Navigating the Research and Development Tax Incentive Program
The R&D Tax Incentive program is the Australian government’s largest targeted entitlement program aimed to assist Australian companies to help offset some of the costs of their R&D activities. The R&D program is broad, operating across industries including biotechnology, manufacturing, information technology, mining and engineering.
The R&D program targets small to medium companies by providing a refundable cash offset at 45% which can provide much needed cash flow to fund further R&D activities. Larger companies also receive a significant benefit for their eligible R&D activities offset against their tax liability.
What is the benefit?
From 1 July 2016, the program offers three levels of benefit:
a 43.5% refundable tax offset for eligible entities with an aggregated turnover of less than $20M, or
a 38.5% non-refundable tax offset for eligible entities with an aggregated turnover of greater than $20M.
For companies undertaking greater than $100M of R&D expenditure, the 38.5% offset applies to the first $100 million with the balance being offset at the standard company tax rate.
For the financial year ended 30 June 2016 the previous tax incentive rates still apply, these are:
a 45% refundable tax offset for eligible entities with an aggregated turnover of less than $20M, or
a 40% non-refundable tax offset for eligible entities with an aggregated turnover of greater than $20M.
During the 2016 financial year companies with an aggregated turnover of less than $2 Million were subject to a reduced rate of taxation. This has provided them with an increased offset benefit of 1.5% for that year only.
What sort of R&D activities are eligible?
Australian companies developing a new or improved product or process may be eligible to claim. New ideas, improvements, solving technical problems are all potential areas for R&D claims.
The program defines two sorts of R&D activities: core and supporting R&D activities.
Core activities are experimental activities undertaken for the purpose of obtaining new knowledge and for which the outcome can’t be determined in advance.
Supporting activities are those which are directly related to the core activities.
Do I have an eligible company?
To be eligible to claim, companies need to be:
incorporated under Australian law
incorporated under foreign law but an Australian resident for income tax purposes, or
incorporated under foreign law and a resident of a country who has a double tax agreement, which includes a definition of permanent establishment, and carrying on business in Australia through that permanent establishment.
Companies acting in the capacity of a Trustee and Trusts are not eligible with the exception of a Public Trading Trust listed on the stock exchange and taxed as a company.
Companies must also have R&D expenditure of $20,000 or more in a financial year to access the offset.
What is the deadline for claiming R&D activities?
The R&D activities must be registered with AusIndustry within ten months from the end of your income year. For companies with a June financial year end, the following April 30 is the deadline.
Following registration with AusIndustry, companies can claim the tax offset through your tax return or as an amended tax return.
Export Market Development Grant
In addition to R&D tax services, we can also help small and medium sized businesses claim reimbursement from the Export Market Development Grant (EMDG). This grant is a key Australian Government financial assistance program aimed to assist small and medium-sized Australian businesses to develop export markets.
With a maximum of eight grants available per applicant, it offers a reimbursement of up to 50% of eligible expenses (above $5,000), provided that the total expenses are at least $15,000 per claim. The expense categories claimable are varied and include overseas IP protection, travel to trade shows and marketing consultants based overseas.
FB Rice can help to complete the application, advise on eligibility of expenses, how to document expenditure and assist with the auditing of the claim by Austrade. More information regarding this service can be found here.
Kate is the Director of FB Rice R&D Tax Consulting. She has over fourteen years’ experience in Research & Development Tax incentive consulting in 'Big 4' consulting firms with strong experience in advising a broad range of technology based companies from start ups to large multi nationals. Kate is dedicated to assisting Australian companies navigate the complex R&D tax landscape to provide maximised, supportable claims to enable them to fund further research and development projects.
As a Senior Tax Analyst with a Chemical Engineering background, Dr Reuben Wu brings strong technical experience across a range of industries to our R&D Tax Consulting team. With over 5 years’ research experience in world-renowned institutions across Australia and overseas, Reuben’s technical expertise spans multiple disciplines and technologies including oil and gas flow assurance, gas processing, gas hydrates and hydrate inhibitors.