R&D Tax Incentive

Through the R&D Tax Incentive program the Australian Government is endeavouring to increase the amount of research and development being undertaken by Australian companies (particularly smaller companies). The primary aim of this broad-based, market driven program is to boost the competitiveness and productivity of Australian companies and, as a result, to deliver economy-wide benefits to the Australian community. In particular, this program aims to:

Encourage companies to conduct R&D that may not otherwise have been conducted
Provide companies with more predictable, less complex support
Improve the incentive for smaller companies to engage in R&D activities

What is being offered?

Up to 43.5% tax offset on all R&D expenditure

Larger companies (those with more than $20 million in turnover) currently receive a 40% Tax Offset on all eligible R&D expenditures (with any unused offset carried forward to the next tax year). However, smaller companies (those with less than $20 million in turnover) currently receive a 43.5% Tax Offset (5% higher than the larger companies receive) and, further, the company is entitled to receive a cash refund (rather than having to carry forward the tax offset).

Who is eligible?

To be eligible for the R&D incentive a company must have engaged in activities that satisfy the definition of ‘core’ R&D activities. Core R&D activities are defined as experimental activities:

  1. where the outcome cannot be known or determined in advance on the basis of current knowledge, information or experience but can only be determined by applying a systematic progression of work that:
    • is based on the principles of established science; and
    • proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and
  2. that are conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes or services).

Having established its ‘core’ R&D activities other activities whose dominant purpose is to ‘support’ those ‘core’ R&D activities are also eligible for the R&D incentive. Note that to be eligible for the R&D incentive, companies must also meet the minimum expenditure threshold of $20,000. However, this threshold is waived if the R&D is contracted out to a registered research provider.

How to apply?

Companies are required to register annually with Innovation Australia before being able to claim a tax incentive. Registration must be lodged no later than 10 months after the end of a company’s financial year. Companies intending to access the R&D Tax Incentive must keep adequate records to demonstrate to both AusIndustry and the ATO that:

  • R&D activities have been undertaken and that they meet the definition of either ‘core’ activities or ‘supporting’ activities;
  • Eligible expenditure has been incurred in relation to the above R&D activities; and
  • The R&D activities and expenditure meet all the legislative requirements for eligibility under the program.

How can we help?

We have considerable experience in supporting companies through the process of lodging an application under the R&D Tax Incentive program. Get in touch with us below if you would like to find out more.

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