises that it can support R&D activities to advance good ideas, which ultimately benefit us all through innovation and economic growth.

The Research and Development Tax Incentive offers generous tax offsets of up to 43.5% or 43.5 cents for every dollar invested by businesses.

The size of the offset is determined by the entity’s aggregated turnover.

Under $20 Million aggregated turnover

Entitles the entity to a 43.5% refundable offset, meaning profitable entities pay less tax and entities making a loss will get a cash refund.

Over $20 Million aggregated turnover

Entitles the entity to a 38.5% offset to reduce its tax liability or carry forward to future periods.

Am I eligible for the R&D Tax Incentive?

You don’t need to be Elon Musk to access the Research and Development Tax Incentive.

Companies in any industry can apply for research assistance if they are undertaking experimental activities to build new product and service offerings.

R&D Tax Incentive claims are made through a self-assessment scheme. There are three essential points to satisfy to claim.

Am I an eligible R&D Tax Incentive entity?

An eligible entity must be either:

incorporated under an Australian law
incorporated under a foreign law but an Australian resident for income tax purposes
incorporated under a foreign law and you are both:
a resident of a country with which Australia has a double tax agreement that includes a definition of 'permanent establishment'; and
carrying on business in Australia through a permanent establishment as defined in the double tax agreement

What’s more, an eligible applicant must essentially bear the risks and own the results of the research and development activities. And note that the research and development activities should be conducted for your business (rather than for another entity).

Are my activities eligible for the R&D Tax Incentive?

The first question is whether your R&D activities are conducted in Australia or overseas. All eligible activities conducted in Australia qualify for the R&D Tax Incentive. Overseas activities might be eligible, but there are conditions which must be met when it comes to R&D tax.

To be eligible, all R&D activities must be either Core R&D Activities or Supporting R&D Activities.

Core R&D Activities

These are experimental research and development activities:

whose outcome cannot be known or determined in advance based on current knowledge, information or experience, but can only be determined by applying a systematic progression of work that is based on principles of established science; and
proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions

Put simply, you must be seeking to gain new knowledge in the field by experimenting.

Core R&D Activities are conducted for generating new knowledge (including improved materials, products, devices, processes or services). It is worth noting that some types of activities are specifically excluded from being Core R&D Activities.

Supporting R&D Activities

These activities are directly related to Core R&D Activities or are undertaken for the dominant purpose of supporting Core R&D Activities. As an example, gathering data to build a database which will support your testing could be eligible for the R&D Tax Incentive.

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

In most cases, the minimum spend on research and development activities is $20,000.

Expenditure is eligible if it is incurred specifically on R&D activities. Common categories of expenditure include:

staffing costs

third party services (labour hire, consultants, etc.)

overheads including rent, electricity, insurance, admin staff and travel

materials used up (feedstock expenditure)

Other eligible R&D expenditure includes:

expenditure on overseas activities (covered by an advance finding from Innovation Australia)

amounts paid to associates

expenditure to an RSP

monetary contributions under the CRC program

depreciation of assets used for conducting R&D activities

balancing adjustments for assets used only for conducting R&D activities

On the other hand, expenditure is ineligible if it is not sufficiently linked to R&D activities. It’s generally not possible to include general company operating or marketing expenditure that you would incur irrespective of the research and development activities.

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Recordkeeping for the R&D Tax Incentive

The ATO and AusIndustry place enormous importance on good record keeping for the purposes of R&D tax.

The expectation is that records are kept in real-time and fundamentally prove:

that there was a technical knowledge gap and the knowledge was not publicly available

that you carried out the R&D activities

that the business incurred eligible expenditure in relation to those activities (including the link between cost and activity)

There is no one-size-fits-all approach to good record keeping. The records will vary across R&D projects and across industries. Common records that are robust evidence for an R&D Tax Incentive claim include:

investigations into the current state of knowledge, such as competitor studies, literature reviews and other searches

detailed timesheets broken down by activities

your hypothesis as represented by your idea or theory

details of your experimental activities (e.g. message boards, notes and photos)

analysis and results of the R&D activities

Note that BlueRock can help you with good record-keeping practices for your R&D Tax Incentive claim.

How do I claim the R&D Tax Incentive?

The process for claiming the R&D Tax Incentive with assistance from BlueRock involves:

regular catch-ups throughout the year to review your business activities and determine eligibility

an end-of-year workshop to gather information

preparation of an application and accompanying report summarising your R&D activities

submission of the R&D Tax Incentive application to AusIndustry

a review of the company accounts to determine eligible expenditure

preparation of the financial calculation to determine the claim amount

assistance in preparation of the R&D Schedule for the Company Tax Return

Important R&D Tax Deadlines

Overseas findings – must be submitted by 30 June or the end of the income year in which the activities take place

Registration of activities – must be submitted by 30 April or 10 months after the income year in which the activities take place

Amending your tax return – must take place within 2 years to include research and development eligible expenditure

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