R&D Tax Incentive Programme

This programme aims to provide a tax benefit to companies to help offset some of the cost of conducting eligible research and development activities. It is the government’s key mechanism to stimulate Australian industry’s investment in R&D.

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.

To claim the tax offset, applicants must:
- Self-assess their eligibility for the R&D Tax Incentive.
- Make sure they keep records as evidence of their eligibility.
- Apply to register their R&D activities with the department.
- Claim the offset through their company’s income tax return.

The deadline for lodging an application to register eligible R&D is ten months after the end of the company's income year. This means:
- A company with a standard income period of 1 July  to 30 June must lodge its registration application with the department by 30 April.
- A company with a non-standard income period of 1 January to 31 December must lodge its registration application with the department by 31 October.

After the deadline, an extension of time to register a late application may only be granted if the reason for an extension was not the fault of the company (or it's agents and advisors) and not within its control. A company must submit a written request for an extension of time to submit a late application.

Applicants must lodge an application for registration for each year in which their company wishes to claim the R&D Tax Incentive.

Due to the COVID-19 pandemic and bushfires 2019-20 the following announcement has been made:
- If the applicant's accounting period is from 1 January 2019 to 31 December 2019, applications can be lodge up to 31 March 2021.
- If the substituted accounting period ends before 31 December 2019, application can be lodge up to 15 months after it closes.
- If the applicant can't lodge their application by the relevant date, they can request an extension of time in the usual way. Note that additional extensions of time may only be granted in exceptional circumstances.

The Government has announced an amended package of the R&D Tax Incentive reforms in the 2020-21 Budget that will now apply from the first income year commencing on or after 1 July 2021. The changes will include:
- For companies with an aggregated turnover of $20 million or more, the Government will introduce a two-tiered premium that ties the rates of the non-refundable R&D tax offset to the incremental intensity of the R&D expenditure as a proportion of total expenditure for the year. The new rates will be the claimant's company tax rate plus:
a) 8.5 percentage points for R&D expenditure up to 2%t R&D intensity
b) 16.5 percentage points for R&D expenditure above 2% R&D intensity
- For companies with an aggregated turnover below $20 million, the refundable R&D tax offset will be a premium of 18.5 percentage points above the claimant's company tax rate.
- Increase the R&D expenditure threshold from $100 million to $150 million per annum.

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?