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
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 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.
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.
R&D Tax Incentive – Latest News
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.”
19 May 2020 – Catapult your Business Webinar
Join us to learn how to optimise your business through government funding options and by leveraging technology.
The How to Catapult your business forward by taking advantage of government funding and technology webinar will be held on the 17th June, 2020.
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.
R&D Tax Incentive – Latest Recipients
21 July 2020 – Telix Pharmaceuticals receives $11,400,000
Telix Pharmaceuticals (TLX) received $11.4 million from a government-led research and development (R&D) grant which covers research and development work Telix completed here and overseas last year.
Telix Pharmaceuticals was created to deliver on the promise of nuclear medicine.
22 June 2020 – Immutep receives $1,437,826
Immutep received $1,437,826 for the Company’s TACTI-mel and TACTI-002 clinical study using its lead compound eftilagimod alpha (“efti” or “IMP321”), conducted in Australia.
Immutep is a world leading biotechnology company developing novel immunotherapy treatments for cancer and autoimmune disease, with operations in Europe, Australia, and the U.S.
03 June 2020 – MyFiziq (MYQ) receives $600,000
MyFiziq (MYQ) has successfully secured a $600,000 research and development advance from R&D Capital Partners which will be used to accelerate both product launches and the company’s go-to-market strategy.
MyFiziq is a revolutionary technology embedded in a partners app, that uses pictures from your smart phone to create a representation of you in the form of a 3D avatar with accurate circumference measurements.
01 May 2020 – Opyl receives $200,500
Opyl (OPL) has received a R&D tax refund of $200,500 from the Australian Taxation Office (ATO) to support them with the research and development of three digital health platforms that are powered by artificial intelligence (AI).
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.
01 April 2020 – Bod receives $851,000
Bod Australia Limited has received an $851,000 R&D tax refund to support their phase I clinical trial of sublingual cannabis wafer, collaborations with leading universities and medical institutions, as well as an advanced development of a medicinal cannabis product range.
Bod is a cannabis centric healthcare company with a global focus and a mission to innovate and transform the way we live and enjoy life.
11 March 2020 – Hazer Group received $1,300,000
Hazer Group has received a R&D tax incentive refund of $1.3 million for the development activities of the Hazer Process technology.
HAZER® Group Limited is a pioneering ASX-listed technology development company undertaking the commercialisation of the HAZER® Process, a low-emission hydrogen and graphite production process.