Can my business claim the Research & Development incentive for software projects?
Is your company planning to develop software as part of an experimental Research & Development (R&D) project? You may qualify for the R&D tax incentive.
The R&D Tax Incentive is the government’s way of supporting business talents. As the owner of a business that has some focus on innovation in products, devices, services, materials or processes, the cost and risk associated with R&D would have crossed your mind. Claiming an R&D Tax Incentive is a way to alleviate the concern around spend, and make sure innovation in your business has no hurdles.
The incentive broadly offers for companies with turnover below $20 million: a refundable tax offset of 43.5% of eligible R&D expenditure; or for other companies: a non-refundable offset of 38.5%.
These offsets generally apply to expenditure above $20,000 on relevant activities and $100 million.
To qualify, a company must have “core” R&D activities. It can then claim the offset for expenditure on those core activities (as well as for “supporting” activities that are directly related to the core activities: more below). Core activities are essentially experimental activities conducted using scientific principles to generate new knowledge. Crucially:
- you cannot know the outcome of the experimental activities on the basis of current knowledge, information or experience;
- the new knowledge generated must result from a systematic progression of work that involves testing one or more hypotheses; and
- the knowledge generated must be “new” in the sense that it’s not already available and reasonably accessible in the public arena on a world-wide basis.
The Department of Industry, Innovation and Science (DIIS) has recently released guidelines to help clarify the rules as they apply to software development. Some examples of activities that generally may be, or won’t be, eligible, include the following:
May be eligible as core R&D activities
Generally not eligible
If your software development activities don’t qualify as “core” activities, you may still be able to claim these as “supporting” activities that directly relate to other core activities.
We’re here to help
If you’re thinking about a software development project, speak to your Mazars advisor about whether it may qualify for the R&D incentive. We can also help you register a claim and guide you through the necessary documentation requirements.
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Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.