R&D Tax Incentive ProgrammeOverview
This programme aims to provide a tax benefit to companies to help offset some of the cost of conducting eligible research and development activities.
The programme has two core components based on company turnover. For income years from 1 July 2016:
- A 43.5% refundable tax offset is available for eligible companies with an aggregated annual turnover of less than $20 million per year, provided they are not controlled by income tax exempt entities.
- A 38.5% non-refundable tax offset is available for all other eligible companies. Unused offset amounts may be carried forward to future income years.
For companies whose eligible expenditure exceeds $100 million for an income year, the tax offset for amounts claimed above $100 million is reduced to the company tax rate.
On 8 May 2018, the Treasurer, the Hon Scott Morrison MP, announced changes to the R&D Tax Incentive, as part of the Federal Budget 2018-19. To this end, the government will, from 1 July 2018:
- Introduce a $4 million annual cap on cash refunds for R&D claimants with aggregated annual turnover less than $20 million. Amounts that are in excess of the cap will become a non-refundable tax offset and can be carried forward into future income years.
- Exclude R&D tax offsets for clinical trials from the $4 million cap on cash refunds, recognising the critical role of R&D expenditure on clinical trials in developing life changing drugs and devices.
- Amend the refundable R&D tax offset so it is a premium of 13.5 percentage points above the claimant's company tax rate for that year.
The new R&D tax offsets are:
- Refundable R&D Tax offset (companies with aggregated annual turnover less than $20 million): The claimant's tax rate for the year plus 13.5 percentage points.
- Non-refundable R&D Tax offset (companies with aggregated annual turnover of $20 million or more): The claimant's tax rate for the year, plus:
a) 4 percentage points for R&D expenditure between 0% and 2% R&D intensity (inclusive).
b) 6.5 percentage points for R&D expenditure above 2% to 5% R&D intensity (i.e. not including R&D expenditure falling within the first 2% of the claimant's total expenses for the year).
c) 9 percentage points for R&D expenditure above 5% to 10% R&D intensity (i.e. not including R&D expenditure falling within the first 5% of the claimant's total expenses for the year).
d) 12.5 percentage points for R&D expenditure above 10% R&D intensity (i.e. not including R&D expenditure falling within the first 10% of the claimant's total expenses for the year).
Eligible applicants must be an R&D entity. A company is an R&D entity if they are a corporation that is any of the following:
- Incorporated under Australian law.
- Incorporated under foreign law but an Australian resident for income purposes.
- Incorporated under foreign law and are both:
a) Resident of a country with which Australia has a double tax agreement, including a definition of 'permanent establishment'.
b) Carrying on business in Australia through a permanent establishment as defined in the double tax agreement.
Companies are not eligible for an R&D tax offset if they are:
- 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).
R&D entity may also need to consider the special rules applied to consolidated groups and R&D partnerships. Other conditions may also apply, depending on whom the R&D activities are being conducted for.
Please refer to the website for the complete eligibility requirements.
Eligible R&D activities are either:
1. Core R&D activities
- 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:
a) Is based on principles of established science.
b) Proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions.
- Experimental activities 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).
2. Supporting R&D activities
- Activities directly related to core R&D activities.
- The activity is a supporting R&D activity only if it is undertaken for the dominant purpose of supporting core R&D activities.
The R&D Tax Incentive is a self-assessment programme. This means that applicants are responsible for assessing whether their company and the R&D they are conducting meet the eligibility requirements of the programme. In order to register and claim the R&D Tax Incentive, applicants will need to address the following questions:
- Is the company an eligible ‘R&D entity'?
- Have they undertaken eligible ‘R&D Activities’?
- Can they identify eligible expenditure incurred or assets used in the activities?
- Have they kept records which describe:
a) What they did?
b) The expenditure they are claiming for?
c) The assets used?
d) The connection between the expenditure incurred, the assets used and the activities conducted?
- Research & Development
- Business Support
|Guide to Interpretation||2018-01-19||Download|
|Simplified Worked Examples||2018-04-30||Download|
|Factsheet - Eligibility of Activities||2018-06-01||Download|
|Application Notes for Registration of Activities Form||2018-06-01||Download|
|Application Notes - Advance Overseas Finding||2018-06-01||Download|
|Compliance Readiness - The Importance of Record Keeping||2018-06-01||Download|
|Fact Sheet - Budget 2018-19||2018-10-31||Download|
Use these documents as a guide only - always get the latest direct from the Administrator