What is the R&D Incentive?
The R&D Tax Incentive extends a tax offset to eligible businesses engaged in research & development activities within Australia. The incentive is jointly managed by the Australian Taxation Office (ATO) and the Department of Industry, Science, Energy, and Resources (DISER).
What R&D activities fall under the R&D tax incentive?
- Developing new or improved materials, products, or processes.
- Systems or software development demanding innovative and substantial technical expertise.
- Conducting experiments to test new materials, substances, or technologies.
- Designing and prototyping new products or devices.
- Conducting research into new scientific or technological concepts or theories.
- Overcoming technical challenges linked to scaling up production or enhancing efficiency.
- Developing new or improved methods for testing, analysis, or data processing.
- Enhancing methods for environmental sustainability, energy efficiency, or renewable energy.
- Advancing methods for healthcare, medical treatments, or clinical trials.
- Investigating the feasibility of a new technology or product.
How much is the R&D tax incentive? What’s the return on R&D?
The program provides a tax offset ranging from 8.5% to 43.5% for eligible R&D expenses, applicable to companies with an aggregated turnover below $20 million per annum.
For larger companies, the offset reaches up to 38.5%. Besides the tax offset, the program offers a cash refund alternative for eligible companies not yet turning a profit.
Eligibility
Businesses must be registered with the Australian Taxation Office (ATO), undertake eligible R&D activities (such as software development), incur eligible R&D expenses, and meet the criteria for eligible entities.
R&D activities
Eligible R&D activities involve systematic and investigative pursuits to generate new knowledge or enhance and develop new products, processes, devices, or services. The activities must address technical problems and exhibit a degree of novelty and innovation.
Eligible expenses
R&D expenses eligible for consideration cover costs associated with eligible R&D activities, including salaries, wages, contractor fees, and materials, equipment, and software deployed in the R&D process.
Application
Firms must submit applications for the R&D Tax Incentive in their annual income tax return, providing details of their eligible R&D activities and expenses, accompanied by evidence substantiating their claims.
Type of entity
Available to all Australian-based companies incorporated under Australian law, along with certain other entities such as partnerships, trusts, and sole traders. Entities exempt from income tax are ineligible for the program.
Cash refund
Companies not yet profitable or with a tax liability less than the entitled R&D Tax Incentive amount can claim the remaining incentive as a cash refund.
Example:
Imagine your company boasts an annual aggregated turnover below $20 million and has incurred $1,000,000K in eligible R&D expenses. It could potentially claim a refundable tax offset of up to $435,000 (i.e., 43.5% of $1,000,000K). If your company lacks any tax liability or has a tax liability below $435000, it might be eligible for a cash refund of the remaining tax offset amount.
For further information on the R&D Incentive, don’t hesitate to contact our team, or reach out to our specialist Damian directly.
