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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 43.5% 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.

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.

For more information on R&D tax, please contact our R&D Tax Consulting team at kmahady@fbrice.com.au.