Australia R&D Tax Incentive Guide
the Australian R&D Tax Incentive. The guide covers: the R&D Tax Incentive — the 'R&D Tax Incentive' is the 'tax offset' for the 'eligible entities' that carry on the 'R&D activities' (the 'core R&D activities' and the 'supporting R&D activities') under the 'Industry Research and Development Act 1986' (the 'IR&D Act') and the 'Income Tax Assessment Act 1997' (the 'ITAA 1997', Division 355); the refundable R&D tax offset at 43.5% — the 'refundable offset' is available to the 'eligible entities' with the 'aggregate turnover' below $20 million (the 'SME' threshold); the 'refundable offset' is calculated at 43.5% (the 'corporate tax rate of 25% plus the 18.5% incremental rate') of the 'eligible R&D expenditure'; the 'refundable offset' is 'refundable' — the 'excess' above the 'tax liability' is 'refunded' to the 'entity' in the 'cash'; the non-refundable R&D tax offset at 38.5% — the 'non-refundable offset' is available to the 'eligible entities' with the 'aggregate turnover' of $20 million or more (the 'large company' threshold); the 'non-refundable offset' is calculated at 38.5% (the 'corporate tax rate of 30% plus the 8.5% incremental rate') of the 'eligible R&D expenditure'; the 'non-refundable offset' can reduce the 'tax liability' to 'zero' but the 'excess' is NOT 'refundable in the cash' — the 'excess' is 'carried forward' to the 'future income years' (the 'carry-forward offset'); the R&D expenditure — the 'eligible R&D expenditure' includes: (i) the 'R&D expenditure on the R&D activities' (the 'core R&D activities' — the 'experimental activities' the 'hypothesis testing' the 'systematic investigation' and the 'innovation' in the 'science' and the 'technology'; the 'supporting R&D activities' — the 'activities directly related to the core R&D activities'); (ii) the 'R&D expenditure on the 'feedstock' (the 'feedstock expenditure' — the 'materials' and the 'inputs' used in the 'R&D activities'); (iii) the 'R&D expenditure on the 'R&D services' (the 'R&D services' provided by the 'third parties'); the 'notional deductions' — the 'R&D entity' can claim the 'notional deduction' at 150% of the 'eligible R&D expenditure' (the '150% notional deduction' is the 'base for the R&D offset calculation'); the R&D activities — the 'core R&D activities' are the 'experimental activities' (the 'systematic, investigative and experimental activities') the 'outcome of which cannot be known or determined in advance on the basis of the current knowledge, information or experience'; the 'core R&D activities' must be carried on for the 'purpose of generating the new knowledge' (the 'new knowledge in the science or the technology'); the 'supporting R&D activities' are the 'activities directly related to the core R&D activities' (the 'administration, the testing, the data analysis, and the technical services'); the R&D registration and the lodgement — the 'R&D entity' must register the 'R&D activities' with the 'AusIndustry' (the 'R&D registration' through the 'AusIndustry R&D portal'); the 'R&D registration' must be lodged within 10 months after the 'end of the income year' (the 'R&D registration deadline'); the 'R&D entity' must also lodge the 'R&D Tax Incentive schedule' (the 'R&D schedule') with the 'ATO' in the 'annual tax return'.
R&D Tax Offset Rates
- SME refundable offset — 43.5%: The 'refundable offset' at 43.5% for the 'eligible entities' with the 'aggregate turnover below $20 million'. The 'offset' is 'refundable' — the 'excess' is 'refunded in the cash'.
- Large company non-refundable offset — 38.5%: The 'non-refundable offset' at 38.5% for the 'eligible entities' with the 'aggregate turnover of $20 million or more'. The 'offset' can reduce the 'tax liability' to 'zero' but the 'excess' is 'carried forward'.
- 150% notional deduction: The 'R&D entity' claims the 'notional deduction' at 150% of the 'eligible R&D expenditure'. The 'R&D offset' is calculated on the 'notional deduction amount'.
For the corporate tax rates and the company tax returns, see our Corporate Tax Guide →.
Eligible R&D Activities
- Core R&D activities: The 'experimental activities' that are 'systematic, investigative and experimental' and the 'outcome cannot be known in advance'. The 'activities' must be for the 'purpose of generating the new knowledge in the science or the technology'.
- Supporting R&D activities: The 'activities directly related to the core R&D activities'. The 'supporting activities' include the 'administration, the testing, the data analysis, and the technical services'.
- Excluded activities: The 'market research', the 'market testing', the 'market development', the 'sales promotion', the 'consumer surveys', the 'routine data collection', and the 'commercial production' are NOT the 'eligible R&D activities'.
For the R&D registration and the compliance requirements, see the AusIndustry website (www.industry.gov.au).
Registration & Compliance
- R&D registration: The 'R&D entity' must register the 'R&D activities' with the 'AusIndustry' within the '10 months after the end of the income year'. The 'registration' is through the 'AusIndustry R&D portal'.
- R&D schedule: The 'R&D Tax Incentive schedule' must be lodged with the 'ATO' in the 'annual tax return'. The 'schedule' includes the 'R&D expenditure' and the 'R&D offset calculation'.
- Record keeping: The 'R&D entity' must keep the 'detailed records' of the 'R&D activities' (the 'labour records', the 'project records', the 'expenditure records') for at least '5 years'.
For the tax return lodgement and the record keeping requirements, see our Tax Filing Procedures Guide →.