The Research and Development (R&D) Tax Incentive program provides a 43.5 per cent cash refund to Australian companies engaged in eligible R&D activities within a financial year. Companies with an aggregated turnover of over $20 million receive a 38.5 per cent non-refundable offset. Due to the “add-back” of R&D expenditure by the ATO, only businesses with current or carried forward losses will receive the full rebate.
As such eligible businesses without a loss will received the net benefit from R&D tax as follows:
- with under $20m turnover will receive a 13.5% net tax benefit
- with over $20m turnover will receive an 8.5% non-refundable tax benefit
- small businesses (under $10m turnover) will receive a 16% net tax benefit.
R&D tax Deadline date:
All business must register with AusIndustry within 10 months of end of financial year. For most small businesses the deadline will be 30 April 2018 (for the 2016-17 financial year)
Am I eligible to claim R&D Tax Incentive?
To be eligible you must:
- be a company incorporated in Australia, or a foreign owned with a permanent establishment in Australia? (Trusts are generally not eligible)
- have conducted activities during the last financial year that involved or supported Core R&D activities*
- have appropriate records and evidence of conducting eligible R&D activities to substantiate your claim
- have undertaken your core R&D activities in Australia**
- have conducted the activities ‘for your own behalf’ with usually means you own the IP
- have over $20,000 of expenses in the year of claim
*Core Activities are defined as 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: 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 products, processes, materials, devices or services).
** Overseas R&D activities can only be claimed if you obtain an overseas finding in the year the expense is incurred.
Treadstone’s 5 top tips for claiming R&D Tax:
The R&D tax incentive should be an essential consideration for all business that are developing new products or software. Our tips:
- You must have a Pty Ltd incorporated company doing the R&D to be eligible, not a trustee or trust.
- You can claim your own salary if you are contributing to the R&D work, but if you don’t pay yourself, you can’t claim it.
- You can’t claim overseas activities without an “Advanced Finding”, so best to use Australian resources to do your R&D.
- Don’t forget to claim a proportion of overheads like rent and motor vehicles if they relate to the R&D activity.
- If you are in a loss position you will get the cash rebate up to 43.5%. If not, then your cash rebate may only be 13.5% (for standard 30% company tax rate).
How to claim R&D tax:
Making a claim is a two‐stage process:
1. Apply for registration your R&D through the Application Form within 10 months after the end of the financial year (i.e. by 30 April for 30 June end of financial year companies).
2. Calculate your eligible expenses and fill out the R&D Tax Schedule provided by the ATO. Submit this at the same time as you submit your company tax return. Treadstone will work with your accountant to ensure your claim is maximised and correctly submitted.
R&D Advanced Finding:
You can apply for an Advance Finding to get a binding decision on whether the activities you have undertaken or plan to undertake are eligible R&D activities. An advance finding is intended to give certainty as to the eligibility of R&D activities under the R&D Tax Incentive. However, an advance finding is not a pre-condition of registration nor does it replace registration. Companies will still be required to register their activities at the end of each income year that the activity was conducted.
Companies who are confident that their activities are eligible do not need to apply for an Advanced Finding. If you are unsure a qualified R&D Tax Consultant should be capable of providing advice before applying.
R&D Compliance and record keeping:
It is an essential requirement that business claiming R&D tax incentive can show the relevant documentation and records to prove their claims both for the activity and the costs.
AusIndustry may Conduct Checks that registered activities comply with the law after you have registered. Similarly, the ATO may check if the R&D costs being claimed are eligible after registration.
Want to get the best possible result?
Treadstone specialises in government grant applications and business development services for Australian SMEs. We are one of Australia’s leading R&D Tax consulting firms and we are Registered Tax Agents for the purposes of R&D Tax.
Our experience extends across many different industry sectors including software, biotech, engineering, defence, food, and manufacturing.
If you would like us to work with your business to achieve your long-term goals – contact us or call 03 9008 5937.