If you are conducting R&D activities, you may be eligible to claim an R&D tax offset under the R&D tax incentive.

The R&D Tax Incentive is broad-based support across all industries, provided the relevant R&D eligibility criteria is met. 

Some common industries that we see claiming the R&D incentive include Biotechnology, Technology / Software, Mining, Engineering, Manufacturing and Life Sciences.

You should assess whether you, and the activities you are conducting, qualify for a claim under the R&D tax incentive. To help you do this, we have set out the 6 steps you need to take to work out if you can claim and, if so, how much.

Some common industries that we see claiming the R&D incentive include Biotechnology, Technology / Software, Mining, Engineering, and Life Sciences.

The tax offset for eligible R&D conducted from 1 July 2021 is now based on a premium on top of your corporate tax rate.

Turnover of less than $20 million
For R&D entities with aggregated turnover of less than $20 million, the refundable R&D tax offset is your corporate tax rate plus an 18.5% premium.

Turnover of $20 million or more
For R&D entities with aggregated turnover of $20 million or more, the non-refundable R&D tax offset is your corporate tax rate plus an incremental premium.

The premium increments are based on your R&D Intensity. This is a percentage of your eligible R&D expenditure as proportion of your total expenditure for the year.

All eligible R&D expenditure up to 2% R&D intensity will receive a non-refundable R&D tax offset equal to your corporate tax rate plus 8.5% premium.

Additional eligible R&D expenditure above 2% R&D intensity will receive a non-refundable R&D tax offset of your corporate tax rate plus 16.5% premium.

Each R&D activity will have of one or more step that you must complete to achieve an activity outcome.  

The program supports R&D activities that can be shown to meet specific legislative criteria. These activities must meet the requirements set out in the definitions of an eligible core or supporting R&D activity.

The definition of an eligible R&D activity under the R&DTI 
Eligible R&D activities are defined in the legislation that underpins the program. Division 355 of the Income Tax Assessment Act 1997 identifies eligible activities as either core R&D activities or supporting R&D activities.

Core R&D activities

Core R&D activities are experimental activities:

1. 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

2. 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 R&D activities
Supporting R&D activities are activities directly related to* core R&D activities.

The tax offset for eligible R&D conducted from 1 July 2021 is now based on a premium on top of your corporate tax rate. The R&D tax credit is between 18.5% to 43.5%, depending on your turnover as outlined below. 

Therefore, if you were to spend $100,000 on developing a new product, you could get back between $18,500 and $43,500 depending on the company revenue and profitability.

Aggregated turnover of less than $20 million  
For R&D entities with aggregated turnover of less than $20 million, the refundable R&D tax offset is your corporate tax rate plus an 18.5% premium.

Aggregated turnover of $20 million or more
For R&D entities with aggregated turnover of $20 million or more, the non-refundable R&D tax offset is your corporate tax rate plus an incremental premium.

The premium increments are based on your R&D Intensity. This is a percentage of your eligible R&D expenditure as proportion of your total expenditure for the year.

All eligible R&D expenditure up to 2% R&D Intensity will receive a non-refundable R&D tax offset equal to your corporate tax rate plus 8.5% premium.  
Additional eligible R&D expenditure above 2% R&D Intensity will receive a non-refundable R&D tax offset of your corporate tax rate plus 16.5% premium.

If a business is conducting at least one core R&D activity during the year and satisfies the above eligibility criteria, then the next step is to calculate the expenditure attributable to the core and supporting R&D activities conducted.

Eligible R&D expenditure may include:

• Employee salary and wages
• Labour on-costs such as superannuation, workers compensation and payroll tax
• Contractor expenses
• Depreciation of plant and equipment
• Expenditure to research service providers and co-operative research centres
• Overhead expenses including rent, electricity, telephone and internet
• Travelling expenses from attending technical conferences or on-site testing

The R&D Tax Incentive is collaboratively managed by AusIndustry and the Australian Taxation Office. Upon the conclusion of the company's fiscal year, an R&D application is lodged with AusIndustry, outlining both the primary and supplementary R&D endeavors undertaken during that fiscal year.

The application must be submitted within 10 months of the end of the company’s income year, so for companies with a 30 June year-end, the deadline is 30 April of the following year.

After AusIndustry completes the processing of the application, a unique registration number is issued for inclusion in the company's income tax return. When the tax return is filed, the Australian Taxation Office (ATO) facilitates the R&D tax offset to reduce the company's income tax obligation, which may result in a tax refund for the company.