Australia’s R&D Tax Incentives

What is the R&D Tax Incentive?

The R&D Tax Incentive is a self-assessed Australian Government assistance program aimed at lowering the cost of pursing technological innovation for Australian businesses. The R&D Tax Incentive has been around for many years and is administered jointly by Industry Innovation and Science Australia (IISA), and by the Australian Taxation Office (IISA)

It was created with local businesses and new technology in mind for all sectors, spurring more companies to engage in Australian based R&D and create economies for the future.

 

Who is eligible to claim the R&D Tax Incentive in Australia?

The R&D Tax Incentive program is open to eligible entities that have undertaken eligible R&D activities during the income year. An eligible entity is defined as a company that is incorporated in Australia or overseas, or an entity that carries on a business in Australia through a permanent establishment (within the meaning of that definition) of the body corporate in Australia For a company to prove that it has undertaken eligible R&D activities it must demonstrate that it has engaged in a “Core R&D” activity.

In general terms, a Core R&D activity is defined as an experimental activity:

1. Whose outcome cannot be know or determined beforehand, based on available current knowledge, information or experience, but can only be determined by applying a systematic approach that is:

  • Based on principles of establishment science; and
  • Proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and

2. Conducted for the purpose of producing new knowledge. This includes new or improved materials, products, devices, processes or services.

 

What R&D expenditure can be claimed?

Once it is determined as to what eligible R&D activities are undertaken by the entity, the entity essentially applies monetary value to the activities to claim any eligible expenses.

Below is list of expenses that generally come up as eligible R&D expenses.

  • R&D staff salaries and wages
  • R&D contractor fees
  • Industrial design
  • Software development
  • Formula formulation
  • Prototype creation
  • Product testing
  • Manufacturing line automation
  • Engineering costs
  • Lab costs and testing
  • Patent new knowledge costs
  • R&D machinery
  • R&D rent
  • R&D overheads
  • R&D utilities
  • Other indirect operating expenses

 

How much R&D expenditure can be claimed?

Eligible R&D entities with an aggregated turnover of less than $20M – are entitled to a refundable tax offset that is fixed at a rate of 18.5% above the company’s tax rate. This means that it is entitled to claiming 43.5% of eligible R&D expenditure. Should the tax offset exceed the entity’s tax liability, the balance will be paid to the entity in cash as a rebate. Eligible entities with an aggregated turnover above $20 million per annum, will receive 38.5% of eligible R&D expenditure as a tax credit. Importantly, unused tax credits can be carried forward indefinitely.

Further, up to AUD 100 million of R&D expenditure per annum can be utilised for the R&D tax incentive.

 

R&D record keeping?

Record keeping is essential to preparing and supporting an R&D Tax Incentive claim.

IISA and the ATO expect you to keep records to support your self-assessment that the entity’s activities meet the legal requirements for you to register them as core or supporting R&D activities.

Should an entity be subject to a compliance review, records which identify, evaluate and record the entity’s eligible R&D activities can be used as evidence to support the information in your application.

It is worth noting that the entity claiming the R&D tax incentive is not required to own the intellectual property generated from the R&D activities.

 

How do I start?

To get started with the R&D Tax Incentive, it is best to talk to a specialist in this field to assist you in your application.

To get the most out of your R&D Tax Incentive application, and to make managing your R&D Tax Incentive application more efficient, you should also talk to your R&D Tax Incentive specialist early in your R&D.

 

Please contact us if you would like any assistance in preparing an R&D Tax Incentive application


Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.