The recent federal election has placed an intense focus on the importance of innovation as Australia moves further into the twenty first century.
One of the many ways in which the government is encouraging innovation is through a series of Research and Development (R & D) tax incentives, in particular the R & D Tax Incentive Program.
This program is jointly administered by AusIndustry and the Australian Taxation Office and has two core components:
- a refundable tax offset (if the offset is more than the amount of tax payable then the taxpayer will receive the difference as a payment) for certain eligible entities whose aggregated turnover is less than $20 million; or
- a non-refundable tax offset (any tax payable can only be reduced to zero) for all other eligible entities.
There are a number of eligibility criteria that are required to be met in order to take advantage of this incentive.
- Claims can only be made by an R&D entity that is a corporation. There are also some extra requirements for tax consolidated groups and R&D partnerships.
- The eligible entity must be conducting the R&D activities in Australia or obtain a finding from Innovation Australia that the entity’s activities cannot be conducted in Australia if conducted overseas. For example, if there are no suitable facilities in Australia.
- The activities must be classed as either core R&D activities or supporting R&D activities.
a. ‘Core activities’ refer to experimental activities with an outcome that cannot be known in advance from current knowledge, but relies on the application of established science which begins with a hypothesis and results in a logical conclusion.
b. ‘Supporting activities’ refer to those activities which are directly related to core activities.
- Total notional deductions for the year must be at least $20,000.00. If the total notional deductions are under this amount, you will only be able to claim the offset in very specific circumstances.
‘Notional deductions’ must relate to R&D activities and can include:
b. Decline in value of assets;
c. Balancing adjustments;
d. Monetary contributions to a Co-operative Research Centre program.
R&D expenditure is usually only claimable in the year that it is incurred, with some exceptions.
In order to claim these incentives, R&D activities must be registered with AusIndustry. Any claim will be made on a self-assessment basis, and as for an individual income tax return, there must be accurate records to substantiate any claim. Records must be sufficiently detailed to prove any expenditure on R&D activities and the relationship between the expenditure and R&D activities.
The R&D tax incentive regime is a complex system, but a system that aims to reward corporations for investing in research and development. Harwood Andrews have a team of experienced business and taxation lawyers who can guide eligible entities through this regime.
This article was written with the assistance of Stephen Kirby, Graduate Lawyer.
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