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
Timing
Due to the bushfire and COVID-19 the deadline for 2019 claims is now 30 September 2020. You are not required to request an extension.
If you are unable to lodge your application by 30 September 2020, you may request an extension of time in the usual way.
You will still be required to provide your R&D Tax Incentive registration receipt number when you lodge your R&D Schedule with the Australian Taxation Office.
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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.
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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.
Are you developing an app?
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
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.
04 November 2020 – New guidance to support investment in research and development
The Morrison Government has strengthened its commitment to supporting companies to invest in research and development, releasing refreshed R&D Tax Incentive (R&DTI) guidance today.
The guidance follows the Government’s investment of a further $2 billion into the incentive, which provides a tax offset to support Australian companies to undertake additional research and development activities.
The refreshed Guide to Interpretation offers straightforward and accessible advice for companies accessing the R&DTI, making it easier to find the information they need.
29 October 2020 – Starpharma raises $48.9 million to accelerate development of dendrimer products
Funds raised through the placement and SPP will be spent on the rapid development, regulatory, commercialisation activities and launch of the SPL7013 COVID-19 nasal spray as well as expediting the pipeline development of new DEP® candidates.
Starpharma Holdings Limited has completed a share purchase plan (SPP) raising A$3.9 million, which in conjunction with a recent institutional placement take capital raising funds to A$48.9 million.
Funds raised will primarily be used to accelerate the development, regulatory and commercialisation activities for the company’s COVID-19 nasal spray, development of multiple, high-value DEP® clinical assets and DEP® pipeline expansion.
12 October 2020 – 2020-21 Budget, Proposed reforms to the R&D Tax Incentive
As a part of the Federal Budget 2020-2021 the Australian Government is enhancing proposed reforms to the R&D Tax Incentive.
The enhanced R&D Tax Incentive reforms have been informed by extensive stakeholder consultation, and will aim to support companies which undertake the R&D activities that will generate benefits for the wider Australian economy in a post-COVID world.
06 October 2020 – Commercialisation funding a key to recovery
Leading industry groups and universities have called on the federal government to make a targeted effort to address Australia’s commercialisation woes in this week’s federal budget, with new funds and an R&D collaboration premium.
There are hopes the upcoming budget will look to improve Australia’s commercialisation supports, which has trailed much of the developed world, despite its high-performing research sector.
A number of groups, including Science & Technology Australia and the Australian Investment Council, along with of universities, have called for a research translation fund to support the commercialisation of local research and ensure its benefits are achieved in Australia.
17 September 2020 – R&DTI applications for 1 July 2018 – 30 June 2019 Income year
We are still accepting late applications for the R&D Tax Incentive, for the 1 July 2018 – 30 June 2019 income year until 30 September 2020.
We will accept applications from companies with substituted accounting periods that end before 31 December 2019 on the same terms; 15 months from the date of the accounting period closing. If you have a 01 January 2019 – 31 December 2019 accounting period, you will have until 31 March 2021 to lodge your application.
If you are unable to lodge your application by the relevant date, you may request a further extension of time in the usual way.
Please note that additional extensions of time may only be granted in exceptional circumstances.
You will still be required to provide your R&D Tax Incentive registration receipt number when you lodge your R&D Schedule with the Australian Taxation Office.
21 August 2020 – 14 Aussie tech firms fight against govt’s lack of focus on startups
A group of 14 Australian startups and firms have joined forces against the Federal Government and demand it listens to their concerns around the country’s startup ecosystem. The tech firms committing to this initiative are StartupAus, Safety Culture, Rokt, Redbubble, Prospa, Pet Circle, NextDC, LiveTiles, Freelancer, Deputy, Culture Amp, Canva, Atlassian and Airwallex.
In light of the global impacts of the pandemic, the Aussie tech companies together signed a letter addressed to Prime Minister Scott Morrison which requested a greater level of engagement with the government with regards to policy settings that might aid the growth and recovery of Australia’s fragile startup environment. The letter listed particular concerns to the proposed Treasury Laws Amendment (Research and Development Tax Incentive) Bill 2019 and the corresponding amendments to the R&D tax incentive which presently is with the Senate Economics Legislation Committee under consideration.
18 August 2020 – Atlassian and Canva slam R&D tax changes
Two of Australia’s most successful tech companies have railed against the federal government’s planned changes to the research and development tax incentive, just days before a Senate committee is expected to hand down its verdict on the controversial reforms.
In separate submissions to the Senate Economics Legislation Committee’s inquiry into the legislation, Canva and Atlassian raised concerns that the proposed changes would negatively impact startups and tech companies, and harm Australia’s economic recovery from the COVID-19 recession.
29 July 2020 – Tax Office to reject R&D claims on JobKeeper
The ATO’s plan to deny R&D tax incentive claims on JobKeeper wages means companies may be forced to make further retrospective changes to their tax returns, leading to concerns the scheme is becoming too complex and uncertain.
The Australian Taxation Office (ATO) released a draft determination this week ruling that companies would be unable to make research and development tax incentive (RDTI) claims on wages paid through the federal government’s JobKeeper wage subsidy.
This is due to the ATO’s provisional ruling that the JobKeeper payment is not “at-risk expenditure” as companies could reasonably expect to receive it if the R&D activity was conducted or not.
06 July 2020 – R&D tax: Focus on keeping our IP in Aus
At a public hearing for the Senate inquiry into the legislation, Senator Patrick questioned many companies and industry groups on the “stickiness” of their IP in Australia, and how easy it would be for them to move it offshore.
He said the hearing raised further concerns about the impact of the RDTI changes on the incentive for companies to develop and keep IP in Australia.
This issue of requiring IP to remain in Australia has been considered by the Coalition and Labor in recent years. Last year Treasurer Josh Frydenberg hinted that the government was considering the introduction of a patent box scheme, where companies would get a tax break for profits obtained from IP kept in Australia.
19 June 2020 – Advance & Overseas Findings & COVID-19
To support businesses in managing their Advance and Overseas claims, we have implemented a temporary provisional application process.
A provisional Advance or Overseas Finding application requires you to submit an Advance or Overseas Finding application form by 30 June 2020, with the minimal details relating to the claimed R&D activities.
11 June 2020 – Biotechs call for more tax incentives to fund research, local production
Australia’s largest biotech companies including CSL and Cochlear say the country needs to pull more levers to encourage investment in research and local manufacturing in the wake of the coronavirus pandemic, with the industry suffering from a lack of certainty about tax offsets.
“COVID-19 has illustrated the importance of onshore manufacturing as well as research,” a CSL spokeswoman said.
“We encourage government to consider other innovative taxation incentives which could support and encourage the translation of medical research into high-value, innovation-focussed, advanced manufacturing onshore in Australia.”
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16 April 2020 – Advance & Overseas Findings & COVID-19
Acknowledging the effects of COVID-19 on Australian businesses, we will accept a ‘provisional’ Advance or Overseas Finding application for the 1 July 2019 – 30 June 2020 income year, due on 30 June 2020.
A provisional Advance or Overseas Finding application requires you to submit an Advance or Overseas Finding application form by 30 June 2020 with the minimal detail outlined below, on the basis that the further information required to assess the application will be provided to us by 30 September 2020.
30 March 2020 – Senate committee extension on R&D Tax review
The senate committee tasked with scrutinising the federal government’s controversial changes to the research and development tax incentive has been given a five-month extension amid the ongoing COVID-19 pandemic.
The Senate Economics Legislation Committee was to hand down its report on the legislation – which amounts to a $1.8 billion cut to the scheme – by the end of April. But after cancelling upcoming public hearings, the committee has a new reporting deadline in August, the same month when Parliament is now slated to next return.
11 March 2019 – Federal Court decision – Moreton Resources Ltd v Innovation and Science Australia
On 25 July 2019, the Court handed down its judgment on Moreton’s appeal. The Court considered whether the AAT had erred in its construction of the definition of “core R&D activities” in s.355-25(1) of the ITAA 1997 in relation to the pilot project activities which had been registered in the 2010 year. The Court found that the AAT had erred in its interpretation of part of the definition of “core R&D activities” and ordered the matter be remitted to the AAT for determination according to law.
02 March 2020 – R&D tax interpretations are ‘ludicrous’
The “strict interpretation” of what constitutes an eligible activity under the Research and Development Tax Incentive restricting software claims is “ludicrous” and leading local tech companies to move offshore, a Senate inquiry has been told.
The Select Committee on Financial Technology and Regulatory Technology held a series of public hearings in Canberra last week, with the R&D tax incentive (RDTI), proving a significant focus.
The current definitions in the scheme, and how they are being determined by Innovation and Science Australia, is damaging software companies, FinTech Australia former chair and MoneyPlace co-founder Stuart Stoyan told the committee.
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.
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R&D Tax Incentive – Latest Recipients
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.