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Research & Development (R&D) Tax incentive

Research & Development (R&D) Tax incentive

R&D Tax Incentive benefits

What is it?

The R&D Tax Incentive is a self-assessment program designed to encourage companies to conduct research and development. The program provides a tax incentive for companies to conduct experimental activities, in a scientific way, for the purpose of generating new knowledge. This is a broad-based, market-driven program that aims to boost company competitiveness, improve productivity and deliver economy-wide benefits to Australia.

Benefits

What every R&D entity wants to know, of course, is “how much will I get?”

You can claim a…

  • 43.5% refundable tax offset if your aggregated turnover is less than $20 million and you are not controlled by any exempt entities
  • 38.5% non-refundable tax offset if your aggregated turnover is $20 million or more, or you are controlled by exempt entities

The minimum and maximum expenditures, respectively, are $20,000 and $100 million each year. Companies with a taxable loss position are eligible to receive a cash refund as well.

How it works

To put things in perspective, say:

  1. Your companies aggregated turnover is $5 million.
  2. Your eligible R&D activity spend is $100,000 during 2020 and you’ve applied for the R&D Tax Incentive.

You would be eligible for a $43,500 tax offset or refundable cash payment from the ATO when lodging your 2020 tax return.

Eligibility

To be eligible for the tax incentive, your business must go through a self-assessment process in order to determine whether you can apply for the incentive or not.

  1. Is your company an R&D entity?
  2. Have you undertaken eligible R&D activities?
  3. Can you identify expenditure incurred or assets used in the activities?
  4. Have you kept accurate records?

In regards to determining eligible R&D activities, the ATO website has a wealth of information to help give additional guidance. The great news about this incentive is that if an entity is eligible, then it qualifies. Our Business Blox team can help advise you through the self-assessment process in order to ensure and confirm your eligibility. 

What are R&D Activities

In this section we will cover the basic rules of what constitutes as an eligible R&D activity. Legislation has split R&D activities into “Core activities” and “Supporting activities.”

Core Activities

An entity must partake in at least one core R&D activity in order to be eligible for the incentive. Core R&D activities are defined as experimental activities with essentially these three requirements…

  1. The outcome of the research cannot be known or determined in advance
  2. The outcome must only be determined by applying a systematic progression of work that proceeds from hypothesis to experiment, observation, and evaluation, and leads to logical conclusions
  3.  The activity must be conducted for the purpose of generating new knowledge

In other words, the core R&D activities must be innovative, and carried out in a scientific fashion. Once an entity has determined that they are participating in at least one core R&D activity, then they can start to determine their supporting activities, which are activities directly related to the core activity.

Supporting activities

Supporting R&D activities are activities that are directly related to core R&D activities. These might be activities that are not experimental themselves, or which are excluded by the legislation from being core R&D activities. Supporting R&D activities need to have a direct, close and relatively immediate relationship to the core R&D activity. They may occur at a different location or time to the core R&D activities, but they must maintain the required relationship. Supporting R&D activities are claimed at the same rate of benefit as core R&D activities.

HOW WE HELP YOU

Get in touch with a Business Blox consultant today, find out if your business is eligible to take advantage of the R&D Incentive program.

Our team will help to guide you through the eligibility, application and lodgment process of the R&D Tax Incentive program, ensuring that you receive maximum benefits when it comes to this R&D tax incentive.

Our registered tax agents will provide full R&D tax services including

  • Reviewing all aspects of your R&D activities
  • Help to complete the complex application form
  • Break down R&D activities – Core & Supporting
  • Eligibility/Ineligibility of all your R&D related expenses.
  • Compliance and thorough record keeping

Contact us on our website or on our LinkedIn page today for a consultation and more info on our services.

Additional Resources:

Offset your R&D costs to help innovate and grow your business

Eligible Activities

 

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