In order to promote research, development and innovation in Australia, the Australian Government offers tax incentives to eligible Companies.
Currently, the R & D Tax concessions entitle an eligible Company to a 43.5% refundable tax offset if the entity’s turnover is under $20 Million, or a 38.5% tax offset for Companies with turnover more than $20 Million. This means a Company making a profit would pay less tax and a Company that makes a loss can receive a cash refund based on their R & D expenses.
To work out if your business is eligible, you need to work through a couple of steps:
Step 1 – The operating entity must be a Company and be either incorporated in Australia, an Australian resident Company or both a resident of a Country with which Australia has a double tax agreement and carrying on a business in Australia through a permanent establishment.
Step 2 – The R & D activities must meet the requirements in the R & D Tax Incentive guidelines. You need to register your R & D Activity with AusIndustry within 10 months of the end of the income year in which you conduct your R & D activities. If your R & D activities meet the requirements you are issued with a registration number which then allows you to claim the R & D Incentive Offset in your Company tax return.
The R & D tax incentive registration process is a self-assessment system, but AusIndustry may review your application, so you need to make sure you meet the requirements yourself before applying.
At a high level, R & D activities are experimental activities:
- Whose 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 principles of established science
- Proceeds from hypothesis to experiment, observation and evaluation and leads to logical conclusions; and
- 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).
You are expected to search worldwide for an existing way to achieve your outcome before you start your R & D activity. That is, if it already exists, then your R & D activities are not eligible.
Record keeping is very important when making R & D tax incentive claims. As an example, the AusIndustry R & D tax incentive guide lists the following expectations:
“We expect you to be able to provide evidence that shows how you conduct, or plan to conduct, core R&D activities:
- that are based on principles of established science
- whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience worldwide
- whose outcome can only be determined by applying a systematic progression of work – hypothesis, experiment, observation and evaluation, leading to logical conclusions
- for the purpose to generate new knowledge
- that are not excluded from being core R&D activities
We expect you to keep records of activities that you register or plan to register for the R&DTI
In your systematic progression of work, we expect to see details of how you:
- develop your hypothesis
- design your experiment
- observe and record the results of your experiment
- evaluate your results
- reflect conclusions about your results. Do they support your hypothesis or generate other new knowledge?”
Claiming the R & D Tax Incentive can be a complex process requiring both scientific knowledge, along with excellent record keeping and the correct accounting set up to keep track of core and supporting activity costs. Due to this, many businesses wanting to claim the incentive turn to specialists in this area.
If you don’t want to engage a specialist, another option to determine your Company’s eligibility is to submit an ‘Advance Finding’ form. This online form takes you through a long series of questions about your R & D activities and once submitted and assessed will give you assurance about your eligibility.
Advance Finding forms can be found at:
For more detailed information on claiming the R & D tax incentive visit
This page has a link to the ‘R & D tax incentive guide to interpretation’ which is a great starting point if you are thinking about claiming the incentive.
Other related blogs:
What is the research and development tax offset?
Author: Heather Cox
Email: heather@faj.com.au
