R&D Tax Incentive

Introduction

 

The R&D Tax Incentive Scheme is a targeted entitlement program that helps businesses offset some of their costs of conducting R&D. It offers generous tax deductions as well as cash refunds to eligible entities. Firms of all sizes and within all industry sectors may be eligible. This benefit provides enormous benefits, particularly to small and medium-sized firms. 

 

This Tax Incentive has two components:

 

  1. A 43.5% refundable tax offset (equivalent to a 148.5% deduction) to eligible entities with an aggregated turnover of less than $20 million per annum

  2. A non-refundable 40% tax offset (equivalent to a 133% deduction) to all other eligible entities

What is an Eligible Entity?

An eligible entity is a corporation that is any of the following:

 

  1. Incorporated under an Australian Law

  2. Incorporated under a foreign law but an Australian resident for income purposes

  3. Incorporated under a foreign law and are both:

    • a resident of a country with which Australia has a double tax agreement, including a definition of 'permanent establishment; and

    • carrying on a business in Australia through a permanent establishment as defined in the double tax agreement

Identifying Core R&D Activities

In order to claim R&D tax benefits, your company must have Core R&D Activities, which are activities:

 

  • Whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that:

    • is based on principles of established science; and

    • proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions

    • that are conducted for the purpose of generating new knowledge (including about creating new knowledge or improved materials, products, devices, processes or services)

 

It is important to note that certain activities do fall under the Core R&D Exclusion List, meaning they are not eligible to be claimed.

Identifying Support R&D Activities

In addition to Core R&D Activities, certain activities must take place in order for the R&D activities to occur, e.g. the hiring of scientific staff, purchase of equipment, overheads etc. These expenses may be claimed on top of your Core R&D. 

 

A supporting activity is one that is directly related to core R&D activities or, for certain activities, has been undertaken for the dominant purpose of supporting core R&D activities. Activities that must satisfy the dominant purpose requirement are those that produce - or are directly related to producing - goods or services; or are excluded from being core R&D activities.

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