Research and Development (R&D) Tax Incentive

Tell me about the assistance

The Research and Development (R&D) Tax Incentive offsets some of the costs of doing eligible R&D activities. Companies must lodge an application to register within 10 months after the end of their income year.

  • Status: Open (accepting applications)
  • Applications close: Ongoing
  • Delivered by: AusIndustry

Overview

How does the offset work?

The R&D Tax Incentive is broad-based, market-driven assistance for all industries. It provides a targeted tax offset to encourage more companies to engage in R&D.

It aims to:

  • boost competitiveness and improve productivity across the Australian economy
  • encourage industry to conduct R&D
  • provide business with more predictable, less complex support
  • improve the incentive for smaller firms to engage in R&D.

The Incentive is a self-assessment programme. When applying, you must correctly apply the law in making your claims, and have records to justify your self-assessment. AusIndustry (on behalf of Innovation Australia) and the Australian Taxation Office (ATO) manage the R&D Tax Incentive jointly. AusIndustry manages registration of your R&D activities and may check that they comply with the law. The ATO may check if the R&D expenditure you are claiming in your company tax return is eligible.

For a simple overview of the programme, visit the R&D Tax Incentive Snapshot.

The Department has also developed an e-learning course to help those accountants and tax agents, who may not be actively involved in the tax incentive, to confidently help their clients access the programme.

Registration Deadline:

The deadline for lodging an application for registration is 10 months after the end of a company's income year. This means:

  • A company with a standard income period of 1 July 2015 to 30 June 2016 must lodge its registration application with AusIndustry by 30 April 2017.
  • A company with a non-standard income period of 1 January 2016 to 31 December 2016, must lodge its registration application with AusIndustry by 31 October 2017.

Please note that applications should be lodged on an annual basis and if an application is received after the deadline, it is deemed a late application and will not usually be accepted.

What support or funding is available?

For R&D expenditure up to $100 million a year companies can claim:

For income years from 1 July 2016:

  • a 43.5% refundable tax offset for companies if they have an annual turnover of less than $20 million. This tax offset is available to companies that are not controlled by tax exempt entities.
  • a non-refundable 38.5% tax offset for all other eligible companies. Unused non-refundable offset amounts may be able to be carried forward to future income years.

For income years before 1 July 2016:

  • the refundable offset rate is 45%.
  • the non-refundable offset rate is 40%.

Additional benefits include:

  • the option to gain certainty about the eligibility of your R&D activities through an Advance Finding
  • some overseas R&D activities are claimable (certain conditions apply).

If your company's R&D expenditure is more than $100 million in a year, amounts claimed above $100 million may attract a non-refundable offset at the company tax rate.

How does the offset work?

The department has prepared simplified worked examples to show how the R&D tax offset rates apply in practice to companies registering and claiming R&D activities through the R&D Tax Incentive. The examples provide eight simplified scenarios that show how the amount of the R&D tax offset might be determined from specific expenditure amounts. Simplified scenarios are included for companies with turnovers of:

  • less than $20 million and
  • $20 million and above.

The examples also show companies in these turnover groups that are in profit and others where they are in tax loss.

As they are simplified, these examples cannot fully reflect the tax circumstances of any individual company.  Companies may wish to seek their own independent advice about the amount of offset that they may be entitled to.

The examples are available to view R&D Tax Incentive - simplified worked examples.

Who can apply?

Companies that have incurred notional deductions (R&D expenditure) of at least $20,000 can apply. Companies can claim less than $20,000 R&D expenditure if they have conducted their R&D through a Research Service Provider (RSP) or Co-operative Research Centre.

You can read about expenditure that meets the rules for eligible notional deductions on the ATO website. The ATO also provides an R&D Tax Incentive calculator to help you calculate your claim.

Find out about upcoming R&D Tax Incentive events and workshops in your area.

What are the eligibility criteria?

You must be an eligible R&D entity

You are an R&D entity if you are a company that is:

  • incorporated under Australian law or
  • incorporated under foreign law but an Australian resident for income purposes or
  • incorporated under foreign law and:
    • a resident of a country with which Australia has a double tax agreement, including a definition of 'permanent establishment' and
    • carrying on business in Australia through a permanent establishment as defined in the double tax agreement.

You are not able to apply if you are:

  • an individual
  • a corporate limited partnership
  • an exempt entity (where your entire income is exempt from income tax).

Trusts are not generally eligible R&D entities.

More information is available from the ATO at Research and Development (R&D) Tax Incentive.

You must have conducted eligible R&D activities

Your R&D activities:

  • must have at least one core activity
  • can have multiple supporting activities for each core activity
  • must meet the legal definition of core and supporting activities
  • must be based on the principles of established science
  • must be seeking to answer a technical or scientific unknown.

The legal definitions for core and supporting activities are further explained in the Eligibility of Activities Factsheet and the R&D Tax Incentive: Guide to Interpretation.

We’ve created some animated case studies to help walk you through the eligibility and registration requirements. An RSP can also can also help you conduct R&D.

You must have eligible R&D expenditure

Subject to eligibility criteria and exclusions, a company can generally claim a tax offset for:

  • expenditure incurred on R&D activities
  • decline in value of depreciating assets used in R&D activities
  • balancing adjustments for depreciating assets used only in R&D activities.

You can also contact the ATO for information on eligible entities and amounts you can claim on 13 28 66.

How do I apply?

Companies must register under the R&D Tax Incentive before they can claim the tax offset in their annual income tax return. The registration of R&D activities and the subsequent tax offset claim occur on a self-assessment basis. This means that it is your responsibility to ensure you:

  • apply to register only R&D activities you have carried out and that meet the legal requirements for eligibility
  • only include expenditure in an R&D claim that is incurred on R&D activities, not other ordinary business activities
  • maintain sufficient records that are relevant to support your claim.

Annual registration

The application form to register R&D activities must be used to apply. You must also:

  • apply no later than 10 months after the end of the income year in which the activities were conducted
  • register for every income year you want to claim the offset.

The Register R&D Activities Application Notes will help you complete your application.

Each time you apply you must download a new version of the application form. You can pre-fill the application with the previous year's data. Please note the latest version of the application form has new fields.

Each application form you download can only be submitted once. If you will be submitting applications for more than one R&D entity, you will need to download a new form for each one.

When you’re ready to register, visit the I’m ready to apply tab to access the application form to register R&D activities.

Advance Finding

If you’re not sure whether the activities you’ve carried out are eligible R&D activities, you can apply for an Advance Finding.

An Advance Finding can provide companies with certainty that planned activities are eligible. You must submit an application before the end of the first income year in which the activities were conducted.

An Advance Finding with Australian activities only is optional.

Advance Findings can be sought for:

  • activities you conduct in the current income year, whether you start or complete them in that year
  • activities you propose to conduct in the subsequent two income years.

The Advance & Overseas Finding Application Notes can help you when applying for an Advance Finding.

When you’re ready to apply, visit the I’m ready to apply tab to access the Advance & Overseas Finding Application Form.

Overseas Finding

If you are doing most of your R&D in Australia, but must do some overseas because it can’t all be done in Australia, the overseas expenditure may also attract an offset if you obtain an Overseas Finding.

An Overseas Finding is a finding by Innovation Australia about whether activities you conduct outside Australia are eligible for expenditure claims. You must apply when you want to claim for activities that are to be conducted outside Australia.

Companies also need to have an Advance Finding that the activities they will claim are eligible. An Overseas Finding application automatically includes an Advance Finding application for the overseas activities. Overseas activities must have a significant scientific link to a core R&D activity conducted in Australia.

You must submit an application before the end of the first income year in which you start the overseas R&D activities.

The application must contain detailed information about the R&D activities conducted in Australia which relate to the overseas activities, and the overseas activities.

The Advance & Overseas Finding application notes can help you when applying for an Overseas Finding.

When you’re ready to apply, visit the I’m ready to apply tab to access the Advance & Overseas Finding Application Form.

How will payments be made?

Once your application is accepted, AusIndustry will give you a registration number in writing that you need to include in your company’s income tax return.

When you lodge your income tax return you need to complete an R&D Tax Incentive Schedule. The Schedule must include the company’s registration number for the relevant year.

A refundable tax offset is applied after all other tax offsets. If there is an excess of tax offset, the company will receive a refund if its annual turnover is less than $20 million and subject to the ATO taxation rules.

The ATO has more information about how you can claim the R&D tax offset.

Key documents

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