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Eligibility

The R&D Tax Incentive is a self-assessment programme. This means you are responsible to assess your company and your R&D against eligibility requirements as defined by legislation to determine if you can receive the tax incentive.

To be eligible for the R&D Tax Incentive:

You must be an eligible R&D entity

You are an eligible 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:

You are not an eligible R&D entity 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 (with the exception of a public trading trust with a corporate trustee).

More information on eligible R&D entities is available from the Australian Taxation Office (ATO).

You must have conducted eligible R&D activities

Eligible R&D activities are either ‘core R&D activities’ or ‘supporting R&D activities’. To register under the programme, you must have at least one core R&D activity. Supporting R&D activities are optional.

Core and supporting R&D activities are defined under sections 355-25 and 355-30 of the Income Tax Assessment Act 1997. The R&D activities you register for the tax incentive must meet all aspects of the legal definitions for either a core or supporting R&D activity. You must keep documentation and records that demonstrate the eligibility of all registered activities.

Core R&D activities

Under section 355-25 of the Income Tax Assessment Act 1997:

  1. 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:
      1. is based on principles of established science; and
      2. 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).

Diagram showing how core research and development activities are experimental activities whose outcome can only be determined by applying a systematic progression of work that proceeds from hypothesis to experiment, observation and evaluation, leading to logical conclusions and are conducted for the purpose of generating new knowledge.

Some types of activities are excluded under section 355-25(2) of the legislation from being core R&D activities. Some of these excluded activities may be eligible for the R&D Tax Incentive as supporting R&D activities if they meet all of the requirements.

See a list and explanation of the excluded activities in the Guide to Interpretation.

Supporting R&D activities

Under section 355-30 of the Income Tax Assessment Act 1997:

  1. Supporting R&D activities are activities directly related to core R&D activities.
  2. However, if an activity:
    1. is an activity referred to in subsection 355-25(2); or
    2. produces goods or services; or
    3. is directly related to producing goods or services;
    the activity is a supporting R&D activity only if it is undertaken for the dominant purpose of supporting core R&D activities.

R&D activities conducted overseas

Under some circumstances, R&D activities that can’t be conducted in Australia may be registered under the programme.

To register these activities, you will first need to obtain an Overseas Finding.

Find out if your R&D activity is eligible through an Advance Finding

You can apply for an Advance Finding to get a binding decision on whether the activities you have undertaken or plan to undertake are eligible R&D activities.

Need more information?

  • The R&D Tax Incentive: Guide to Interpretation explains how the department interprets and applies the definitions of eligible R&D activities. The document also lists and explains the types of activities that are excluded from being core R&D activities. If you are self-assessing the eligibility of your R&D activities for the programme, it is highly recommended to use this document as guidance.
  • Check out these hypothetical examples and animations for practical examples of the eligibility definitions.
  • Explore the eligibility criteria step by step through the R&D Tax Incentive snapshot.
  • If you need help to conduct R&D, a Research Service Provider can help you.

You must have eligible R&D expenditure

Subject to eligibility criteria and exclusions, your 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.

However, under the programme you cannot claim:

  • interest expenditure
  • expenditure that is not at risk
  • core technology expenditure
  • expenditure included:
    • in the cost of a depreciating asset
    • to acquire or construct a building.

Amounts which you can claim under the programme are called notional deductions. Only companies that have incurred notional deductions of at least $20,000 can apply for the R&D Tax Incentive.

However, you can claim less than $20,000 in notional deductions if you have conducted your R&D through a Research Service Provider or Co-operative Research Centre.

Want to know more?

Taxpayer Alerts

The ATO and the department jointly develop Taxpayer Alerts where we have identified emerging high risk activities that are being registered under the R&D Tax Incentive.

Find a list of Taxpayer Alerts for the R&D Tax Incentive.

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