Are you eligible for the Government’s R&D Tax Incentive?
Are you missing out on a 43.5 per cent refundable tax offset?
The R&D Tax Incentive provides generous benefits for eligible research and development activities.
The R&D Tax Incentive is administered jointly by AusIndustry and the ATO.
The program offers two core components:
For income years from 1 July 2016:
a 43.5 per cent refundable tax offset to eligible entities with an aggregated turnover of less than $20 million per annum
a 38.5 per cent non-refundable tax offset to all other eligible entities. Unused offsets may be able to be carried forward for use in future income years.
For income years starting before 1 July 2016:
a 45 per cent refundable tax offset to eligible entities with an aggregated turnover of less than $20 million per annum.
a 40 per cent non-refundable tax offset to all other eligible entities. Unused offsets may be able to be carried forward for use in future income years.
Who can apply?
The R&D Tax Incentive is available to:
a company incorporated under Australian law;
a company incorporated under a foreign law that is an Australian resident for tax purposes; and
a company incorporated under a foreign law that is a resident of a foreign country with a double tax agreement with Australia and who carries on business through a permanent establishment of the body corporate in Australia.
What activities are eligible?
The Incentive supports experimental R&D activities (referred to as core activities) and supporting activities where these are closely related to the experimental activities.
The core activities must be conducted for the purpose of generating new knowledge (such as developing new or improved products or processes). Eligibility must be self-assessed for specific activities. Activities must include genuine experiments to be eligible. Records must be available to substantiate the self-assessment of eligibility.
To be eligible for the offset for any overseas activities, companies must apply to AusIndustry for an overseas finding about activities occurring overseas.
Advance findings allow companies to seek a binding determination as to the eligibility of their activities prior to registration thereby providing certainty.
How and when do companies apply?
Applications for registration of R&D activities must be lodged with AusIndustry within 10 months after the end of the company’s Australian income year in which the activities were conducted.
After registering with AusIndustry, applicants may claim the tax offset by completing the ATO’s R&D Tax Incentive Schedule and the relevant labels in their income tax returns.
What types of expenditure can companies claim a tax offset for?
Subject to eligibility criteria and exclusions, a company can generally claim a tax offset for:
expenditure incurred on R&D activities;
decline in value of depreciating assets used in R&D activities; and
balancing adjustments for depreciating assets used only in R&D activities.
These are referred to as ‘notional deductions’.
Companies must have incurred notional deductions for an income year of at least $20,000 to claim a tax offset.