R&D Tax Incentive Program

BSI Admin
THE R&D TAX INCENTIVE

The R&D Tax Incentive program provides generous benefits for Australian or foreign companies resident in Australia, or permanent establishments of foreign companies carrying on R&D in Australia.

Assistance for the 2015/16 financial year is provided via two core components:

  • A 45% refundable tax offset for eligible entities with aggregated turnover of less than $20 million; or
  • A 40% non-refundable tax offset for other eligible entities.

For income years starting on or after 1 July 2016, the following rates will apply:

  • A 43.5% refundable tax offset for eligible entities with aggregated turnover of less than $20 million; or
  • A 38.5% non-refundable tax offset for other eligible entities.
BENEFITS

The net after-tax benefit of the R&D Tax Incentive varies depending on which offset the applicant qualifies for, and the extent of current or prior year tax losses being carried by the business.

Where a company is eligible for the 45% refundable tax offset, and is in a tax paying position with no tax losses, the net after-tax benefit of the program is equal to 15% of the eligible R&D expenditure claimed.  For example, a company with aggregated turnover of less than $20 million, which is in profit and has spent $200,000 on eligible R&D activities in an income year, would obtain a tax saving of $30,000. With the new rates coming in from 1 July 2016, this will be reduced to $27,000.

APPLYING

Applicants must register their R&D activities with AusIndustry within 10 months of the end of the financial year in which they were conducted (e.g. a company with  year ending on 30 June, who conducted R&D in 2015/16 must lodge the Application Form for that year before 30 April 2017).

Once AusIndustry have registered a company’s R&D activities, an R&D Tax Schedule is prepared and lodged with the ATO as an attachment to their tax return.

ELIGIBLE R&D ACTIVITIES

Division 355 of the Income Tax Assessment Act 1997 contains the definition of R&D activities and makes the distinction between ‘core’ and ‘supporting’ activities.

A company must have conducted at least one core R&D activity in order to make an R&D Tax Incentive claim.

Core R&D activities are experimental activities:

a)      Whose outcomes 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:

i.            Is based on the principles of established science; and

ii.            Proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and

b)      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.

Supporting R&D activities are those activities directly related to core R&D activities. Supporting R&D activities may include:

  • Project management and administration
  • Literature reviews and state of the art searches including patent searches
  • The design and set up of experiments

R&D activities that result in the production or goods or services are excluded from being a core activity, however they may still be eligible if they were conducted for the dominant purpose of supporting core R&D activities.

ELIGIBLE R&D EXPENDITURE

To make a claim for an R&D Tax Offset a company must have incurred at least $20,000 of eligible R&D expenditure in the relevant income year.  Typically, eligible expenditure would include a combination of the following:

  • Salaries/wages (plus on-costs) paid to employees and internal contractors for their time spent working on R&D activities;
  • Payments to external contractors and other direct costs that were incurred directly on the R&D activities;
  • The decline in value of depreciating assets used in R&D activities; and
  • A portion of eligible overheads that provided support for the R&D activities. This may include operating overhead items such as rent, electricity, internet expenses etc.
OVERSEAS R&D ACTIVITIES

In certain circumstances, and as long as related overseas R&D expenditure is less than 50% of the total eligible project expenditure, overseas R&D activities can be claimed.

If a company wishes to claim expenditure on overseas R&D activities they must satisfy a number of additional requirements, and the company must lodge an Advance Overseas Finding prior to the end of the income year in which they commence conducting the overseas activities.

BSI INNOVATION

The R&D Tax Incentive program can be a valuable tool in providing funding support for your R&D program.  Speak to a BSI Innovation consultant today about how we can ensure your benefits entitlements are accessed for the lowest possible compliance costs.