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
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.
How to Maximise the R&D Tax Incentive
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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
Call 1300 658 508 For Assistance
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.
R&D Tax Incentive – Latest News
29 November 2021 – Government spends $500k to outsource R&D compliance
The federal government is having another go at outsourcing key elements of the research and development tax incentive, despite an audit finding its first attempt proved in many cases to be “less effective”.
The Australian National Audit Office tabled its report on the administration of the research and development tax incentive on Thursday. The watchdog found that the Department of Industry’s first attempt to outsource key assessments under the scheme was not effective. Despite this, the department has turned to a different private company in another attempt.
26 November 2021 – Audit office finds 2018 RDTI budget promise not delivered
An $85 million commitment from the 2018 budget has only led to 5 per cent of the target revenue being collected. The Australian National Audit Office tabled its report on the administration of the R&D Tax Incentive (RDTI) on Thursday. Despite the collaction shortfall. the AANAO found the Industry Innovation and Science Australia (IISA), the Industry department and Australian Taxation Office’s (ATO) administration of the scheme was “largely effective”, along with their communication efforts around it.
But the watchdog also said that RDTI reviews and assessments by the agencies were taking up to three times longer than their targets, with only a fifth of assessments being completed within the targeted time.
03 November 2021 – Medlab Clinical awarded R&D approval from AusIndustry
Medlab Clinical (MDC) has been awarded research and development approval from AusIndustry for a program to develop its product NanaBis.
The company said its data suggests the product may be equally effective in non-cancer neuropathic pain. The company was granted an “advanced and overseas finding” for the development of the cannabis-based pain treatment drug by a division of the Australian Government’s Department of Industry, Science, Energy and Resources as part of the Australian Federal Government’s R&D Tax Incentive program.
21 October 2021 – R&D tax incentive is ‘counterintuitive to innovation’
The government’s research and development tax incentive is “counterintuitive” to innovation because it fails to focus work into Australia’s areas of strength and provides support only after the work is completed, according Advanced Manufacturing Growth Centre head Dr Jens Goennemann.
Dr Goennemann described the scheme as “counterintuitive” to Australian innovation. Small changes to the RDTI were introduced this financial year after the Coalition government walked back its planned $1.8 billion cut to the scheme. Larger reforms are expected next year when legislation underpinning the popular program sunsets in 2022.
R&D Tax Incentive – Latest Recipients
3 December 2021 – FYI Resources receives $1,180,000
FYI Resources Ltd (ASX:FYI) has received a A$1.18 million tax rebate boost for the 2020-21 financial year to support the company’s innovative eco-friendly purification process using demonstrated conventional processing.
FYI Resources (ASX:FYI) is an Australian listed resources company that is focused on developing an innovative and vertically integrated high quality, high-purity alumina for use in various high growth tech applications.
1 December 2021 – Arovella Therapeutics receives $524,042
Arovella Therapeutics Ltd (ASX: ALA) has received a refund of $524,042 from the Australian Taxation Office under the R&D Tax Incentive for the 2021 financial year to recognise the research and development activities undertaken by the company during the last financial year.
Arovella Therapeuticsis a biotechnology company focused on developing therapies to treat human disease. Our two focus areas are oncology and conditions that impact the central nervous system.
27 October 2021 – Optiscan receives $770,283
Optiscan Imaging received its R&D Tax Incentre rebate for the 2020/2021 financial year amounting to $770,283. The rebate is an Australian Government program under which companies receive cash refunds for 43.5% of eligible expenditure on research and development.
Optiscan is a global leader in the development of microscopic imaging and related technologies for surgery and medical research. It was established in 1994, and listed on the ASX in 1997 (ASX: OIL). Optiscan has developed and patented endomicroscopic technology that enables realtime, 3D, ‘in vivo’ imaging of human tissue.
30 August 2021 – Neuren receives $6,500,000
Neuren Pharmaceuticals (NEU) may receive cash rebates of up to $6.5 million for eligible R&D expenditure covered from 2020 until 2022 to support the final stage of preparation to begin a Phase 2 clinical trial using the treatment for children in Australia with Angelman syndrome, a neurodevelopmental disorder with no approved medicines.
Neuren Pharmaceuticals (ASX: NEU) is developing new therapies for debilitating neurodevelopmental disorders that are characterised by impaired connections and signalling between brain cells.
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.