R&D Tax Incentive – what is it? The R&D Tax Incentive is a self-assessed Australian Government assistance program aimed at encouraging companies to undertake R&D in Australia that might otherwise have been considered too risky to do without the financial support provided by the program. The R&D Tax Incentive has been around for many years in one form or another. The program has existed in its current form since 2012 without significant change and is defined by legislation (see R&D tax Incentive legislation).
The R&D Tax Incentive is the ‘flagship’ Australian Government industry assistance initiative and is certainly the largest. The R&D Tax Incentive is also one of the best R&D incentive programs globally, although it remains under-utilised in many parts of Industry, particularly amongst small companies.
Who administers R&D Tax Incentive?
The R&D Tax Incentive is jointly administered by AusIndustry (on behalf of Industry Innovation and Science Australia), and by the Australian Taxation Office (ATO).
AusIndustry is an operational division of the Department of Industry, Science, Energy and Resources (DISER) and is responsible for the applicant’s technical compliance.
The ATO is responsible for financial and taxation compliance.
How does the R&D Tax Incentive relate to R&D in industry?
R&D is defined a little differently in the R&D Tax Incentive to what you might expect, as it is based on the principles of scientific experimentation – see R&D Tax Incentive legislation and What is an R&D Tax Incentive experiment?
You should be familiar with this definition, even if you engage a consultant to manage your applications.
See R&D Tax Incentive context for more information.
How does the R&D Tax Incentive work?
It is important to note that the R&D Tax Incentive is an entitlement, not a grant. You need to spend the money on the (eligible) R&D activities first and then claim a percentage of that expenditure back later (after the end of the financial year) as a tax refund or tax credit.
Applying for the R&D Tax Incentive is a two-stage process:
- You register your R&D activities with AusIndustry, who will assess your R&D activities eligibility from a technical perspective.
- Once you have received a registration number from AusIndustry, you may submit a separate R&D Tax Schedule to the Australia Taxation Office as part of your company tax return to claim your tax refund or tax credit.
You must register your R&D with AusIndustry by April 30 the following year, but you can do this anytime after the previous financial year’s close on June 30. Registration must be done each year you claim the R&D Tax Incentive. Only draft financial accounts are needed for the AusIndustry submission (so, your office accounts are fine), so you don’t need to wait for the final accounts from your accountant.
The R&D Tax Schedule can be submitted to the ATO once you have the AusIndustry registration number and, you have the final accounts from your accountant. The refund is usually available approximately 30 days after submitting your company tax return (including the R&D Tax Schedule) to the ATO.
Your accountant will need the R&D Tax Schedule before they can prepare your company tax return – the R&D tax schedule forms part of your company tax return. If you use an R&D Tax Incentive consultant for your R&D Tax Incentive application, they will work closely with your accountant.
Who can claim?
The R&D Tax Incentive is open to Australian incorporated companies and some internationally incorporated companies that satisfy certain criteria. A more detailed explanation of who can claim can be found here: Who can claim the R&D Tax Incentive.
What R&D can I claim?
The nature of the R&D that you can claim is difficult to define in any objective way, largely because the R&D Tax Incentive legislation is quite vague. This makes it difficult for newcomers to submit compliant applications.
In brief – the R&D must be addressing a knowledge gap and it must involve an experiment which is aimed at testing a theory about filling that knowledge gap.
How much can I claim?
If your aggregated turnover is less than $20M – you can claim 43.5% of eligible R&D expenditure, which is paid as a tax credit or tax refund depending upon your tax liability. If your aggregated turnover is equal to or more than $20M – 38.5% of eligible R&D expenditure, paid as a tax credit only – up to a maximum of $100m (to be increased to $150m).
The 2020 Federal Government budget unveiled changes to the program’s benefit. A detailed explanation can be found here: R&D Tax Incentive changes in 2020/2021 Budget.
How can I get started?
So, where do you start? See R&D Tax Incentive – Getting Started for a general introduction. This will walk you through.
- How the R&D Tax Incentive program works
- The pros and cons of submitting your own application vs using a specialist
To get started with the R&D Tax Incentive, it is best to talk to a specialist in this field.
To get the most out of your R&D Tax Incentive application, and to make managing your R&D Tax Incentive application more efficient and less effort, you should also talk to your R&D Tax Incentive specialist early in your R&D. You should also structure your R&D in the right way See How to structure your R&D for the R&D Tax Incentive.
You need to document the R&D activities that you are claiming – for both the technical work (experiments) and for the expenses you are claiming in case your application is subsequently reviewed by AusIndustry or the Australian Taxation Office. See Supporting Documentation and AusIndustry reviews.
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