This programme aims to provide a tax benefit to companies to help offset some of the cost of conducting eligible research and development activities. It is the government’s key mechanism to stimulate Australian industry’s investment in R&D.
The programme has two core components based on company turnover. For income years from 1 July 2016:
– A 43.5% refundable tax offset is available for eligible companies with an aggregated annual turnover of less than $20 million per year, provided they are not controlled by income tax exempt entities.
– A 38.5% non-refundable tax offset is available for all other eligible companies. Unused offset amounts may be carried forward to future income years.
For income years before 1 July 2016, the refundable tax offset is 45% and the non-refundable tax offset is 40%.
For companies whose eligible expenditure exceeds $100 million for an income year, the tax offset for amounts claimed above $100 million is reduced to the company tax rate.
To claim the tax offset, applicants must:
– Self-assess their eligibility for the R&D Tax Incentive.
– Make sure they keep records as evidence of their eligibility.
– Apply to register their R&D activities with the department.
– Claim the offset through their company’s income tax return.
The deadline for lodging an application to register eligible R&D is ten months after the end of the company’s income year. This means:
– A company with a standard income period of 1 July to 30 June must lodge its registration application with the department by 30 April.
– A company with a non-standard income period of 1 January to 31 December must lodge its registration application with the department by 31 October.
After the deadline, an extension of time to register a late application may only be granted if the reason for an extension was not the fault of the company (or it’s agents and advisors) and not within its control. A company must submit a written request for an extension of time to submit a late application.
Applicants must lodge an application for registration for each year in which their company wishes to claim the R&D Tax Incentive.
Who Can Apply?
Eligible applicants must be an R&D entity. A company is an R&D entity if they are a corporation that is any of the following:
– Incorporated under Australian law.
– Incorporated under foreign law but an Australian resident for income purposes.
– Incorporated under foreign law and are both:
- Resident of a country with which Australia has a double tax agreement, including a definition of ‘permanent establishment’.
- Carrying on business in Australia through a permanent establishment as defined in the double tax agreement.
Companies are not eligible for an R&D tax offset if they are:
– An individual
– A corporate limited partnership
– An exempt entity (where your entire income is exempt from income tax)
– A trust (with the exception of a public trading trust with a corporate trustee)
R&D entity may also need to consider the special rules applied to consolidated groups and R&D partnerships. Other conditions may also apply, depending on whom the R&D activities are being conducted for.
Please refer to the website for the complete eligibility requirements.
Eligible R&D activities are either:
1. Core R&D activities
– Experimental 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.
- Proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions.
– Experimental activities that are conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes or services).
2. Supporting R&D activities
– Activities directly related to core R&D activities.
– The activity is a supporting R&D activity only if it is undertaken for the dominant purpose of supporting core R&D activities.
Main Assessment Criteria
The R&D Tax Incentive is a self-assessment programme. This means that applicants are responsible for assessing whether their company and the R&D they are conducting meet the eligibility requirements of the programme. In order to register and claim the R&D Tax Incentive, applicants will need to address the following questions:
– Is the company an eligible ‘R&D entity’?
– Have they undertaken eligible ‘R&D Activities’?
– Can they identify eligible expenditure incurred or assets used in the activities?
– Have they kept records which describe:
- What they did?
- The expenditure they are claiming for?
- The assets used?
- The connection between the expenditure incurred, the assets used and the activities conducted?