Understanding whether overseas R&D activities can be claimed under the R&D Tax Incentive is crucial for Australian businesses conducting research and development work internationally. The R&D Tax Incentive does allow claims for certain overseas R&D activities, but with strict requirements, limitations, and mandatory advance approval processes that differ significantly from claiming domestic R&D.For Australian businesses with international operations, collaborative research partnerships, or specialised R&D requirements that can only be met overseas, understanding these rules is essential for accessing R&D Tax Incentive benefits whilst maintaining compliance—particularly when developing core technology and ensuring that ineligible core activities are properly identified and excluded.
Many Australian businesses miss opportunities to claim overseas R&D activities because they assume all R&D must be conducted domestically, whilst others incorrectly claim overseas work without meeting the strict requirements, risking claim rejection and penalties. Successfully claiming overseas R&D activities requires understanding what types of overseas R&D can be claimed, meeting specific eligibility criteria, obtaining mandatory advance findings before conducting the work, and maintaining comprehensive documentation that demonstrates compliance with all requirements.
This comprehensive guide explains everything Australian businesses need to know about claiming overseas R&D activities under the R&D Tax Incentive, including eligibility criteria, the types of overseas R&D that qualify, the mandatory advance findings process, documentation requirements, common mistakes to avoid, and strategies for successfully claiming overseas R&D whilst maintaining robust compliance.
Expenditure Assessment
The ATO assesses whether claimed expenditure is eligible and correctly calculated.
Expenditure assessment criteria:
Eligible expenditure categories: The ATO assesses whether expenditure falls within eligible categories (employee costs, contractor costs, depreciation, materials, etc.).
Calculation accuracy: The ATO assesses whether expenditure is correctly calculated according to R&D Tax Incentive rules.
Substantiation: The ATO assesses whether expenditure is properly substantiated with documentation.
Allocation: The ATO assesses whether expenditure is properly allocated to R&D activities.
Special rules: The ATO applies special rules (e.g., lower-of rule for associate contractors, feedstock adjustments).
Assessment timing:
The ATO may assess expenditure at tax return processing, during desk audits, during field audits, or in response to AusIndustry referrals.
Why this matters:
The ATO’s expenditure assessments determine the amount of R&D Tax Incentive benefits you receive.
Tax Offset Calculation and Application
The ATO calculates tax offsets and applies them to reduce tax payable or issues cash refunds.
Offset calculation:
Determine offset type: The ATO determines whether you’re eligible for refundable or non-refundable offset based on aggregated turnover.
Calculate offset rate: The ATO calculates the applicable offset rate based on R&D intensity (for incremental offsets).
Calculate offset amount: The ATO calculates the tax offset amount based on eligible expenditure and applicable rate.
Offset application:
Refundable offsets: The ATO issues cash refunds to eligible small companies.
Non-refundable offsets: The ATO applies offsets to reduce tax payable for large companies.
Carry forward: The ATO carries forward unused non-refundable offsets to future years.
Why this matters:
The ATO calculates and delivers your R&D Tax Incentive benefits through tax offsets or cash refunds.
Compliance Audits
The ATO conducts audits focusing on expenditure and tax offset calculations.
Audit types:
Desk audits: Reviews conducted remotely based on documentation.
Field audits: On-site audits involving site visits and staff interviews.
Risk reviews: Targeted reviews of specific high-risk expenditure areas.
What the ATO examines:
Timesheets and time allocations, payroll records, contractor documentation, depreciation calculations, materials invoices, and overhead allocation methodologies.
Audit outcomes:
The ATO may accept expenditure as claimed, request additional substantiation, or adjust expenditure and tax offsets, resulting in amended assessments.
Why this matters:
ATO audits can result in expenditure reductions and tax offset adjustments, requiring repayment of benefits received.
How AusIndustry and ATO Interact on R&D Tax Claims
AusIndustry and ATO coordinate through formal processes affecting R&D Tax Incentive claims.
Information Sharing Between Agencies
AusIndustry and ATO share information about R&D Tax Incentive claims under formal agreements.
What information is shared:
Registration information: AusIndustry shares registration information with the ATO.
Eligibility determinations: AusIndustry shares eligibility determinations that affect ATO tax offset calculations.
Compliance findings: Both agencies share compliance findings with each other.
Advance findings: AusIndustry advance findings are binding on the ATO.
Why this matters:
Information provided to one agency is likely shared with the other, so consistency across all information is critical.
Understanding Overseas R&D Under the R&D Tax Incentive
The R&D Tax Incentive has specific provisions governing when overseas R&D activities can be claimed.
The General Rule: Australian R&D Required
The default position under the R&D Tax Incentive is that R&D activities must be conducted in Australia to be eligible.
Why Australian R&D is preferred:
The R&D Tax Incentive is designed to encourage R&D conducted in Australia, supporting Australian jobs, capabilities, and economic benefits. Consequently, the legislation requires R&D to be conducted domestically unless specific exceptions apply.
What this means:
Unless your overseas R&D activities meet specific exception criteria and you obtain advance approval, they cannot be claimed under the R&D Tax Incentive, even if they’re genuine R&D that would qualify if conducted in Australia.
When Overseas R&D Can Be Claimed
Overseas R&D activities can be claimed only when they meet specific criteria and you obtain an advance finding.
The two pathways for overseas R&D:
Pathway 1: Finding activities
Overseas R&D conducted to obtain findings that are not otherwise obtainable, or cannot be obtained in a reasonably timely manner, by conducting R&D in Australia.
Pathway 2: Supporting Australian R&D
Overseas R&D that is supporting R&D activities for Australian-based core R&D activities, where the supporting activities cannot be conducted in Australia or cannot be conducted in a reasonably timely manner in Australia.
Mandatory advance finding requirement:
For both pathways, you must obtain an advance finding from AusIndustry before conducting the overseas R&D. Conducting overseas R&D without an advance finding means it cannot be claimed, regardless of whether it would have met the criteria.
The “Cannot Be Obtained in Australia” Test
The critical test for overseas R&D activities is whether the work cannot be conducted in Australia or cannot be conducted in a reasonably timely manner in Australia.
What “cannot be obtained in Australia” means:
Not available: The required capabilities, facilities, expertise, or conditions genuinely don’t exist in Australia.
Not reasonably timely: While theoretically possible in Australia, conducting the work in Australia would cause unreasonable delays that would significantly impact the R&D project.
What this doesn’t mean:
Cost considerations: Overseas R&D being cheaper doesn’t satisfy the test.
Convenience: Overseas R&D being more convenient doesn’t satisfy the test.
Existing relationships: Having existing overseas partners or facilities doesn’t satisfy the test.
The test is strict:
AusIndustry applies this test strictly. You must demonstrate genuine unavailability or unreasonable delay, not just preference or convenience.
Types of Overseas R&D Activities That Can Be Claimed
Understanding specific scenarios where overseas R&D activities can be claimed helps identify legitimate opportunities.
Specialised Equipment or Facilities
Overseas R&D using specialised equipment or facilities not available in Australia can qualify.
When this applies:
Unique facilities: Equipment or facilities that genuinely don’t exist in Australia and are essential for the R&D.
Specialised capabilities: Technical capabilities or testing facilities not available domestically.
Extreme conditions: Environmental conditions (extreme temperatures, altitudes, etc.) not available in Australia.
Example: Conducting high-altitude testing of aerospace components at overseas facilities because equivalent high-altitude testing facilities don’t exist in Australia.
What you must demonstrate:
That the required facilities genuinely don’t exist in Australia, that they’re essential for the R&D (not just convenient), and that establishing equivalent facilities in Australia would be impractical or would cause unreasonable delays.
Specialised Expertise
Overseas R&D requiring specialised expertise not available in Australia can qualify.
When this applies:
Unique expertise: Specific technical expertise that genuinely doesn’t exist in Australia.
Rare specialisations: Highly specialised knowledge or skills not available domestically.
Example: Engaging overseas experts in a rare medical condition to conduct collaborative research because no Australian researchers have equivalent expertise in that specific condition.
What you must demonstrate:
That the required expertise genuinely doesn’t exist in Australia, that you’ve conducted reasonable searches for Australian expertise, and that the expertise is essential for the R&D.
Important limitation:
Simply preferring to work with known overseas experts, or overseas experts being more experienced, doesn’t satisfy the test if equivalent expertise exists in Australia.
Access to Specific Populations or Conditions
Overseas R&D requiring access to specific populations, conditions, or environments can qualify.
When this applies:
Geographic requirements: R&D that must be conducted in specific geographic locations not in Australia.
Population access: Research requiring access to specific populations not available in Australia.
Environmental conditions: R&D requiring specific environmental conditions that don’t exist in Australia.
Example: Conducting agricultural research on tropical diseases affecting crops that can only grow in tropical climates not found in Australia.
What you must demonstrate:
That the required conditions, populations, or environments genuinely don’t exist in Australia and are essential for the R&D objectives.
Regulatory or Compliance Requirements
Overseas R&D required to meet regulatory or compliance requirements in target markets can qualify in limited circumstances.
When this applies:
Mandatory overseas testing: When regulations require testing or certification to be conducted in specific overseas jurisdictions.
Market-specific requirements: When developing products for overseas markets requires R&D conducted in those markets.
Example: Conducting clinical trials overseas because regulatory requirements for the target market mandate trials in that jurisdiction.
What you must demonstrate:
That regulatory requirements genuinely mandate overseas R&D and that the requirements cannot be satisfied through Australian R&D.
Collaborative International Research
Overseas R&D conducted as part of collaborative international research projects can qualify in certain circumstances.
When this applies:
Essential collaboration: When collaboration with overseas researchers is essential and the R&D cannot be conducted in Australia.
Unique contributions: When overseas collaborators provide unique capabilities, expertise, or resources not available in Australia.
Example: Participating in an international research consortium where overseas partners provide unique expertise or facilities essential for the project.
What you must demonstrate:
That the collaboration is essential for the R&D, that the overseas partners provide capabilities not available in Australia, and that the Australian business is conducting genuine R&D (not just funding overseas research).
Supporting Activities for Australian Core R&D
Overseas supporting R&D activities that enable Australian core R&D can qualify.
When this applies:
Supporting Australian R&D: When overseas activities support core R&D conducted in Australia.
Cannot be done in Australia: When the supporting activities cannot be conducted in Australia or cannot be conducted in a reasonably timely manner.
Example: Conducting overseas testing of components that will be integrated into a product being developed in Australia, where the testing requires facilities not available in Australia.
What you must demonstrate:
That you have eligible core R&D activities being conducted in Australia, that the overseas activities are genuinely supporting those Australian core activities, and that the supporting activities cannot be conducted in Australia.
The Advance Findings Process for Overseas R&D
Obtaining an advance finding is mandatory before conducting overseas R&D activities you intend to claim.
What Is an Advance Finding?
An advance finding is a formal determination by AusIndustry about whether proposed activities will be eligible R&D.
For overseas R&D:
An advance finding is mandatory – you must obtain AusIndustry’s approval before conducting overseas R&D. Conducting overseas R&D without an advance finding means it cannot be claimed under the R&D Tax Incentive.
What the advance finding determines:
Whether your proposed overseas activities are eligible R&D activities, whether they meet the criteria for overseas R&D (cannot be obtained in Australia), and whether they can be claimed under the R&D Tax Incentive.
When to Apply for an Advance Finding
Advance findings must be applied for before conducting the overseas R&D.
Timing requirements:
Before commencing: You must apply for and receive the advance finding before starting the overseas R&D work.
Allow sufficient time: AusIndustry typically takes 90 days to process advance finding applications, so apply well in advance.
Cannot be retrospective: You cannot obtain an advance finding for overseas R&D already conducted.
Planning implication:
You must plan overseas R&D well in advance to allow time for the advance findings application and decision before commencing work.
What the Application Must Include
Advance finding applications for overseas R&D must provide comprehensive information demonstrating eligibility.
Essential application components:
Detailed activity descriptions: Comprehensive descriptions of the proposed overseas R&D activities.
Technical explanations: Explanation of the technical problems to be solved and why the activities are R&D.
Overseas justification: Detailed justification for why the R&D cannot be conducted in Australia or cannot be conducted in a reasonably timely manner.
Evidence of unavailability: Evidence demonstrating that required capabilities, facilities, or expertise don’t exist in Australia.
Project plans: Detailed plans showing how the overseas R&D fits into your overall R&D programme.
Timeline justification: If claiming “reasonably timely” grounds, evidence of why Australian R&D would cause unreasonable delays.
The AusIndustry Assessment Process
AusIndustry assesses advance finding applications against strict criteria.
What AusIndustry assesses:
R&D eligibility: Whether the proposed activities are genuine R&D meeting the three legislative tests.
Overseas criteria: Whether the activities meet the criteria for overseas R&D (cannot be obtained in Australia).
Evidence quality: Whether you’ve provided sufficient evidence to support your claims.
Reasonableness: Whether your justifications are reasonable and credible.
AusIndustry may:
Approve the advance finding (overseas R&D can be claimed), refuse the advance finding (overseas R&D cannot be claimed), or request additional information before making a decision.
Advance Finding Outcomes
The advance finding outcome determines whether you can proceed with claiming the overseas R&D.
If approved:
You can conduct the overseas R&D as described in the application and claim it under the R&D Tax Incentive, provided you comply with the advance finding conditions and conduct the work as described.
If refused:
You cannot claim the overseas R&D under the R&D Tax Incentive. You can still conduct the work, but it won’t be eligible for R&D Tax Incentive benefits.
If conditions are imposed:
You must comply with any conditions specified in the advance finding to claim the overseas R&D.
Documentation Requirements for Overseas R&D Activities
Comprehensive documentation is essential for claiming overseas R&D activities.
Advance Finding Documentation
The advance finding itself is the most critical documentation.
Essential advance finding documentation:
Advance finding application: Complete copy of your advance finding application to AusIndustry.
Advance finding decision: AusIndustry’s advance finding decision letter approving the overseas R&D.
Correspondence: All correspondence with AusIndustry regarding the advance finding.
Conditions: Documentation of any conditions imposed and how you complied with them.
Without an advance finding:
Overseas R&D cannot be claimed, regardless of how well documented the R&D activities themselves are.
Technical Documentation
Comprehensive technical documentation of the overseas R&D work is essential.
Essential technical documentation:
Project plans: Detailed plans for the overseas R&D work.
Technical reports: Reports documenting the overseas R&D work conducted and results achieved.
Experimental records: Records of experiments, tests, or trials conducted overseas.
Collaboration agreements: If collaborative research, agreements with overseas partners.
Facility documentation: Documentation of overseas facilities used and why they were necessary.
Expert credentials: If based on specialised expertise, documentation of overseas experts’ qualifications and unique capabilities.
Compliance Documentation
Documentation demonstrating compliance with advance finding requirements is critical.
Essential compliance documentation:
Work conducted: Evidence that the work conducted matches what was described in the advance finding application.
Location verification: Evidence that work was conducted at the overseas locations specified.
Condition compliance: Documentation demonstrating compliance with any advance finding conditions.
Timeline records: Records showing when overseas R&D was conducted (after advance finding approval).
Financial Documentation
Comprehensive financial records substantiate overseas R&D expenditure claims.
Essential financial documentation:
Overseas contracts: Contracts with overseas contractors, facilities, or collaborators.
Invoices and payments: Invoices for overseas R&D work and evidence of payment.
Expenditure allocation: Clear allocation of expenditure to overseas R&D activities covered by the advance finding.
Foreign exchange records: Records of foreign exchange rates used for converting overseas expenditure to Australian dollars.
Common Mistakes with Overseas R&D Activities
Understanding common mistakes helps businesses avoid pitfalls when claiming overseas R&D activities.
Mistake 1: Conducting Overseas R&D Without an Advance Finding
The most critical mistake is conducting overseas R&D without obtaining an advance finding first.
Why this is fatal:
Without an advance finding, overseas R&D cannot be claimed under the R&D Tax Incentive, regardless of whether it would have met the criteria.
How to avoid:
Always obtain an advance finding before conducting overseas R&D, plan overseas R&D projects well in advance to allow time for advance finding applications, and never assume overseas R&D will be approved without formal advance finding.
Mistake 2: Weak Justification for Overseas R&D
Businesses often provide inadequate justification for why R&D cannot be conducted in Australia.
Common weak justifications:
Claiming overseas R&D is cheaper, claiming overseas partners are more experienced (when Australian expertise exists), claiming convenience or existing relationships, or failing to demonstrate genuine unavailability in Australia.
How to avoid:
Conduct thorough research to demonstrate Australian capabilities don’t exist, provide specific evidence of unavailability (not just assertions), focus on genuine technical requirements (not cost or convenience), and obtain expert opinions supporting unavailability claims if necessary.
Mistake 3: Conducting Work That Differs from the Advance Finding
Conducting overseas R&D that differs from what was described in the advance finding application can jeopardise the claim.
Why this is problematic:
The advance finding approves specific activities as described in the application. Conducting different work may not be covered by the advance finding.
How to avoid:
Conduct overseas R&D exactly as described in the advance finding application, if project scope changes, consider applying for a new or amended advance finding, and document how work conducted aligns with the advance finding description.
Mistake 4: Inadequate Documentation
Businesses sometimes fail to maintain comprehensive documentation of overseas R&D.
Why this is problematic:
Overseas R&D claims face heightened scrutiny. Without comprehensive documentation, claims may be rejected during reviews.
How to avoid:
Maintain comprehensive documentation of all overseas R&D work, document compliance with advance finding requirements, retain all correspondence with AusIndustry, and implement systems to capture documentation in real-time.
Mistake 5: Claiming Ineligible Overseas Expenditure
Businesses sometimes claim overseas expenditure that doesn’t qualify under R&D Tax Incentive rules.
Common errors:
Claiming expenditure incurred before the advance finding was approved, claiming expenditure for work not covered by the advance finding, or incorrectly calculating overseas expenditure.
How to avoid:
Only claim expenditure for work conducted after advance finding approval, ensure all claimed expenditure relates to activities covered by the advance finding, and follow correct calculation methodologies for overseas expenditure.
Maximising Benefits from Overseas R&D Activities
Successfully claiming overseas R&D activities requires strategic planning and expert support.
Plan Overseas R&D Early
Early planning is essential for successfully claiming overseas R&D.
Planning steps:
Identify overseas R&D needs early: During project planning, identify any R&D that may need to be conducted overseas.
Allow advance finding time: Factor in 90+ days for advance finding applications when planning project timelines.
Prepare strong justifications: Invest time in developing comprehensive justifications for why R&D cannot be conducted in Australia.
Gather evidence: Collect evidence of Australian unavailability before applying for advance findings.
Prepare Comprehensive Advance Finding Applications
The quality of your advance finding application significantly impacts approval likelihood.
Application best practices:
Detailed technical descriptions: Provide comprehensive technical descriptions of proposed overseas R&D.
Strong justifications: Develop detailed, evidence-based justifications for overseas R&D necessity.
Supporting evidence: Include supporting evidence (facility specifications, expert credentials, regulatory requirements).
Clear linkages: Clearly explain how overseas R&D links to your overall R&D programme.
Professional presentation: Present applications professionally with clear structure and supporting documentation.
Engage Specialist Support
Professional support significantly improves overseas R&D claim success rates.
Benefits of specialist support:
Advance finding expertise: Specialists experienced in advance finding applications understand what AusIndustry looks for.
Justification development: Specialists help develop strong, evidence-based justifications for overseas R&D.
Application preparation: Specialists prepare comprehensive advance finding applications that maximise approval likelihood.
Compliance guidance: Specialists ensure you comply with all advance finding requirements.
Audit defence: Specialists defend overseas R&D claims during regulatory reviews.
At Bulletpoint, we specialise in helping Australian businesses successfully claim overseas R&D activities through expert advance finding application support and comprehensive compliance guidance.
Maintain Robust Documentation
Comprehensive documentation systems are essential for overseas R&D claims.
Documentation systems:
Advance finding records: Maintain complete records of all advance finding applications and decisions.
Project documentation: Implement comprehensive project documentation systems for overseas R&D.
Compliance tracking: Track compliance with advance finding requirements throughout the project.
Financial records: Maintain detailed financial records of all overseas R&D expenditure.
Getting Started with Bulletpoint
At Bulletpoint, we help Australian businesses successfully claim overseas R&D activities through comprehensive advance finding and compliance support.
Our Overseas R&D Services
We provide end-to-end support for claiming overseas R&D activities.
Our services include:
Overseas R&D assessment: We assess whether your proposed overseas R&D is likely to meet the criteria.
Advance finding applications: We prepare comprehensive advance finding applications to AusIndustry.
Justification development: We develop strong, evidence-based justifications for overseas R&D necessity.
Evidence gathering: We help you gather evidence demonstrating Australian unavailability.
Compliance support: We ensure you comply with all advance finding requirements.
Documentation guidance: We help you implement documentation systems for overseas R&D.
Claim preparation: We prepare R&D Tax Incentive claims including overseas R&D activities.
Audit defence: We defend overseas R&D claims during regulatory reviews.
Our Track Record
With over $100 million in R&D claims lodged and a 4.8-star rating from 250+ Google reviews, Bulletpoint has extensive experience successfully claiming overseas R&D activities for businesses across all industries—particularly when helping companies determine how future core activities align with existing core activities in their R&D programs.
Our clients consistently report that our advance finding application expertise significantly improves approval rates whilst our compliance support ensures overseas R&D claims withstand regulatory scrutiny.
Get Started Today
Don’t miss opportunities to claim legitimate overseas R&D activities, but also don’t risk claiming overseas R&D without proper advance findings and compliance. Professional support ensures you obtain advance findings, conduct overseas R&D correctly, and successfully claim the benefits you’re entitled to.
Contact Bulletpoint today to discuss how we can help you successfully claim overseas R&D activities under the R&D Tax Incentive.
Disclaimer: This article provides general information only and does not constitute professional advice. You should consult with a qualified R&D tax consultant to discuss your specific circumstances. The R&D Tax Incentive legislation and administrative practices are subject to change.
