What is the R&D Tax Incentive?
The Research and Development Tax Incentive, or R&DTI, is a way for the Australian Government to encourage companies to do R&D by providing a tax offset to conduct R&D that they might not otherwise conduct due to risk or uncertain returns. Two Australian agencies are involved with R&D in Australia, the Australian Tax Office (ATO) and AusIndustry.
Who can apply for an R&D Tax incentive?
Only Australian companies and foreign entities who are Australian Tax Resident, and of a country which Australia has a double tax agreement (DTA) with and carries on business in Australia through a permanent establishment (PE). All claimants are required to register with AusIndustry before claiming the R&D tax offset in their company tax return. AusIndustry will issue the registration number to use in the company tax return for R&D expenses.
The ATO determines whether the R&D expenditure claimed in the entity’s annual income tax return is directly related to the eligible R&D activities and is substantiated by documentary evidence.
There are effectively two types of offset depending on the size of the business
- 43.5% offset where the R&D entity’s aggregated turnover for the income year is less than $20 million; and
- 38.5% non-refundable offset in all other circumstances
These offset rates are only available for R&D amounts of up to $100m
What are R&D Activities
Core R&D activities
These are experimental activities based on principles of established science; and proceeds from hypothesis to experiment, observation and evaluation (including new knowledge in the form of new or improved materials, products, devices, processes or services).
Supporting R&D activities
Supporting R&D activities are those that directly relate to core R&D activities. You must demonstrate how your supporting R&D activity directly relates to a core R&D activity.