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
If your income year ended on 30 June 2021, don’t forget that the deadline to submit your application is Tuesday 3 May 2022. This deadline has been amended from 30 April 2022 given it falls on a Saturday and the next business day is a public holiday in Queensland the Northern Territory.
Get prepared in advance by setting up your customer portal account and granting permission to anyone who will need access. Remember, if you need to request an extension of time this must be done before the deadline and can only be requested through the customer portal.
Tips for applying
- When completing your application in the customer portal remember to save your work regularly, the portal will not save this automatically
- Ensure that you select the correct income year before starting your application.
- You can change the income year for a draft application by deleting the draft application in the portal and beginning a new application for the correct income year.
- If you have requested an overseas finding, and submit your registration application before the finding is made, include the overseas activities in your application (noting a finding has been requested).
- There’s no need to vary your application to include advance and overseas finding numbers – they are already in our system.
How to Maximise the R&D Tax Incentive
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.
How to Maximise the R&D Tax Incentive
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.
Are you developing an app?
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.
Request an extension or variation for your application
You’re expected to register your eligible R&D activities within 10 months of the end of your company’s income year. If you need an extension, there are two methods depending on the circumstances. From 1 January 2021, the Board’s ability to grant an extension of time for a further period is subject to a cap.
- Request an extension using the customer portal.
- You must include:
- the reasons you could not submit your application by the deadline
- the reasons for any delay in requesting an extension to the deadline
- evidence to support your reasons.
The reasons for the extension request must not be:
- your fault or the fault of anyone acting on your behalf
- within your control or within the control of anyone acting on your behalf.
You’ll need to justify the amount of additional time you’re requesting. The longer the extension you’re requesting, the stronger your explanation and evidence needs to be.
Extensions will only be given/granted when either:
- the circumstances are exceptional
- the delay is minor.
You may request to vary your R&DTI registration within 10 months from the end of your company’s income year. This being the final deadline for registration. Industry Innovation and Science Australia is able to accept and process these variations upon receiving a request.
You may still request a variation after 10 months from the end of your company’s income year.
Revised R&DTI Software Guidance
The revised guidance on software-related R&D activities was issued on Wednesday, April 6, 2022, as indicated at recent State Reference Groups.
The new guidance lays out the standards for core and supporting R&D activities, as well as the evidence needed to support an R&D Tax Incentive application and extended software case studies. It emphasises the importance of focusing core research on scientific or technological unknowns. While not specifically mentioned in the guidance, it is inferred that commercial difficulties, such as end user engagement or usability, would not fulfill scientific or technological unknowns for a core R&DI effort.
Software-related activities and the Research and Development Tax Incentive is the latest sector-specific guidance product to be published under the AusIndustry/ATO joint administration.
In support of this launch, a briefing session will be held to provide an overview of the refreshed guidance for self-assessing software activities for the R&D Tax Incentive.
Date: Thursday, 28 April 2022
Time: 3.00pm – 4.00pm (AEST)
Location: Online though Microsoft Teams
Please click here to register your attendance, you are welcome to share this link with members of your organisation.
Dual administration model to be maintained
Following the extensive consultation process, the Board of Taxation has concluded that the dual administration model of the R&D Tax Incentive should be maintained.
- There would be significant complexities and costs involved in unwinding the existing dual agency model and moving to a single agency model
- Given the significant reforms to the R&DTI program over the last few years, there was a strong desire and preference from a number of stakeholders to see a period of relative stability with the program in order to avoid increased uncertainty, confusion and increased administrative burdens involved with changing existing processes
- Both Department of Industry, Science, Energy and Resources and the Australian Taxation Office now have the required technical expertise and skills sets to administer the program and as such both should be retained in administering the program.
R&D Tax Incentive – Latest News
02 May 2022 – New software guidance ‘grossly inadequate’
The sole case study featured in the federal government’s guidance for software claims under the R&D tax incentive contains a number of errors and would likely not actually be eligible for the scheme, according to a number of tax experts.
- Kris Gale – “It is highly misleading and would not pass muster in an audit situation.”,
- Dave Smith – ” the lack of detail in the example registration form is a concern that could lead to complacency by some claimants”
19 April 2022 – Extension of Time – Automatic 14 Day Approval
Extension of Time to the 3 May Deadline
19 April 2022 – R&D applications closing soon
If your income year ended on 30 June 2021, you have until Tuesday 3 May 2022 to submit your Research & Development Tax Incentive (R&DTI) application. You need to submit this application with AusIndustry before you can claim R&D offsets.
Applications can only be submitted through the R&DTII customer portal. You should start this process early to ensure your application is submitted before the deadline.
13 April 2022 – Super-minister for whole-of-government commercialisation and incentives strategy
The Australian Information Industry Association (AIIA) has called for a new super-Minister to have a direct say on whole-of-government commercialisation and incentives strategy – including the R&D Tax Incentive, AI and quantum commercialisation, as well as the patent box and the search for innovation in program delivery.
The AIIA also wants industry development policymaking for critical emerging technology like quantum computing and artificial intelligence out of the Industry portfolio.
12 April 2022 – The grant was “super powerful” for Airtasker and responsible for significant growth in the tech sector in recent years.
Airtasker founder and chief executive Tim Fung says being a startup founder based in Australia over the past 10 years has been one of the best jobs in the world.
Airtasker began as a website to hire students to assemble Ikea furniture. The platform has expanded to become a platform for anyone from freelancers to qualified sole traders to find new business within the growing gig economy. CEO Tim Fung says Airtaskser sits apart from other global gig companies, such as food delivery and ridesharing services in the way it manages the payment of ‘taskers’.
Over the last 18 months, Airtaske has seen a 48 percent growth in business activities linked to finance and administration. Copywriting and graphic design abilities, as well as online and app development, marketing and social media support, financial and legal counsel, and data entry, have all witnessed an increase in demand at the startup. “Every year, almost 7.2 percent of Australians utilize a platform like this to make an income,” says Kevin Fung, co-founder.
12 April 2022 – New Software specific case-study is now available
The R&D Tax Incentive program is pleased to announce the release of its latest guidance product. The release of this product is intended to assist businesses conducting eligible software-related research and development (R&D) activities. Information and Communications Technology (ICT) projects have comprised more than 40 per cent of program registrations (2018-19 financial year).
Australia’s ITAA has released a new guidance product aimed at helping businesses understand the eligibility of their software-related R&D activities. The refreshed guidance was developed in consultation with stakeholders that have a deep understanding of the software development sector. A draft of the guide was released for public comment in May 2021, followed by workshops involving the Tech Council of Australia and Australian Taxation Office.
11 April 2022 – First clinical trial recognised as R&D
Australia’s first R&D Tax Incentive Determination has been approved, offering certainty and transparency when claiming clinical trials activities.
Clinical trials are now deemed core R&D activities under the Regulatory Designation for Life Sciences (RDTI). The Determination is a formal indicator to the national and international life sciences ecosystem that clinical trials are a recognised and eligible core activity under the RDTI. Clinical trials contribute $1.4 billion to the Irish economy each year.
07 April 2022 – Patent Box now expands to include agricultural innovations
The Government recently announced an expansion to Australia’s new patent box scheme in the 2022-23 Budget. This expansion to the patent box scheme extends support for practical, technology-focused innovations in the Australian agricultural and veterinary sectors and for technologies which have the potential to lower emissions in line with the Government’s target to achieve net zero emissions by 2050.
The patent box scheme will reduce the income tax rate to 17 per cent for PBRs and patents granted or issued after 29 March 2022 and for income years starting on or after 1 July 2023. The tax concession only applies to income, where the research and development of the innovation took place in Australia.
Increased incentives to perform research and development in Australia will be provided by expanding the patent box. Over the period 2022 to 2026, this expansion is expected to yield $13.4 million to qualifying corporate taxpayers with PBR and agvet patents, and $66.2 million to emissions-reducing inventions.
04 April 2022 – Software-based R&D is now the main way businesses in this country innovate
Tech leaders, VCs and business owners spoke to Newsround about the budget’s impact on the sector. Adam Milgrom, partner at Giant Leap, said the budget focused on broad-based tech skills funding rather than targeted policy to boost startup and tech sector growth.
The Australian government has allocated $3.9 million to support women in mid-career transitions to the tech workforce. Tech Council of Australia chief Kate Pounder called for targeted measures to get more women into tech. Lachlan Feeney, founder and executive director at blockchain consultancy Labrys said the budget “did little to alleviate” current talent shortages.
24 March 2022 – Don’t miss the registration deadline
The 30 April statutory deadline has been extended to the next business day. If your income year ended on 30 June 2021, the deadline to submit your 2020/21 application is 3 May 2022. Don’t wait to log into the R&DTI customer portal and start your application. To access the portal, applicants need to set up a myGovID account and link this to their company’s ABN using the ATO’s Relationship Authorisation Manager. You must do this before you can authorise others to access the portal or submit an application for the program. The process has some important requirements and should be started early to ensure you meet the deadline. Step by step instructions are available at business.gov.au.
22 March 2022 – COVID compliance holiday coming to an end, says ATO
The ATO will focus on chasing debts and artful tax dodgers now that Australia is returning to normal post-COVID. The ATO will take a firm line on anyone trying to avoid their tax obligations. Acting assistant commissioner Sylvia Gallagher said the office would try to tailor solutions to individual circumstances. The longer a debt is left unattended, the harder it is to pay off, she said. The ATO is reviewing its lodgment program. Ms Gallagher will present at a second Accountants Daily Strategy Day on Wednesday (9 March) in Melbourne.
04 March 2022 – AusBiotech highlights clarity and transparency is key in recent submissions
Clarity and transparency are highlighted in AusBiotech’s recent submissions to the R&D Tax Incentive Determination and Department of Health’s Prostheses List (PL) Reform consultations. The Determination will offer certainty to the clinical trial sector, which already contributes around $1.4 billion to the economy each year.
23 February 2022 – Go8 renews call for collaboration premium for life saving clinical trials
The Group of Eight (Go8) has renewed calls for a collaboration premium as part of an incentive package to encourage universities and industry to work together on life saving clinical trials. The Go8 made its submission on the Government’s Draft R&D Tax Incentive (RDTI Determination).
Group of Eight Chief Executive Vicki Thomson said the Go8 had long advocated for a collaboration premium in the RDTI to drive greater engagement between Australian business and our world class university research sector.
21 February 2022 – Patent Box Legislation Introduced into Parliament to Support Investment and Jobs
The Patent Box is part of the Morrison Government’s economic plan for 2021-22 Budget. Income earned from new patents that have been developed in Australia will only be taxed at a concessional rate of 17 per cent. The new concession will support research and development for decades to come.
This new concession, provided through Australia’s patent box regime, will support research and development for decades to come, as well as help retain Australian innovations in Australia during commercialisation and complements the Government’s additional $2 billion investment in the Research and Development Tax Incentive announced in the 2020-21 Budget.
31 January 2022 – Are you eligible? – Free information session
For those new to the R&DTI, this hour long session will walk you through an overview of the program, explain the key eligibility criteria that you should review and assess before you apply, discuss the application process, and provide tips for keeping records.
This information session provides an overview of the eligibility requirements for the R&D Tax Incentive so you can determine if the program is right for your company.
20 January 2022 – Rules to change for clinical trials
The Industry Research and Development (clinical trials, Phase 0, I, II, III for an unapproved therapeutic good) Determination 2021 facilitates certain clinical trials R&D registration by using existing government clinical trial registrations. This is the first R&D Tax Incentive determination in development following changes in the legislation that came into effect in 2021. AusIndustry has consulted with the Australian Taxation Office and Department of Health on this work.
Determinations provide companies with certainty that their activities are eligible R&D activities under legislation. They are designed to:
- strengthen Australia’s reputation for competitive research and development incentives
- integrate processes across government departments and facilitate access to government services
- help attract more investment to and create jobs in Australia.
13 January 2022 – ATO rules JobKeeper payments ineligible for R&D tax incentive
The federal government has finally confirmed that any payments made to employees through the JobKeeper scheme are not eligible for the research and development tax incentive, with companies now likely to have to amend the last two years worth of tax returns.
The decision comes after a draft ruling to the same effect was released by the ATO in August 2020. This draft decision was met with significant backlash and labelled “absurd”, but ATO has opted to stick with the ruling.
R&D Tax Incentive – Latest Recipients
06 May 2022 – TNG receives $3,700,000
TNG receives $3.7 million as a refundable tax offset under the Federal Government’s research and development (R&D) tax incentive scheme to support its Mount Peake Vanadium-Titanium-Iron project in the Northern Territory and TIVAN processing technology.
TNG is an Australian resource and mineral processing technology company progressing towards development of its 100% owned world-class Mount Peake Vanadium-Titanium-Iron Project in the Northern Territory, Australia.
21 April 2022 – PharmAust receives $708,000
PharmAust (PAA) receives a $708,000 research and development tax incentive refund to help strengthens the company’s financial position to execute upcoming clinical trials.
PAA 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. These efforts are supported by PAA’s subsidiary, Epichem, which is a highly successful contract medicinal chemistry company that generates significant annual revenues.
05 April 2022 – Recce Pharmaceuticals receives $3,000,000
Recce Pharmaceuticals has received A$3,084,955.19 cash as part of a Research and Development Tax Incentive rebate from the Australian Tax Office for the year ending June 30, 2021, to support the development of a new class of Synthetic Anti-infectives.
Recce Pharmaceuticals Ltd (ASX: RCE, FSE: R9Q) is pioneering the development and commercialisation of a New Class of Synthetic Anti-Infectives designed to address the urgent global health threat posed by antibiotic-resistant superbugs and emerging viral pathogens.
30 March 2022 – Medtech Opyl receives $361,427
Medtech Opyl (ASX:OPL) has received a $361,427 research and development (R&D) tax incentive refund for its ongoing development of Opyl’s digital clinical trial recruitment platform, Opin.
Opyl is a new generation company that provides leading biopharma and health organisations access to emerging AI-assisted technologies and professional guidance to understand and improve healthcare design, development and delivery.
07 February 2022 – Clarity Pharmaceuticals receives $3,262,861
Clarity Pharmaceuticals has received a R&D Tax Incentive refund of $3,262,861 for FY2 to use to further finance the development of its Targeted Copper Theranostics (TCT) platform of products for various cancer indications.
Clarity is a clinical stage radiopharmaceutical company developing next-generation theranostic (therapy and imaging) products, based on their platform SAR Technology.
26 January 2022 – Patrys receives $1,188,581
Patrys receives a $1,188,581 R&D Tax Incentive Refund to further developing the Company’s deoxymab technologies.
Patrys listed on the Australian Stock Exchange (ASX) in 2007 to develop new antibody therapies for the treatment of cancer. In 2016, Patrys secured an exclusive, worldwide license from Yale University for the use of deoxymab antibodies as human therapeutic agents for treatment and management of cancer.
24 January 2022 – Starpharma receives $7,700,000
Starpharma has received a $7.7M research and development (R&D) tax incentive refund for the development of the company’s DEP® oncology products and VIRALEZE™ antiviral nasal spray.
Starpharma Holdings Limited (ASX:SPL, OTCQX:SPHRY) is a global biopharmaceutical company and a world leader in the development of new pharmaceutical and medical products based on proprietary polymers called dendrimers, with programs for respiratory viruses, DEP® drug delivery and VivaGel®.
18 January 2022 – Race Oncology receives $707,000
Race Oncology received $707,000 refund from R&D Tax Incentive to expand its Zantrene clinical, a new therapy for melanoma and clear cell renal cell carcinoma, which are both frequent FTO over-expressing cancers.
Race Oncology is an ASX-listed precision oncology company with a Phase 2/3 cancer drug called Zantrene®.
17 January 2022 – Nyrada receives $1,300,000
Nyrada has received $1.3 million research and development rebate to support the company’s two main d rug discovery and development projects.
Nyrada is an Australian publicly-listed (ASX: NYR) preclinical stage, drug development company. The Company specialises in the development of novel small molecule drugs pertaining to the underlying pathological processes involved in cardiovascular, neurodegenerative and chronic inflammatory diseases.
14 January 2022 – Zelira Therapeutics receives $1,292,000
Zelira Therapeutics has received a cash refund of A$1.292 million to support its recently launched products including Zenivol™ for insomnia, HOPE™ for autism and a new CBD-toothpaste into global markets.
Zelira Therapeutics Ltd is a leading global cannabinoid-based biopharmaceutical company with access to the world’s largest and fastest growing markets, focused on developing branded cannabinoid-based medicines for the treatment of a variety of medical conditions in its Rx business, including insomnia, autism and chronic non-cancer pain.
11 January 2022 – Imugene receives $6,540,000
Imugene Ltd has received a cash boost in the form of a A$6.54 million R&D tax incentive to support the company’s important immuno-oncology research activities during the financial year ended June 30, 2021.
Imugene is a clinical stage immuno-oncology company developing a range of new treatments that seek to activate the immune system of cancer patients to identify and eradicate tumors.
10 January 2022 – Noxopharm receives a $5,800,000
Noxopharm (NOX) receives a $5.8 million cash refund under the Federal Government’s Research and Development rebate for the development of Veyonda which helps for the treatment of cancer.
Noxopharm is an Australian clinical-stage drug development company focused on the treatment of cancer and cytokine release syndrome, or septic shock.
03 January 2022 – InteliCare Holdings receives $750,000
InteliCare Holding (ICR) has received a $756,318 research and development tax refund for the development of its proprietary internet of things platform.
InteliCare is an Australian technology company offering predictive analytics hardware and sofrware systems for use in the aged care and health industries.