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
Once you have registered your R&D with AusIndustry  you will then be able to include include an R&D Schedule in your 2019 ATO Income tax return and get an R&D tax offset.

 

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:

  1. Novel – Are you developing something that does not currently exist?
  2. 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.