R&D tax incentive overview

The incentive provides a tax offset which has the effect of increasing the tax value of expenditure on R&D activities.

For R&D undertaken before 30 June 2021, the previous tax offset rates apply:

• 43.5% refundable tax offset for companies with annual turnover less than $20 million.
• 38.5% non-refundable tax offset for companies with annual turnover of $20 million or more.

From 1 July 2021, new incentive benefits apply.. Companies can receive an offset calculated based on a premium on top of their corporate tax rate:

• Companies with an aggregated turnover of less than $20 million may receive a refundable R&D offset rate equal to their corporate tax rate plus an 18.5% premium (effective rate of 43.5%).
• Companies with an aggregated turnover of $20 million or more may receive a non-refundable R&D tax offset rate equal to their corporate tax rate plus an incremental premium. Premium increments are based on the intensity of the R&D expenditure as a proportion of total expenditure for the year. There are two premium increments:
  1. R&D intensity up to 2% receives a tax offset equal to the company tax rate plus 8.5% premium.
  2. Additional R&D intensity above 2% receives a tax offset equal to the company tax rate plus 16.5% premium.

From 1 July 2021, if the eligible expenditure exceeds $150 million for an income year, the tax offset is calculated using the company tax rate.

The R&D Tax Incentive has an updated application process. Companies are now able to submit their application using the R&D Tax Incentive customer portal. To be able log into the R&DTI customer portal, applicants must be authorised.

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.

Making application

Registration should be submitted within 10 months of the end of the income year, during which companies spent funds on the R&D activities. Businesses must apply for registration each year they conduct eligible R&D activities. 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 via the form below or on: