Do you want to learn more about the Research and Development Tax Incentive?
The Research and Development Tax Incentive (R&DTI) is a way for the Australian Government to encourage business to invest in research and development activities that will benefit companies and the broader Australian economy.
It provides tax benefits to companies that engage in eligible Research and Development projects that may not otherwise be conducted because of an uncertain return from these activities.
Without the incentives, businesses may not be willing to incur the costs to develop a new product where the successful outcome is not known.
If your company spends money on eligible research and development to create new or improved products, processes, or services, they can claim the Research and Development tax incentive for those expenses. Once the Research and Development claim is approved by AusIndustry, you can claim your tax incentives and reduce the amount of tax you are required to pay, or receive a cash refund if your company is in a tax loss position.
The Research and Development Tax Incentive provides a 45% refundable tax credit (that’s equivalent to a 150% deduction) for eligible businesses with an aggregated turnover of less than $20 million per annum, or a 40% non-refundable tax credit for all other eligible entities is paid on assessment of the company’s income tax return.
Under the research and development tax incentive (R&DTI) program, eligible activities are those that involve systematic and experimental activities aimed at generating new knowledge, improving existing processes, or developing new products or services.
Find out if you can claim the Research and Development Tax Incentive
The Research and Development Tax Incentive is a self-assessment program, and you are responsible for ensuring your activities meet the legal requirements. The research and development tax incentive takes the form of a tax credit when you lodge your company tax return.
Before you can register for the program, you must decide whether your R&D activities are eligible. Your claim for Research and Development activities will be reviewed by AusIndustry and an approval number provided to you. Once approved, you can include your Claim for the Research and Development Tax Incentive in your company tax return.
What type of companies can claim the Research and Development Tax Incentive?
- A company incorporated under Australian law
- A company incorporated under a foreign law that is an Australian resident for tax purposes
- A company incorporated under a foreign law that is a resident of a foreign country with a double tax agreement with Australia
- A legal entity acting as a trustee of a public trading trust
What type of activities are eligible for the Research and Development Tax Incentive?
There are two components of eligible Research and Development activities which are:
- Core Research and Development Activities
- Supporting Research and Development Activities
Eligible Core Research and Development Activities
A Core Research and Development process is required in every Research and Development grant claim. For an activity to be considered ‘Core’ there are multiple rules that apply such as:
Your project should aim to create new knowledge and involve uncertainty, meaning that the outcome or solution you are seeking is not readily known or achieved through existing knowledge or practices. The purpose of your activity is to generate innovative ideas, develop new technologies or advance scientific understanding in your field of research.
Activities conducted should be in a systematic manner, meaning they are thoughtfully planned, following an established scientific or technical principle, and show documentation of the process throughout the experiment. The scientific method should be followed: hypothesis, experiment, observation, evaluation, which leads to logical conclusions.
Projects must involve experimental activities such as developing prototypes, conducting trials, and testing hypotheses.
Finally, if you have made it past each eligibility requirement, you must keep records of the experiments taking place to be eligible for the incentive.
Eligible Supporting Research and Development Activities
A Supporting Research and Development Activity is directly related to a Core Activity, or it is solely occurring to support Core Activities.
The Minimum Expenditure on your research and development is $20,000 for you to qualify for the tax incentive. Eligible expenditure includes most costs involved with the activities such as:
- Costs incurred conducting Research and Development activities
- Decline in value of an asset used for conducting Research and Development
- Balancing adjustments for assets used only for conducting Research and Development activities
- Costs of transforming or processing goods and materials during Research and Development activities
There are some types of expenditure that you cannot claim as part of your research and development costs. These are:
- Expenditure that does not carry a genuine risk of loss if the R&D project fails or does not generate the expected outcomes
- Core technology expenditure
- Expenditure included in the cost of a depreciating asset
- Expenditure incurred to acquire or construct a building
If you are eligible for the Research and Development tax incentive, your next step is to find out how you can register for the program and claim your tax incentives. The Australian Government has additional information on the Research and Development Tax Incentive (R&DTI) program here.