R&D Tax Incentives

The incentive provides for a tax offset that is proportional to the business’ qualifying expenditure on R&D activities. The rate of the tax offset is generally influenced by the business’ group turnover. The four most common scenarios are outlined below, along with a description of the benefit to the business from claiming the incentive:

• Made a loss for the financial year and group turnover below AUD $20 million: a cash refund of up to 43.5%. For example, spending $1,000,000 on R&D could result in a cash payment of up to $435,000.
• Made a profit for the financial year and group turnover below AUD $20 million: an 18.5% tax saving. For example, spending $1,000,000 on R&D could result in a reduction in the business’ income tax bill of $185,000.
• Made a loss for the financial year and group turnover above AUD $20 million: no immediate financial benefit. However, future years’ income tax bills could potentially be reduced.
• Made a profit for the financial year and group turnover above AUD $20 million: either an 8.5% or a 16.5% tax saving. For example, spending $1,000,000 on R&D could result in a reduction in the business’ income tax bill of between $85,000 and $165,000

The R&D Tax Incentive, contained within Division 355 of the Income Tax Assessment Act 1997, is jointly administered by AusIndustry and the Australian Taxation Office. An application for any R&D undertaken during a particular financial year is submitted to AusIndustry. If the application is ‘registered’ (conceptually similar to approved) by AusIndustry, then an extra document (known as the R&D Tax Incentive Schedule) is prepared, which provides certain details about the expenditure on the R&D during that financial year. The R&D Tax Incentive Schedule is then added to the business’ income tax return and lodged with the Australian Taxation Office.

The incentive seeks to support businesses that undertake ‘R&D activities’, which can either be:

• 'Core R&D activities’ – seeking to create new or improved technologies (generally products, processes or software) using an experimental approach;' or
• ‘Supporting R&D activities’ – activities directly related to ‘core R&D activities’.

• Qualifying expenditure can include employee remuneration (wages and salaries, superannuation, etc.), contractor payments, overheads, materials, software subscriptions, and depreciation of assets.
• The expenditure must generally relate to R&D that was physically conducted within Australia.

Yes. Applications can be made up until 10 months after the end of the financial year that the R&D was conducted within.

Multiple project applications are permitted per company per financial year. The maximum amount of expenditure on R&D that can be claimed through the incentive by a single business is $150,000,000 per financial year.