What is the R&DTI?

Who is Eligible for the R&D Tax Offset? 

R&D involves conducting an experiment or test to gain new knowledge. This new knowledge could be used to develop new or improved materials, products, devices, processes, software, or services. Simply put, this means that at the start of this process you are unaware of what the technical outcome will be and need to conduct further research and testing in order to overcome this uncertainty. 

R&D Tax Incentive Offset Rates 

The tax offset for eligible R&D conducted from 1 July 2021 is now based on a premium on top of your corporate tax rate and is dependent on a company’s annual aggregated turnover. 

Annual Turnover of less than $20 million 

  • For R&D entities with aggregated turnover of less than $20 million, the refundable R&D tax offset is your corporate tax rate plus an 18.5% premium. 

Annual Turnover of $20 million or more 

  • For R&D entities with aggregated turnover of $20 million or more, the non-refundable R&D tax offset is your corporate tax rate plus an incremental premium. 

The premium increments are based on your R&D Intensity. This is a percentage of your eligible R&D expenditure as proportion of your total expenditure for the year. 

  • All eligible R&D expenditure up to 2% R&D Intensity will receive a non-refundable R&D tax offset equal to your corporate tax rate plus an 8.5% premium. 
  • Additional eligible R&D expenditure above 2% R&D Intensity will receive a non-refundable R&D tax offset of your corporate tax rate plus a 16.5% premium. 

What Amounts Can I Claim? 

Eligible expenditure is expenditure that has been incurred on or directly related to one or more core or supporting R&D activities and typically includes salary and wages of employees directly involved in R&D activities, contract expenditure (labour hire, provision of services, consultants working on R&D activities), decline in value of assets used to carry out the R&D activities, and other expenditure such as overheads (rent, electricity) or materials consumed during the experimentation process. ​​

If you are claiming costs of work undertaken by associated entities, it must be both incurred and paid to the associate in the same year. If you incur R&D expenditure from associates that is not paid by the end of the financial year, you are still able to carry forward and claim the amount in subsequent years, following payment. 

Steps You Need to Follow 

Applying for the R&DTI is an annual process. Each year, you should review the following steps as part of your application process. These steps help to ensure you and your R&D activities are eligible. 

Step 1: Self-assess your eligibility while planning your R&D activities 

Step 2: Consider applying for an Overseas Finding or Advance Finding (if you are looking to conduct overseas activity or require certainty from the regulators on the eligibility of the activities in advance) 

Step 3: Conduct R&D, continue to self-assess and keep records tracking the progression of work 

Step 4: Register activities for the program with AusIndustry (no later than 10 months after year end) 

Step 5: Claim your tax offset through your annual company tax return 

Eligibility for R&D Tax Offsets 

Broadly speaking, your eligibility to claim R&D tax offsets will depend on whether you: 

  • are an eligible R&D entity 
  • incurred notional deductions of at least $20,000 on eligible R&D activities  

You can only claim an R&D tax offset if you are an R&D entity. You are an R&D entity if you are a corporation that is 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’ 
  • carrying on business in Australia through a permanent establishment as defined in the relevant double tax agreement. 

You are not eligible for an R&D tax offset if you are either: 

  • an individual 
  • a corporate limited partnership 
  • an exempt entity (where your entire income is exempt from income tax) 
  • a trust (with the exception of a public trading trust with a corporate trustee) 

Eligible R&D Activities 

1. The R&DTI is a Self-Assessment Program

You need to self-assess your R&D activities against the legislative requirements. It’s your responsibility to ensure your registration and claim for the R&DTI are correct. 

R&D activities must meet certain criteria to be eligible for the R&D Tax Incentive. They must be classified as either core R&D activities or Supporting R&D activities. 

2. Core R&D Activities

Core R&D activities are experimental activities:  

  • whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience 
  • which can only be determined by applying a systematic progression of work that 
  • is based on principles of established science 
  • proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions  
  • that are conducted for the purpose of generating new knowledge (including about creating new knowledge or improved materials, products, devices, processes or services) 

3. Supporting R&D Activities

A supporting R&D activity is one that is directly related to core R&D activities or, for certain activities, has been undertaken for the dominant purpose of supporting core R&D activities. 

Activities that must satisfy the dominant purpose requirement are those that either: 

  • produce – or are directly related to producing – goods or services, or 
  • are excluded from being core R&D activities. 

Your eligibility to claim the R&D tax offset will also depend on where you are conducting your R&D activities. 

4. Where You Are Conducting Your R&D Activities

Generally, only R&D activities conducted in Australia qualify for the R&D Tax Incentive. However, R&D activities conducted overseas also qualify if AusIndustry makes a finding that your activities meet the conditions specified in section 28D of the Industry Research and Development Act 1986 (IR&D Act). 

5. R&D Record Keeping Requirements

When claiming the R&D Tax Incentive, it is important for companies to keep contemporaneous records to substantiate the eligibility of the activities as well as satisfying the nature and quantum of expenditure as it relates to those activities. Maintaining good records helps companies to self-assess their R&D eligibility, comply with program requirements and regulations, minimise costs in the event of a review/audit, and substantiate the R&D expenditure claimed. 

Who Administers the R&D Tax Incentive? 

The R&D Tax Incentive is jointly regulated by AusIndustry and the Australian Taxation Office (ATO). These Government bodies have the authority to review businesses’ R&D activities and associated expenditure, either concurrently or separately.  

AusIndustry and the ATO may review a claim at any time from when it is lodged to up to four years later (applicable to most circumstances). In other words, even if your R&D claim is originally registered and processed, it may still undergo review at a later stage, and certain aspects of the claim could potentially be disallowed. This emphasizes the significance of maintaining comprehensive and accurate documentation for previous years to ensure compliance and eligibility. 

Working With Us 

Our specialist R&D Tax Incentive and Grants Advisory advisors are dedicated to achieving the best possible outcomes for your business. We do this by supporting you every step of the way, making the process of reporting and claiming the R&D Tax Incentive simple.  

By successfully claiming the R&D Tax Incentive, you will be well placed to continue funding research and development to improve your product, service, process, material or device, generating more new knowledge for your business and contributing to the Australian innovation economy.  ​​

Our R&D Tax Incentive and Grants Advisory team have significant experience assisting companies claim the R&D Tax Incentive. In addition, our team has assisted in the successful submission of applications for a diverse range of Government Grants, providing companies with access to funding opportunities that are available to them.  ​​

Our experienced team, work with you and your personnel and will be there every step of the way to help you identify all opportunities to further your innovations on your journey to bringing your technologies to life as you reach for your commercialisation targets. We work with our clients in customised ways, and can provide tailored solutions to coordinate your R&D compliance and governance requirements depending on your circumstances and funding needs. ​​

For more info and to get in touch with the team, please visit the Gild R&D Incentives & Grants page.