What is the R&D Tax Incentive?
The R&D tax incentive is a rebate you get for developing new products and services. It allows you to claim back up to 43.5% of the costs related to research and development.
How does the R&D tax incentive work?
You need to undertake eligible R&D activities that involves research and experimentation.
You also need to:
- spend over $20,000
- operate as company (no trusts, partnerships, sole traders)
- undertake R&D activities in Australia
How do I claim R&D tax relief?
In order to claim the R&D tax incentive, you need to lodge an Activity Registration every year that describes your R&D work.
You will be asked to break down your R&D experiment into two key components:
- Outcome – whether an expert could predict the outcome in advance
- Purpose – the R&D is conducted for the purpose of generating new knowledge
You have 10 months after the end of your financial year to lodge your R&D application. For most companies this will be 30 April 2022.
How is the R&D tax credit calculated?
The R&D tax incentive provides a tax rebate of between 8.5% to 43.5%.
So if you spend $100,000 on developing a new product, you could get back between $8,500 and $43,500 depending on the company revenue and profitability.
If you are in profit, you are likely to get an R&D tax offset rather than cash back.
See the R&D tax calculator for information.
What qualifies as R&D?
To be eligible for the R and D tax incentive, you need to ask yourself if what you are doing can be considered innovative in your field:
- Novel – Are you developing something that does not currently exist?
- Testing –Did you need to test the performance of what you are creating?
You could be:
- developing new software for the hospitality industry
- crafting bespoke solutions using raw materials
- engineering new devices for tracking and monitoring equipment.
How does the government define R&D?
This is how the government define research and development in the R&D tax incentive legislation:
“Core R&D activities are experimental activities 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 “
But, are you an expert?
The government want to know whether an expert could predict the outcome?
So, if you know what you are doing, then the R&D Tax Incentive could be a good grant to go for.
Speak to an R&D tax incentive consultant for more information of how R&D grants work.
What is new for 2021?
What is an R&D grant?
An R&D grant is money you get back from the ATO for conducting eligible research and development activities. An R&D grant goes by many names including the R&D tax offset, R&D tax credit or R&D tax rebate. But they are all refer to the ATO R&D tax incentive.
This can be either in the form of cash back or a credit on the tax you need to pay.
The R&D grant ranges from 8.5% to 43.5%.
What is the R&D tax offset?
The R&D tax offset occurs when the R&D rebate is offset against the tax that you owe. So, say you owe $100k in tax and your R&D rebate is worth $30k, then your tax payable reduces to $70k.
If you earn less than $20M and are in loss, then you will get a cash rebate.
What is the R&D tax credit?
The R&D tax credit applies to companies earning over $20M. If there is no tax to pay, then the R&D tax credit will sit there like a carry forward loss and used in the future. There is no cash back.
Is R&D tax offset taxable?
The R&D tax offset is not taxable. It operates like a tax refund.
But, you need to check a few things with your accountant like:
- Add back the expenses Label 7D in the Income Tax Return.
- Include the rebate amount in the franking credits
Your accountant will be able to assist further with this, or send me an email.
What is an R&D company?
You can only claim the R&D grant if you have a company. Typically this is a Pty Ltd company. Entities that are excluded are, individuals, partnerships and sole traders.
Here is some additional information that might help you out with the R&D tax incentive:
- R&D tax incentive calculator – determine your likely R&D tax rebate
- R&D tax incentive feedstock – how to work out the feedstock adjustment
- R&D tax incentive application – what is the activity registration all about
- R&D finance – what lenders can you give you an advance on your R&D rebate
- R&D Tax incentive consultant – how can an expert tax advisor help you with your claim
- R&D Tax Incentive record keeping – what can you do to keep better records
- R&D Tax Incentive e-learning course – brush up on your R&D knowledge
- Tax Incentive for Early Stage Investors – your investors can also get a deduction for giving you cash
What are the R&D Tax Incentive Changes?
The proposed cuts to the Research and Development Tax Incentive (RDTI) Bill were tabled in Parliament on 5 December 2019:
- Rebate amount – Fixing the rate of the refundable R&D tax offset to 13.5%. Reduced from 16%. For each $1 million of expenditure, the loss will be $25,000.
- High intensity – For companies earning more than $20 million a ‘high intensity’ test would be applied.
- 4% for R&D less than 4% of total expenses
- 8.5% for R&D up to 4% to 9% of total expenses
- 12.5% for R&D greater than 9% of total expenses
- Revenue cap increase – An increase in the R&D expenditure threshold rate from $100 million to $150 million
- Maximum claims – R&D tax offset in excess of $4 million is a non-refundable tax offset, with an exemption for clinical trials
Read more about the Treasury Laws Amendment (Research and Development Tax Incentive) Bill 2019.
R&D Tax Incentive – Latest News
9 July 2021 – Study paints sobering picture of abject performance and lost opportunities for Australia
22, threatening future economic prosperity and raising questions about the adequacy of existing Federal Government industry polices, a new study has found.
The study, conducted by researchers in the IPA-Deakin SME Research Centre, found that despite some positive effects from the Government’s R&D incentives system, Australian businesses lag much of the developed world on innovation and research.
27 May 2021 – Govt launches new RDTI digital platform
Businesses will soon be able to access the research and development tax incentive through a new digital platform built by Deloitte. Funding was included in the 2018-19 budget for administrative improvements to the way the RDTI is delivered.
Deloitte was awarded a $1.1 million contract in July last year to build a new customer portal for the scheme.
The platform provides an online space to manage interactions with the scheme. Individuals will need to use the government’s myGovID, a digital identity developed by the Australian Taxation Office. Security researchers advised Australians to not use myGov ID last year due to a design flaw.
26 May 2021 – Software development activities and the R&D Tax Incentive
Businesses can claim a tax offset for the research and development they undertake. The department is committed to two-way engagement and open dialogue with business. We have drafted a refreshed Software Guide entitled ‘Software development activities and the R&D Tax Incentive’ We would like to understand from current R&DTI participants or businesses that might access the program in future.
Software development activities can be fast-paced and diverse. Such activities are capable of meeting the requirements for core R&D activities. They must meet all of the legislative requirements to be eligible for the R&DTI.
20 May 2021 – Shake-up looms for R&D tax incentive scheme
The Board of Taxation has been charged with recommending ways to streamline R&D incentives. Currently, the scheme is overseen by the Department of Industry, Innovation and Science, while the ATO looks after tax administration. The board could recommend changes to speed up functions and processes, or improve communications and education for the scheme. Treasurer Josh Frydenberg has used his post-budget roadshow to talk up the government’s plans for a new patent box regime.
13 May 2021 – Board of Tax probes ATO, AusIndustry administration of R&D tax incentive
As part of the federal budget, the government has tasked the Board of Taxation with examining the dual-agency administration model for the R&D tax incentive (R&DTI), with a view to “reduce duplication between the two administrators, simplify administrative processes, or otherwise reduce the compliance costs for applicants”.
The R&DTI is jointly administered by the ATO and AusIndustry. The dual-agency model has attracted criticism over the years. The Board of Taxation will take a closer look at taxpayers’ experience during the registration and claiming process. Refreshed guidance around the tax incentive was also released by the government late last year. The final report will be due by 30 November and will be released to the public in full. It will examine R&D administration models in other countries and evaluate any changes made by both agencies.
29 April 2021 – Use COVID-19 recovery to lock in tax and R&D changes
Australia’s recovery from the COVID-19 pandemic should include moves to lock in improvements to the tax system, including changes to R&D incentives and employee share schemes, according to big four firm PwC.
New research by the firm suggests changes designed to make Australia more attractive to major players in the growing start-up sector could result in a 4 per cent boost to GDP and create half a million jobs in a decade.
15 April 2021 – The countdown has begun for the launch of the new R&DTI Portal
A new R&DTI Portal will be open for applications in July 2021, but you can get familiar with the portal much earlier. From 17 May, the portal will be available to preview and there is a range of new benefits to explore. Some of these benefits include:
- A restructured registration form making it clearer for you to understand what eligibility criteria need to be addressed in your application.
- The ability to see the status of your application in real time as well as indicators for when submission deadlines are approaching.
- Improved security thanks to the use of MyGovID.
31 March 2021 – ATO wins appeal over $2.3M Auctus R&D tax refund mistake
The Australian Taxation Office has successfully appealed a Federal Court decision finding it could not recover an R&D Tax Incentive refund of around $2.3 million paid to Auctus Resources Pty Ltd despite the payment being made by mistake and the mining company admitting it was not entitled to the money.
16 March 2021 – National Audit Office turns microscope on R&D Tax Incentive scheme
The Australian National Audit Office is examining the administration of the Research & Development Tax Incentive (RDTI) scheme, including assessing how effectively it is being run, and how ready it is for upcoming changes.
Specifically, it will examine: the effectiveness of assessment, compliance and assurance arrangements under the scheme; the effectiveness of measurement and monitoring arrangements; and the effectiveness of planning for changes.
11 March 2021 – Aust tech giants push for R&D tax ‘workshop’
Some of Australia’s largest tech companies have written to the tax office requesting a “collaborative workshop” to improve how software claims are dealt with under the research and development tax incentive, as the sector looks to be more actively involved with policy development.
Co-signed by chief executives and founders from Atlassian, AirTasker, Culture Amp and including the advocacy group StartupAus, the letter raised long-standing concerns that software does not fit properly under the current research and development tax incentive (RDTI), with tech firms facing potentially costly audits and retrospective bills.
09 March 2021 – Aussie startup leaders call for collaboration with ATO on R&D Tax Incentive for software
Some of Australia’s highest profile tech entrepreneurs have written to the Australian Taxation Office to propose a collaborative workshop on the R&D Tax Incentive scheme as it applies to software research.
Other high-profile signatories include AirTasker founder Tim Fung, Brighte founder Katherine McConnell, Culture Amp founder Dider Elzinga and Deputy founder Ashik Ahmed, as well as StartupAus chief executive Alex McCauley.
However, the letter lays out some of the well-worn concerns around the R&D Tax Incentive, and its applicability to software companies.
25 February 2021 – StartupAus chief Alex McCauley echoes calls for a software-specific R&D Tax Incentive
StartupAus chief executive Alex McCauley has echoed calls for a separate software-specific R&D Tax Incentive (RDTI) scheme, saying ongoing confusion is landing startups in debt and dissuading potential investors too.
Speaking at a public hearing of the Select Committee on Financial Technology and Regulatory Technology earlier this month, McCauley reiterated concerns about a lack of clarity for startups seeking to take advantage of the RDTI scheme.
He proposed two solutions: either to “fix the R&D Tax Incentive” by changing the language of the scheme to make it more supportive and easier to navigate for software-based companies; or to develop a whole new scheme specifically tailored to them.
16 February 2021 – Federal Court hands out highest-ever penalty to tax exploitation promoter
A former tax agent and chartered accountant has been hit with $22.68 million in penalties after being found to have systematically abused the research and development tax incentive.
The penalties are the largest ever for promoters of tax exploitation schemes and were ordered by the Federal Court last Friday against Paul Enzo Bogiatto and his associated companies.
29 January 2021 – WiseTech Global lays out an RDTI tech fix
WiseTech Global has laid out potential reforms to the research and development tax incentive to fix the scheme for software development, with the Australian tech giant labelling the current system “inappropriate and problematic” for the sector.
In a submission to the parliamentary FinTech inquiry, the $10 billion software firm urged government to legislate an alternative methodology for determining eligible activities under the research and development tax incentive (RDTI) that is better suited for software claims.
15 January 2021 – Government seeking tax incentive more suitable for software development
A Government agency representing SMBs have called for reforms to the research and development tax incentive (R&DTI) to benefit software development efforts.
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell said in a submission to the Federal Government’s Financial Technology Inquiry that the current system is unsuitable for software development in its current form.
Carnell said some 80 percent of the tax incentive claims are from small and medium enterprises, with 48 percent coming from the software development industry.
R&D Tax Incentive – Latest Recipients
10 June 2021 – Patrys receives $626,780
Patrys Limited is pleased to announce that its wholly-owned subsidiary, Nucleus Therapeutics Pty Ltd, has received a $626,780 R & D Tax Incentive Refund which will provide them with sufficient funds to get the first of its deoxymabs into the clinic.
Patrys is a publicly-listed company on the Australian Securities Exchange (ASX: PAB) drug development company focused on commercialising antibody therapies for oncology.
03 June 2021 – Anteris Technologies receives $1,490,000
Anteris Technologies has received $1.49 million under the Australian Government’s Research and Development (R&D) Tax Incentive Scheme for the year ended 31 December 2020. The company will now repay the short-term facility entered into with Mitchell Asset Management Pty Ltd at the end of 2020. Anteris’ commitment to invest in, research and develop its ADAPT® technology and product development pipeline.
Anteris is a structural heart company delivering clinically superior solutions that help healthcare professionals create life-changing outcomes for patients. The company focus on investing in and developing next-generation technologies with world class partners and acquiring strategic assets to grow product and service offerings.
31 May 2021 – Classic Minerals receives $1,781,782
Classic Minerals Limited (ASX:CLZ) received a total of $1,781,782.00 against its Research and Development projects. As the approved claim amounts are returned to the Company through the ATO refunds, Classic has sought to bring forward the refund through financing by Radium Capital.
Classic Minerals is an exploration and development company transforming itself into a gold producer. It is focused on gold deposits in Western Australia’s famous Goldfields region at Forrestania and Kat Gap.
30 April 2021 – Acrux receives $406,209
Acrux Commercial has received $406,209 for the 2018/19 and 2019/20 financial years. The funds will be reinvested into the further development and commercialisation of the Company’s current and future pipeline of topical generics.
Acrux (ASX: ACR) is a pharmaceutical company dedicated to developing and commercialising topical pharmaceuticals. Incorporated in 1998 and using in house facilities and capabilities, Acrux has successfully developed and commercialised through licensees a number of topically applied pharmaceutical products in the US and Europe.
08 April 2021 – PharmAust receives $750,000
PharmAust has received $750,000 R&D tax refund which the company plans to use for its ongoing clinical trials of therapeutics on human and animals.
PharmAust is a clinical-stage company developing targeted cancer therapeutics to address both human and animal healthcare. The company specialises in repurposing marketed drugs lowering the risks and costs of development.
15 March 2021 – Bluechiip Ltd receives $1,620,000
Bluechiip Limited received $1.62M Research and Development Tax Incentive Refund from the Australian Tax Office to help them in improving its core chip technology’s scale and efficiency.
Bluechiip (ASX:BCT) provides unique patented technology that combines secure wireless sample tracking with integrated temperature reading for use in extreme environments.
03 March 2021 – Noxopharm receives $4,600,000
Noxopharm received $4.6 million from the Federal Government’s research and develop (R&D) tax rebate scheme for the development of its Veyonda drug as an anti-cancer treatment and a treatment for cytokine release syndrome (CRS)/septic shock.
Noxopharm is an Australian publicly-listed (ASX: NOX) clinical stage drug development company. The clinical stage drug candidate is Veyonda® (previously known as NOX-66). Veyonda® is a first-in-class, dual-acting cytotoxic and immuno-oncology drug candidate designed to enhance the effectiveness and safety of both chemotherapy and radiotherapy.
22 February 2021 – Cynata receives $1,391,000
Cynata Therapeutics Limited has received a $1,391,066.93 R&D Tax Incentive Refund to be invested towards advancing Cynata’s robust and substantial clinical product pipeline including ongoing trials in osteoarthritis and COVID-19, as well as the proposed additional clinical trials in renal transplantation, diabetic foot ulcers and idiopathic pulmonary fibrosis.
Cynata Therapeutics Limited is an Australian stem cell and regenerative medicine company that is developing a therapeutic stem cell platform technology, Cymerus™, using discoveries made at the University of Wisconsin-Madison (UWM).
12 February 2021 – Botanix receives $6,870,000
Botanix has received an R&D Tax Incentive refund of $6.87 million which provides the company with a strong financial position and funding flexibility across our product development pipeline.
Botanix Pharmaceuticals is a clinical-stage cannabinoid therapeutics company. It focuses on developing safe and effective topical treatments for serious skin conditions. The company has an exclusive license to use a proprietary drug delivery system, Permetrex, for direct skin delivery of active pharmaceuticals in all skin diseases.
20 January 2021 – Orthocell receives $2,394,397
Orthocell receives nearly A$2.4 million in R&D tax incentive refund which the company will use to invest in the Striate+ partnering program, progression of CelGro® nerve repair regulatory approvals and to advance the development and commercialisation of Ortho-ATI®.
Orthocell is a world-leading regenerative medicine company providing innovative products to restore mobility, function and performance.
08 January 2021 – Cann Group receives $3,200,000
Cann Group has received a $3.2 million tax incentive refund that the company will use to reinvest into their development in terms of expansion, product building and other market activities.
Cann was the first Australian company to receive a licence and subsequent permit from the Federal Government to cultivate medicinal cannabis in Australia.
30 December 2020 – Rewardle Holdings receives $573,827
Rewardle Holdings has received a $573,827 refund that has enabled the company to fully repaid an R&D financing loan from Radium Capital of $125,000 plus associated fees and interest.
Rewardle Holdings is a social network that connects over 2 million Members with thousands of local businesses around Australia.
27 November 2020 – AnteoTech receives $1,195,634
AnteoTech announced the company received a cash refund of $1,195,634 to pursue the key objectives of their R&D program including the commercialisation and distribution of the COVID-19 Antigen Rapid Test (ART) and the completion of commercialisation of COVID-19 antigen/Flu A/ Flu B multiplex test and sepsis rapid test.
AnteoTech dedicates their resources to managing the surface properties of the smallest known particles to solve large problems. Point of care diagnosis of disease to speed up delivery of medical intervention and enabling efficient use of electricity via the Lithium Ion Battery are two ways AnteoTech are contributing to deliver global solutions.