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?
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
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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
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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.
FAQ
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
10 February 2020 – Changes to RDTI to be reviewed again
There will be another “comprehensive” inquiry into the government’s controversial changes to the research and development tax incentive, with the Opposition planning to “interrogate” the unintended consequences of the reform.
Legislation making a series of changes to the R&D tax incentive (RDTI), amounting to a $1.8 billion cut to the scheme, was debated in the lower house last Thursday.
The changes are largely in-line with a 2018 budget announcement and legislation that was rejected by the same senate committee earlier last year.
28 January 2020 – R&D tax set for Senate showdown next week
Government cuts to the research and development tax incentive (RDTI) are set for a Senate showdown next week and is expected to be referred back to the same committee that rejected the cuts last year.
With Parliament to resume next week after the summer break, a number of tech-related pieces of legislation are set to be debated, including Labor’s encryption amendments and a long-awaited expansion of the regulatory sandbox.
12 December 2019 – Ombudsman recommends sweeping changes to R&D Tax Incentive administration
The Australian Small Business and Family Enterprise Ombudsman Kate Carnell is recommending a suite of reforms to the administration of the Research and Development Tax Incentive (R&DTI), as part of a comprehensive report released today.
Small business must be assisted to help identify and retain professional and responsible R&D consultants.
“It is clear from our investigation that many small and family businesses rely on the R&DTI to help fund innovation,” Ms Carnell says. “That’s why it is vital to have a transparent and predictable system that works for those businesses conducting research and development.”
17 November 2019 – Clare O’Neil has urged government to revisit the Bill Ferris-led 2030 strategy
The R&D funding model is not producing the returns to the economy as those of international rivals. “Of course, it shapes our economy, indeed, it cannot avoid doing so”, Ms O’Neil said. “If we don’t acknowledge this and seek to take advantage of it, we miss the chance to be thoughtful about how all the choices we make are connected”. At the time, the ISA was led by venture capital legend Bill Ferris, and the report became known as the Ferris review.
Among other things, this Ferris review highlighted Australia’s relatively low R&D spend compared with other comparable economies, and in particular the low level of Business Expenditure on R&D. Mr Ferris recommended that the R&DTI be reset, and that government increase the level of direct investment in R&D, while reducing the indirect support via the tax incentive.
Source
15 October 2019 – Impact of legal judgments on applying for the R&DTI
Recently, the Federal Court and the Administrative Appeals Tribunal (AAT) have delivered judgments that apply to legislated eligibility criteria for the R&DTI.
It is important for program participants, and their advisers, to consider judgments as they can provide useful interpretive guidance on how to apply the legal definitions of R&D for this program. The department welcomes the valuable clarification these judgments provide as it helps us to improve the administration of the program, including providing you better guidance materials.
The AAT recently provided clarification on the ‘outcome question’ in the definition of core R&D activities.
23 September 2019 – Frydenberg’s Jekyll and Hyde innovation mantra
Treasurer Josh Frydenberg has poked a hornet’s nest with his ill-founded rhetoric about big business, corporate greed and a lack of innovation at the recent Business Council of Australia (BCA) event sending shockwaves through the Australian tech community.
Its leaders are angry and a little confused. They are perplexed because this is the same Treasurer who waged a scare campaign during the last election campaign to persuade the punters that Labor’s plans to axe dividend imputation refunds would drive retirees into poverty.
This is also the same government that stripped start-ups of their R&D tax incentive entitlements and demanded they repay millions of dollars gained from these incentives, on many occasions long after refunds had been reinvested.
11 September 2019 – R&D funding fell by $4 billion and explorers, tech are suffering
With the Morrison government obsessed with achieving the first budget surplus since the GFC, research and development schemes suffered substantial cuts in April’s budget.
A report at the end of August showed total cuts amounted to $4 billion. Shadow minister for industry and small business Brendan O’Connor labelled the investment figures “dismal”.
2 September 2019 – Federal Court overturns penalty decision
Engaging and retaining a qualified tax agent has helped a taxpayer succeed in the Federal Court in proving he had taken reasonable care, thus avoiding any penalties, despite failing on the issue of primary tax.
Tthe PA Wade No 2 Settlement Trust v Commissioner of Taxation [2019] FCA 1195, the court allowed a taxpayer’s appeal against a penalty imposed by the commissioner to stand, agreeing that the taxpayer and their tax agent had taken reasonable care in the making of statements to the commissioner.
28 August 2019 – Ombudsman investigating R&D Tax Incentive processes
The Australian Small Business and Family Enterprise Ombudsman will release a report shortly on the Australian Taxation Office’s enforcement of R&D Tax Incentive claims.
A statement from the office of the Ombudsman, Kate Carnell, said she was concerned by reports on how $200 million was “clawed back” in the 2018/19 financial year from incentive claims made. Carnell said a number of complaints had been heard about unfair treatment from the ATO and AusIndustry.
20 August 2019 – Monadelphous repays R&D rebate
The “build at all costs” mentality that drove the resources boom may never return as customers slash costs, Monadelphous chief executive Rob Velletri has warned after the engineering group delivered a 29 per cent drop in annual net profits to $50.5 million.
Monadelphous’ margins, which have been falling every year since 2015 when they were running at 9 percent, weakend further in 2018-19 dropping to 6.6 percent from 6.7 percent a year earlier.
The Perth-based company’s net profits were hit by a $7 million provision after being forced to repay money to the tax office for research and tax incentives it had claimed in 2015 an 2016 that were later found to be ineligible.
19 August 2019 – Cochlear CEO hasn’t ruled out offshore R&D move
Cochlear chief executive Dig Howitt has not ruled out the possibility of shifting more of the hearing implant maker’s research and development operations offshore, as it continues to be courted by foreign governments. Cochlear CEO Dig Howitt wants the government to wind back the cuts to the R&D tax incentives. Edwina Pickles
Mr Howitt, who was appointed chief executive last year, urged the government to develop policies that would keep local multinationals in Australia and ensure the country’s international competitiveness.
6 August 2019 – R&D reform possible for tech start ups.
Industry, science and technology minister Karen Andrews has flagged a willingness to re-examine how software companies are assessed for future research and development tax incentives and will establish a new digital economy and technology division within her department, following a closed-door meeting with start-up industry insiders on Friday.
26 July 2019 – Federal court decision on R&D Tax Incentive matter
The Federal Court handed down its decision in Moreton Resources Limited and Innovation and Science Australia. The court remitted the matter back to the AAT for further consideration. The matter related to the AAT’s decision last year concerning the eligibility of an underground coal gasification pilot project.
The AAT will now reconsider the merits of Applicant’s claims in accordance with the judgment handed down yesterday.
The Court hears appeals on questions of law from the AAT. It is important for program participants and their advisers to understand the decisions of the Court and the AAT in relation to the R&D Tax Incentive program because they can provide useful interpretive guidance.
You can find the full decision here. A selection of recent AAT decisions can also be found here.
2 July 2019 – Independent review upholds department’s position on keeping evidence
The Administrative Appeals Tribunal has highlighted the importance of keeping evidence when conducting your R&D activities in its decision on Ultimate Vision Inventions Pty Ltd and Innovation Science Australia.
This decision offers important guidance on evidence you need to support your R&D Tax Incentive claims, including:
- Evidence that supports the description of your registered activities
- Evidence that demonstrates that your R&D meets the eligibility criteria, such as:
- That the purpose of conducting your R&D was to generate new knowledge
- That your activities followed the scientific method
- That an experiment was needed to determine the outcome of your activities
To help you understand what evidence you need to keep when conducting your R&D activities head to our record keeping webpage.
25 June 2019 – Fix R&D, visas if you want to help tech
The technology, science and venture capital industries have leapt on Prime Minister Scott Morrison’s request that they identify regulatory roadblocks to investment, naming cuts to research and development incentives and “walls” against importing talent as the worst job-killers.
Other bugbears are the double taxation of “patient” capital from offshore, government reluctance to back start-ups in procurement, and “Defence-led” policy hurting local technology firms, such as this year’s anti-encryption laws.
He welcomed the Prime Minister’s promise to remove bureaucratic barriers, made during a speech to the WA Chamber Of Commerce & Industry on Monday, as a sign the government may be backtracking on its controversial R&D crackdown.
Reversing the $4 billion cut from the R&D Tax Incentive over the past two budgets was the “single most valuable lever” available to the government to spur business investment, said chief operating officer of StartupAUS Alex Gruszka.
24 June 2019 – Applications for Advance and Overseas Findings close 1 July 2019
Are you doing most of your R&D in Australia, but doing some activities overseas because they can’t be completed in Australia? You may be able to claim an R&D tax offset for your overseas expenditure if you obtain an Overseas Finding.
Overseas Findings applications must be submitted before the end of the first income year in which you started the overseas R&D activities.
Click below to find out more about Advance and Overseas Findings and how to apply.
2 April 2019 – Federal Government cuts
The Federal Government has cut another $1.35 billion from its research and development tax incentive over the forward estimates, according to the Budget papers. It adds on to a sum of more than 2 billion that was cut in the previous budget, with that instrument aiming to save $2.4 billion on the scheme over the following four years.
The government has not provided any clarity on the research and development tax incentive in the federal budget, it’s unclear whether the cut is due to a reduced number of claims made under the scheme as a result of tightened definitions of ‘R&D’ or if it’s the result of planned amendments to the scheme which have not yet passed Parliament.
It’s a further blow for the Australian tech and startup sectors, which had already railed against changes to the scheme – far and away the most popular of all government support mechanisms for the industry.
18 March 2019 – CBA settles R&D tax matter
Commonwealth Bank of Australia (CBA) and the Australian Taxation Office (ATO) have entered into an agreement relating to Research and Development (R&D) tax claims.
Under the agreement terms, CBA has agreed to withdraw from all current proceedings with the ATO and Innovation and Science Australia (ISA) before the Administrative Appeals Tribunal (AAT) in respect of the eligibility of R&D claims that were made for the years ended 30 June 2012 and 30 June 2013 relating to the CBA core banking modernisation project that involved digital transformation and software development. All other prior year matters have also been finalised.
The agreement does not result in material impacts to CBA’s current or future year financial results.
CBA will continue to work collaboratively with the ATO and ISA in relation to future registration of eligible R&D activities.
11 February 2019 – R&D tax changes delayed
The federal government has been told to delay planned changes to R&D tax incentives, with a parliamentary committee warning against a retrospective crackdown and fears some firms could move operations overseas.
Changes announced in the 2018 federal budget would have introduced caps on cash refunds for the incentive at $4 million for companies with an aggregated turnover of less than $20M annually, with the exception of clinical trials. For companies with a turnover of more than $20M, the amount of R&D tax offset they received would be determined by the intensity of their R&D expenditure as a proportion of total expenses.
The threshold on R&D expenditure that attracts concessional R&D tax offsets will be lifted to $150M from $100M, allowing more companies to access the scheme. Under a so-called intesity test, companies that spend less than 2 per cent of their sales on R&D will be able to deduct that spend from their taxable income at a rate of just 4.5 per cent above their standard company tax rate. The remaining 3000 firms claim the non-refundable R&D tax offset.
18 December 2018 – PWC Investigated
You may have seen in the paper recently that the government has been cracking down more on the R&D Tax Incentive.
This time, it’s not just dodgy consultants but some rather large operations.
PwC has been investigated by the ATO has since closed down the majority of its R&D team.
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R&D Tax Incentive – Latest Recipients
16 January 2020 – Orthocell received $2,900,000
Orthocell has received a $2.9 million to accelerate regulatory approvals and to advance R&D.
Orthocell is a world-leading regenerative medicine company providing innovative products to restore mobility, function and performance.
07 January 2020 – Cynata Therapeutics receives more than $1,800,000
Cynata has received nearly $2M to be invested towards Cynata’s phase 2 clinical trial programs for osteoarthritis and critical reduced blood flow products.
Cynata Therapeutics 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).
25 December 2019 – Lithium Australia received $1,229,442
Lithium Australia has received $1,229,442 to grow the Soluna Australia battery business, commercialising the VSPC cathode business, progressing the Envirostream Australia battery recycling business and general working capital.
Perth-based Lithium Australia NL (‘LIT’) aims to supply ethically and sustainably sourced materials to the battery industry worldwide. To that end, LIT has developed disruptive extraction technologies – including its proprietary SiLeach® process – and secured positions in lithium provinces around the globe, including Western Australia and Europe.
18 December 2019 – FYI Resources received $250,000
FYI Resources Ltd has received a further R&D tax incentive rebate payment of $250,000 for the development of the innovative process design to refine high purity alumina (HPA) from aluminous clay known as kaolin.
FYI Resources is an Australian Listed resources company (ASX:FYI) that is focused on the exploration and development of selected projects in strategic commodity sectors. The projects are selected on technical and economic merit as well as the long term market outlook.
22 November 2019 – Anatara Lifesciences received $847,325
Anatara Lifesciences has received $847,325 for the company’s 2018-2019 research activities and reflects a period of significant investment in the Company’s Gastrointestinal ReProgramming (GaRP) dietary supplement which has been shown to address dysbiosis of the microbiome, reduce gut inflammation and promote mucosal healing.
Anatara is a life sciences company with expertise in developing products for animal and human health.
15 November 2019 – Simavita received $683,621
Simavita has received $683,621 for the company’s significant and ongoing commitment to research and development of smart, wearable and disposable platform technologies for the health care market.
Simavita Limited is a MedTech Company focused on the development of smart, wearable and disposable platform technologies for the health care market. The Company produces a portfolio of sensors and systems that meet a clear demand for cost effective, better and timely information to address all segments of the international infant diaper and adult diaper industry.
13 November 2019 – TNG Limited received $2,180,000
Strategic metals company, TNG Limited, has received $2.18 million refund to advance the Mount Peake project towards development.
TNG is an Australian resources company progressing towards development of its 100% owned world-class Mount Peake Vanadium-Titanium-Iron Project in the Northern Territory, Australia.
6 November 2019 – Oventus received $828,000
Oventus Medical has received $828,000 for the FY2019 research activities which yielded significant product outcomes across the Company’s Sleep Treatment Platform.
Oventus is a Brisbane-based medical device company that is commercialising a unique treatment platform for sleep apnoea and snoring.
6 November 2019 – Imugene Limited received $4.13M
Imugene has received $4.13 million for the immuno-oncology research activities conducted by the company during the financial year ended 30th June 2019.
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.
29 October 2019 – Proteomics received more than $1,100,000
Proteomics International Laboratories received more than $1.1 million from the Australian Government for the development of PromarkerD, a predictive test for diabetic kidney disease
Proteomics is a pioneering medical technology company operating at the forefront of predictive diagnostics and bio-analytical services.
16 October 2019 – Technology Metals Australia received $2,770,000
Technology Metals Australia Ltd has received almost $2.77 million to produce high-purity vanadium pentoxide from the Gabanintha Vanadium Project (GVP) suitable for the emerging vanadium redox flow battery (VRFB) energy storage solutions.
Technology Metals Australia Ltd is focused on developing its 100% owned flagship Gabanintha Vanadium Project located 40km south of Meekatharra in Western Australia.
15 October 2019 – Regeneus Ltd received $1,500,000
Regeneus Ltd has received $1.5 million in R&D Tax Incentives from the Australian Tax Office for FY19 for the repayment in full of the $1.3 million Paddington Street loan and associated interest, along with enabling the release of Paddington Street’s security over the Company’s assets.
Regeneus Ltd is a Sydney-based clinical-stage regenerative medicine company using stem cell technologies to develop a portfolio of novel cell-based therapies to address significant unmet medical needs in the human health markets with a focus on osteoarthritis and other musculoskeletal disorders, neuropathic pain and dermatology.
10 October 2019 – Immutep received $2,500,000
Immutep Limited has received a €1,568,399 (~ A$2,546,929) research and development (R&D) tax incentive payment in cash from the French Government under its Crédit d’Impôt Recherche scheme (CIR) to support the ongoing and planned global clinical development of eftilagimod alpha and the preclinical development of IMP761.
Immutep is a biotechnology company developing novel immunotherapy treatments for cancer and autoimmune disease, with operations in Europe, Australia, and the U.S.
09 October 2019 – Arafura Resources received $1,500,000
Arafura Resources Ltd has received A$1.5 million for the development of its 100%-owned Nolans Neodymium-Praseodymium (NdPr) project in the Northern Territory.
Arafura Resources is an Australian company with a world class Neodymium-Praseodymium resource in the Northern Territory of Australia.
27 September 2019 – Cellmid received $840,000
Cellmid has received $840,000 for the research and development expenditure incurred by the company in relation to its midkine and FGF5 inhibitor programs.
Cellmid is an Australian life sciences accelerator with lead programs in multiple disease indications. The company holds the largest and most comprehensive portfolio of intellectual property relating to the novel targets midkine (MK) and FGF5 globally.
24 September 2019 – Australian Vanadium received $250,000
Australian Vanadium Ltd has received $249,643.02 research and development tax refund for its research work in the 2018 financial year to produce vanadium pentoxide from a poly-metallic ore for vanadium redox flow batteries (VRFB) and steel applications.
Australian Vanadium Limited (AVL) is a Perth-based mineral exploration company focused on vanadium exploration in Western Australia.
23 September 2019 – Sienna Cancer Diagnostics received $404,955
Sienna Cancer Diagnostics Ltd has received $404,955 from the Company’s Research & Development Tax Incentive claim for the 2019 financial year to pursue Sienna’s growth strategies as it continues to execute its vision to become a hub for the development and commercialisation of IVD tests for the global pathology market.
Sienna Cancer Diagnostics Ltd is a medical technology company developing and commercialising innovative In-Vitro Diagnostic (IVD) tests.
16 July 2019 – Australian Potash received $1,300,000
Australian Potash has received an R&D tax incentive rebate of $1.3-million to complete work streams feeding in to the DFS which will see the company and the Lake Wells SOP Project well-positioned to play a leading part in the emerging SOP landscape in Western Australia.
Australian Potash Limited is a minerals exploration company focused on advancing its key project, the Lake Wells Potash Project.
16 May 2019 – Flamingo Ai received $1,128,032
Flamingo Ai has received an R&D tax incentive rebate of $1,128,032 for research and development of the company’s Cognitive Virtual Assistants, Journey Assist Platform and its Unsupervised Machine Learning Algorithms.
Flamingo Ai is an Enterprise SaaS company that provides Intelligent Assistants, FAQ & Knowledge Retrieval Assistants along with Data Science as a Service business analytics.
12 April 2019 – Australian Vanadium received $113,660
Australian Vanadium has received an R&D tax incentive rebate of $113,660 for research and development of processing techniques to produce vanadium from a poly-metallic ore for vanadium redox flow batteries (VRFB) and steel applications.
13 March 2019 – ResApp receives R&D Advanced Overseas Finding
ResApp Health has received an R&D tax incentive Advanced/Overseas Finding for clinical study expenditure associated with its US based paediatric and adult clinical studies for the diagnosis of respiratory disease using cough sounds.
The company now estimates that it will receive an R&D rebate of approximately $1,700,000 for the financial year ended 30 June 2018.
07 March 2019 – Immutep receives $872,351
Immutep has received an R&D tax incentive rebate of $872,351 for research and development of a Phase I clinical study in melanoma using its lead compound eftilagimod alpha.
Immutep is a biotechnology company, engages in the research, development, and commercialisation of immunotherapeutic products for the treatment of cancer and autoimmune diseases.