THE R&D TAX INCENTIVE EXPLAINED

Encouraging innovation

 

The R&D Tax Incentive IS the largest single program in Australia to help business undertaking research and development.


The R&D Tax Incentive is a Federal government program to encourage innovation in Australia. It is jointly administered by AusIndustry and the ATO. Each financial year, companies can offset the cost of R&D activities through access to a tax offset, or refundable tax offset, depending on 'group' turnover. The scheme offers two levels of benefit:

1. a 43.5% refundable tax offset for eligible entities with a 'group' turnover of less than $20M 

  • e.g. $100K on R&D activities, with no revenue, can provide a refund of $43.5K

2. a 38.5% non refundable tax offset for eligible entities with a 'group' turnover of $20M or greater

  • e.g. $1M on R&D activities can reduce tax payable by an additional $85K

To qualify you need to assess:

  • that you are an eligible entity

  • the level of benefit you qualify for, identifying your 'group' turnover

  • that you have undertaken R&D activities, spending a minimum of $20K

  • that you have maintained appropriate contemporaneous documentation

R&D activities must be documented and registered with AusIndustry within ten months from the end of your company's income year. Related costs are calculated and an R&D Tax Schedule containing these must then be lodged as part of your company’s income tax return.

As it is a tax based entitlement program, it can be tricky to access, with complex legislative provisions that require careful analysis. Companies may be audited by either AusIndustry and/or the ATO retrospectively for up to four years.

Recent court cases have highlighted the importance of adequate record keeping, and understanding the legislative provisions.

In our experience, companies often misunderstand the definition of R&D activities, scope of an R&D Tax Incentive claim, and important legislative provisions.