R&D Tax Incentive Overview
The R & D Tax Incentive is the Federal Government's principal measure to encourage corporate investment in research and development. The program is conducted jointly by AusIndustry (on behalf of Innovation Australia) and the Australian Taxation Office (ATO).
The incentive offers:
- A 43.5% refundable tax offset for eligible expenditure for companies with a turnover <$20 Million
- A 38.5% non-refundable tax offset for eligible expenditure for companies with a turnover >$20 Million
Small businesses who have not even paid tax, could be entitled to a tax refund.
To apply for the Tax Incentive, eligible activities must first be registered with AusIndustry.
Activities are split into Core and Supporting activities.
Core R & D Activities are defined as 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; and
- proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and
- 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 activities must be conducted for the dominant purpose of supporting core R & D activities.
Companies must keep adequate records to be able to substantiate that their activities met the above definitions.
Applications for registration of eligible activities must be lodged with AusIndustry before 30 April of the year following the year of expenditure. Applications must contain sufficient detail to describe how the activities satisfied the above definitions. Applications are reviewed before a registration number is issued, but they may also be audited in the future.
To mitigate any issues under an audit and have certainty of outcomes, companies can now apply for an advance finding (similar to an ATO private ruling) before they apply for registration.
Making a claim
The tax incentive is claimed by completing a Research and Development Tax Incentive Schedule which forms part of the company income tax return and needs to include the AusIndustry registration number.
In addition to the direct costs associated with the activities, companies can also claim overheads, depreciation and other supporting expenses to the extent they relate to R & D activities. Australia has a self assessment income tax system, so tax incentive claims may be initially assessed, but may be subject to later audit by the ATO.
Mazars can assist your company with their R & D tax incentive claim including:
- Identifying your company's eligible activities;
- Applying for advance findings (if necessary) to determine eligibility (compulsory for overseas activities);
- Reviewing your expenditure to help maximise your claim;
- Reviewing or assisting with internal record keeping systems to simplify future compliance and audit activity;
- Prepare the annual AusIndustry application for registration of activities;
- Complete the ATO's Research and Development Tax Incentive schedule;
- Assisting with audits or reviews.
For more information on the R & D Tax Incentive and how Mazars can assist your company, please contact your usual Mazars adviser