Grants & Incentives >  R&D Tax Incentive

Claim back tax
on R&D costs

Innovative businesses need to know about the Research and Development Tax Incentive.

The R&D Tax Incentive is offered by the Australian Government to entice businesses to invest in research and development. This is one way our government recognises that it can support R&D activities to advance good ideas, which ultimately benefit us all through innovation and economic growth. Generous tax offsets of up to 43.5% or 43.5 cents are on offer. The size of the offset is determined by the entity’s aggregated turnover.

UNDER $20 MILLION AGGREGATED TURNOVER

Entitles the entity to a refundable offset calculated as: ‍tax rate + 18.5%‍‍This equals 43.5% for most companies.‍This means profitable entities pay less tax and entities making a loss will get a cash refund.

OVER $20 MILLION AGGREGATED TURNOVER

Entitles the entity to non-refundable tax offset to reduce its tax liability or carry forward to future periods. Calculated based on ‘R&D intensity’, benefits range from 33.5% to 46.5%.

AM I ELIGIBLE FOR THE R&D TAX INCENTIVE?

You don’t need to be Elon Musk to access the Research & Development Tax Incentive. Companies in any industry can apply for research assistance if they are undertaking experimental activities to build new product and service offerings. R&D Tax Incentive claims are made through a self-assessment scheme. There are two essential points to satisfy to claim.

1. Am I An Eligible R&D Tax Incentive Entity?

An eligible entity must be either:

• incorporated under an Australian law
• incorporated under a foreign law but an Australian resident for income tax purposes
• incorporated under a foreign law and you are both:
• a resident of a country with which Australia has a double tax agreement that includes a definition of ‘permanent establishment’; and
• carrying on business in Australia through a permanent establishment as defined in the double tax agreement

What’s more, an eligible applicant must essentially bear the risks and own the results of the research and development activities. And note that the research and development activities should be conducted for your business (rather than for another entity).

2. Are My Activities Eligible For The R&D Tax Incentive?

The first question is whether your R&D activities are conducted in Australia or overseas. All eligible activities conducted in Australia qualify for the R&D Tax Incentive. Overseas activities might be eligible, but there are conditions which must be met when it comes to R&D tax. To be eligible, all R&D activities must be either Core R&D Activities or Supporting R&D Activities.

CORE R&D ACTIVITIES

These are experimental research and development activities:

• whose outcome cannot be known or determined in advance based on 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

Put simply, you must be seeking to gain new knowledge in the field by experimenting.

Core R&D Activities are conducted for generating new knowledge (including improved materials, products, devices, processes or services). It is worth noting that some types of activities are specifically excluded from being Core R&D Activities.

SUPPORTING R&D ACTIVITIES

These activities are directly related to Core R&D Activities or are undertaken for the dominant purpose of supporting Core R&D Activities. As an example, gathering data to build a database which will support your testing could be eligible for the R&D Tax Incentive.