The Research and Development Tax Incentive is an entitlement program, aimed at helping businesses offset some of the costs involved in research and development (R & D). The program is targeted, generous and open to businesses of all sizes and in all industry sectors who are conducting eligible R & D activities.
Who is Eligible?
Under the R & D Tax Incentive, you must determine whether your company is eligible to register activities and claim R & D tax offsets in any given year. Generally your eligibility to claim R & D tax offsets will depend on whether:
- You are an eligible R & D entity;
- You have engaged in eligible activities; and
- You can identify eligible deductions.
You tax advisor will be able to assist you in determining whether you are eligible.
What is an Eligible R & D Entity?
To be classified as an eligible R & D entity you must be a corporation that is:
- Incorporated under Australian law; or
- Incorporated under foreign law but an Australian resident for income purposes; or
- Incorporated under foreign law and (i) a resident of a country with which Australia has a double tax treaty and (ii) carrying on business in Australia through a permanent establishment (as defined in the double tax treaty).
You will not be eligible for the R & D Tax Incentive if you are a corporate limited partnership or if you are an exempt entity (because your entire income is exempt from income tax). You tax advisor will be able to assist you in determining whether you are an eligible R & D entity.
What is an Eligible R & D Activity?
You must assess yourself whether your company’s activities are eligible R & D activities. Eligible activities must satisfy the definition of core R & D activities, and others may be considered support. Visit www.business.gov.au for more detailed information. Again, we would recommend that your speak with your tax advisor when determining whether your company’s activities qualify.
Eligible Deductions
The ATO’s website contains detailed information relating to eligible notional deductions. It also has a research and development tax incentive calculator to help you calculate your R & D tax offset claim.
Registration Deadline
A company must register its R & D activities with AusIndustry before it can access the tax incentive. The deadline for lodging an application for registration is ten months after the end of a company’s financial year.
Threshold Registration Administrative Arrangements
From 1 July 2014, a $100 million threshold applied to the R & D expenditure for which companies can claim a concessional tax offset under the R & D Tax Incentive. For any R & D spending above this threshold, companies can still claim a tax offset at the company tax rate.
AusIndustry has developed guidelines to inform companies of the administrative arrangements that will apply to relevant registrations, including information on what to do if a company registers $100 million of activities but either,
- Innovation Australia determines that registered activities are not eligible R & D activities; or
- The ATO determines that expenditure on registered activities does not qualify for R & D expenditure.
Review
The Australian government in their Tax White Paper announced its intention to examine support for R & D, including the R & D Tax Incentive. The review will look at the programme’s effectiveness and also assess whether it is reaching its proposed objectives. In parallel with the Tax White Paper, the Centre for International Economics has been engaged to provide independent advice on the review of the R & D Tax Incentive.
In Short
The Australian government has a variety of incentives in place to assist companies with innovation. For more information about the R & D Tax Incentive or any other government grants your company may be eligible for, ask our startup lawyers.