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
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.
08 December 2021 – Three Australian companies recognised among TIME magazines Best Inventions of 2021.
Innovative Australian technology has been recognised among TIME Magazine’s ‘Best inventions of 2021’.
Products featured in the 2021 list include Synchron’s Stentrode, a brain–computer interface for people who are paralysed; Nura’s Nuratrue earphones providing sound personalised to the user’s hearing; and the Espresso Display, a lightweight go-anywhere high-definition monitor. All three companies have received support for their research and development through a variety of AusIndustry programs, particularly the R&D Tax Incentive.
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
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.