## What is R&D Intensity?

R&D Intensity is the percentage of your eligible R&D expenditure as a proportion of your total expenditure for the year.

## What is the R&D Intensity Calculation?

R&D costs / Total costs = R&D Intensity

## What are the R&D Intensity Rates

The R&D tax offset rates for revenue over \$20M are:
• 8.5 % for R&D expenditure < 2 % R&D intensity
• 16.5% for R&D expenditure > 2% R&D intensity

If you are below \$20M, the rate is 18.5%

## Worked Examples

### Example 1:

Company Details:

• Total Expenditure: \$5 million
• R&D Expenditure: \$50,000

R&D Intensity: = \$50,000 / \$5,000,000 = 1%

As the intensity is below 2%, all R&D expenditure is calculated at the 8.5% rate.

R&D Tax Offset: = \$50,000 * 8.5% = \$4,250

Effective R&D Rebate Rate: 8.5%

### Example 2:

Company Details:

• Total Expenditure: \$5 million
• R&D Expenditure: \$100,000

R&D Intensity: = \$100,000 / \$5,000,000 = 2%

Again, as the intensity is 2%, all R&D expenditure is calculated at the 8.5% rate.

R&D Tax Offset: = \$100,000 * 8.5% = \$8,500

Effective R&D Rebate Rate: 8.5%

### Example 3:

Company Details:

• Total Expenditure: \$5 million
• R&D Expenditure: \$500,000

Calculation for R&D Intensity below 2% (First \$100,000): = \$100,000 / \$5,000,000 = 2%

R&D Tax Offset for the first 2%: = \$100,000 * 8.5% = \$8,500

Calculation for R&D Intensity above 2% (Remaining \$400,000): = \$400,000 / \$5,000,000 = 8%

R&D Tax Offset for above 2% intensity: = \$400,000 * 16.5% = \$66,000

Total Rebate Amount: \$8,500 + \$66,000 = \$74,500

Effective R&D Rebate Rate: \$74,500 / \$500,000 = 14.9%

### Example 4:

Company Details:

• Total Expenditure: \$5 million
• R&D Expenditure: \$1 million

Calculation for R&D Intensity below 2% (First \$100,000): = \$100,000 / \$5,000,000 = 2%

R&D Tax Offset for the first 2%: = \$100,000 * 8.5% = \$8,500

Calculation for R&D Intensity above 2% (Remaining \$900,000): = \$900,000 / \$5,000,000 = 18%

R&D Tax Offset for above 2% intensity: = \$900,000 * 16.5% = \$148,500

Total Rebate Amount: \$8,500 + \$148,500 = \$157,000

Effective R&D Rebate Rate: \$157,000 / \$1,000,000 = 15.7%

## Background

The research and development premium will provide different rates of non-refundable R&D tax offsets, increasing with the R&D intensity.

For companies over \$20M in revenue, the R&D tax incentive rates are: with an aggregated turnover of \$20 million or more, the Government will introduce a two-tiered premium that ties the rates of the non-refundable R&D tax offset to the incremental intensity of the R&D expenditure as a proportion of total expenditure for the year.

The new rates will be the claimant’s company tax rate plus:

• 8.5 percentage points for R&D expenditure up to 2 per cent R&D intensity
• 16.5 percentage points for R&D expenditure above 2 per cent R&D intensity

The cost of the R&D Tax Incentive was expected to be \$1.8 billion per year when it was introduced in 2011-12 but in 2016-17 it cost around \$3 billion. With the total handed out so far of around \$6.1 billion.

The 2016 review of the R&D Tax Incentive found that the program is failing to meet its objectives of encouraging additional R&D and generating the associated flow-on benefits for the Australian economy.

The Review found that among larger companies, those with higher R&D intensity provide the greatest benefits to the Australian economy.

Encouraging more companies to increase their R&D intensity and undertake additional R&D activities is a key objective of the R&D Tax Incentive.

### Understanding the R&D Intensity Premium

The R&D Intensity Premium is designed to offer differentiated rates of non-refundable R&D tax offsets, with the value increasing based on the company’s R&D intensity. Essentially, as a company invests more into R&D relative to its total expenditure, the benefits it receives under this scheme also grow.

For businesses reporting over \$20M in annual revenue, there’s a nuanced structure to this incentive:

• If your R&D expenditure comprises up to 2% of your total yearly expenditure, you’ll receive a tax offset rate that’s 8.5 percentage points above your corporate tax rate.

• Expenditures above this 2% intensity threshold benefit from an even more generous rate — 16.5 percentage points above the corporate tax rate.

### Why the Change in R&D Tax Incentive?

When the R&D Tax Incentive was launched in 2011-12, its annual cost projection stood at \$1.8 billion. However, by 2016-17, the program’s expense had surged to nearly \$3 billion, with an aggregate cost of about \$6.1 billion since its inception.

An extensive review in 2016 revealed that the incentive wasn’t effectively promoting additional R&D investments, nor was it fostering the anticipated economic benefits for Australia. Importantly, it was observed that companies with a higher R&D intensity contributed most significantly to the national economy. Therefore, refining the R&D Tax Incentive to promote greater R&D intensity became an essential aim.

### Unlock the Full Potential of Your R&D Claim

Navigating the R&D Tax Rebate landscape is no straightforward task. It demands a fine balance between maximising your legitimate claims, maintaining stringent compliance, and prepping for possible ATO audits.

Why choose Bulletpoint for your R&D needs?

Maximise Your Claim: We dive deep to identify every eligible R&D activity and associated expenditure, ensuring no rebate opportunities are missed.

Stay ATO-Compliant: With the ever-shifting landscape of R&D legislations and guidelines, our expertise keeps you compliant and reduces future risks of adjustments.

Be Audit-Ready: In the event the ATO decides to take a closer look, our robust documentation review ensures you’re well-prepared and in a solid position.

Your R&D tax claim can be a significant asset – but only when managed right. So, why leave it to chance?

Unlock the true value of your R&D claim with Bulletpoint.

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At Bulletpoint, we believe it’s not just about claiming, but optimising. Let’s embark on this journey together.

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