R&D Tax Incentives – if you are spending on R&D you have to have a go.

By Peter Allen, Peter Allen Consulting

The R&D Tax Incentive provides research and development (R&D) tax offsets designed to encourage more companies to engage in R&D. The scheme has two core components.  Entities engaged in research and development may be eligible for:

  • a 45 per cent refundable tax offset (equivalent to a 150 per cent deduction) if their turnover is less than $20 million per annum provided they are not controlled by income tax exempt entities; or
  • a 40 per cent non-refundable tax offset (equivalent to 133 per cent deduction) for eligible entities with turnovers up to $20 billion.

Implement a few management systems and a bit of discipline to get these tax incentives working for your business.

The R&D Tax Incentive operates on a self-assessment basis. This means claimants are responsible for determining whether their activities and expenditure meet the eligibility criteria of the program, and for maintaining records to support their registration or claim.

Who can claim R&D tax incentives?

Put simply the claimant, to be an eligible R&D entity must be an Australian registered company.  Trusts are not eligible.  There are provisions for certain foreign owned entities and grouped companies.

What is eligible R&D?

The activities must contain some ‘core’ activities. That is the outcome of the activity 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:

  • is based on principles of established science; and
  • proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and
  • 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).

Supporting activities that directly relate to core R&D activities are also eligible.

What records should be maintained?

Companies must keep adequate records to demonstrate to both AusIndustry and the ATO that:

  1. they carried out eligible research and development activities (i.e. core R&D activities and supporting R&D activities);
  2. they incurred eligible expenditure in relation to those activities ; and
  3. their R&D activities and expenditure met all other legislative requirements under the program.

Relevant records include those normally maintained to support income tax claims and those that cover the planning and progress of R&D activities.

The records kept by individual claimants will vary depending on the nature of their business and their R&D activities.

For more information contact Peter Allen on peter@pallenconsulting.com.au.  Peter Allen is a registered Tax Agent specializing in R&D tax incentives.

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