R&D Tax Incentive

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 it in your R&D Tax Incentive Schedule 2022 – Editable Form and get an R&D tax offset.
R&D grant

 

Timing

If your income year ended on 30 June 2022, the deadline to submit your R&D grant is Tuesday 30 April 2023

 

Tips for applying in 2022

From July 2022 all R&D grant applications have been submitted using the new customer portal.
  • Save it – When completing your application in the customer portal remember to save your work regularly, the portal will not save this automatically
  • Year – Ensure that you select the correct income year before starting your application. You will have to delete the draft application in the portal and beginning a new application for the correct income year. Ouch!
  • Finding – If you have requested an overseas finding, and submit your registration application before the finding is made, include the overseas activities in your application (noting a finding has been requested).  

How to Maximise the R&D Tax Incentive

How is the R&D tax credit calculated?

For most companies, the R&D tax incentive provides a tax rebate of between 18.5% to 43.5%.

So if you spend $100,000 on developing a new product,  you could get back between $18,500 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 Offset 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

FAQ

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.

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.

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.

The R&D tax offset is 18.5 % above the company's tax rate.

You get back between 18.5% and 43.5% depending on the available company losses

To qualify for R&D tax credit you must spend at least $20,000 on eligible R&D activties.

You have fat fingers.

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%. 

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:

Your accountant will be able to assist further with this, or send me an email.

The R&D tax incentive reduces company R&D costs by providing rebates on eligible R&D expenditure. For companies with revenue under $20M the rebate is 18.5% to 43.5%

The Australian R&D tax rebate for eligible R&D entities with aggregated turnover of less than $20 million is 18.5% above the company's tax rate.

Eligible costs for R&D tax credits are those that have a direct relationship to the eligible R&D activities

You will get back between 18.5% and 43.5% of your eligible R&D costs depending on company profitabilty. Check out the R&D tax calculator to confirm

It is a form used to register research and development activities for the R&D tax offset. Read more

r&d tax offset

 

 

Resources

Here is some additional information that might help you out with the R&D tax incentive:

R&D Tax Incentive

 

R&D Tax Incentive – Latest News

Combined business and government expenditure on R&D as a proportion of Gross Domestic Product (GDP) has slumped to 1.79 per cent, compared with 2.2 per cent eight years ago and 2.4 per cent on average for the OECD.
 
Some countries such as Israel, Finland, Korea and Switzerland are increasing their R&D spend to four and even five per cent of GDP.
 

According to Roy Green, “Our innovation effort is also undirected in the sense that it lacks a coordinating focus, where national priorities are identified and monitored by evidence-based ‘foresight’ exercises.

Instead, the largest component of funding is the R&D Tax Incentive program, whose guidelines have become more opaque as demand continues to grow to the point where its claim on resources is unsustainable.

Other countries make more use of direct targeted programs aligned to their priorities”

Source

The R&D Tax Incentive Portal is transitioning to the Australian Government Digital Identity System to verify users.

This transition provides additional privacy and security assurances for you. The R&D Tax Incentive Portal won’t know which Digital Identity you’re using, and the Digital Identity you’re using won’t know you’re accessing the R&D Tax Incentive Portal.

As part of this transition, you will notice some changes to the login process when accessing the R&D Tax Incentive Portal with your Digital Identity.

From 29 June 2022, the login button will display ‘Continue with Digital Identity’, replacing the current ‘Login with myGovID’ button.

The deadline for applying for an overseas finding is 30 June 2021 for companies with a July to June income year – there is no discretion to accept late applications. Companies must apply for an Advance Finding or an Advance Overseas Finding before the end of the income year in which the activities are conducted.

You will need to use the new ANZSRCR 2020 Field of Research (FoR) classification when applying for a Finding from 29 June 2022. For applications submitted before this date, you will still use the ANZsRC 2008 FoR codes when registering through the portal. However, when you come to register those activities covered by the Finding, you will be asked to select codes from the ANZSRC 2020 FoR.

How to Maximise the R&D Tax Incentive

Top 10 R&D Consultant Tips

R&D Tax Incentive- Latest Recipients

Strategic Elements received $471,000 tax refund from the Australian Government’s R&D Tax Incentive scheme  for the development and commercialisation of its potentially ground-breaking Energy Ink energy generating tech for use in wearable technologies.

Strategic Elements operates as a venture builder where it generates ventures and projects from combining teams of leading scientists or innovators in the technology or resources sectors. Strategic Elements operates as a registered Pooled Development Fund (PDF) on the Australian Stock Exchange under the code ‘SOR’

Source

Alterity has received a A$4.1 million cash refund from the Australian Taxation Office under the Australian Government’s R&D Tax Incentive Scheme, to further Alterity’s research and development activities, including the Phase 2 clinical trial for Alterity’s lead drug candidate ATH434 in Multiple System Atrophy (MSA) a Parkinsonian disorder with no approved therapy.

Alterity Therapeutics Limited (ASX: ATH, NASDAQ: ATHE) is a biotechnology company dedicated to developing disease modifying treatments for neurodegenerative diseases.

Source

Bluechiip (BCT) receives a $1.09 million R&D tax incentive refund from the Australian Tax Office for FY21 to support the company’s core chip technology transition into full-scale production.

Bluechiip provides advanced sample management solutions across a wide range of applications. Their solution is the only one that provides sample temperature with ID in cryogenic environments. 

Source

Telix Pharmaceuticals has received a $17.25M R&D tax refund for the development and commercialisation of diagnostic and therapeutic products using Molecularly Targeted Radiation (MTR). 

Telix is a late-stage radiopharmaceutical company developing a broad portfolio of assets using Molecularly Targeted Radiation (MTR) MTR could potentially offer better-informed treatment decisions and truly personalised therapy. Telix’s research pipeline aims to address significant unmet medical need in prostate, kidney, brain and hematologic cancers.

Source

Paradigm Biopharmaceuticals (PAR) has received an $8.2 million research and development (R&D) tax incentive refund to reinvest in further research and will continue to support its global phase three clinical program in osteoarthritis and mucopolysaccharidosis (MPS) which causes a progressive cognitive and motor decline through treatment with PPS.

Paradigm Biopharmaceuticals is a commercially focussed drug repurposing company. They take an existing approved drug, which has demonstrated safety in its approved indication/s and repurpose that drug in a new, patented therapeutic application addressing areas of high unmet medical need. 

Source

Orthocell receives a R&D Tax Incentive of $2.1 million for the 2020/2021 financial year to further develop its products for the repair of a variety of bone and soft tissue injuries.

Orthocell Ltd is a regenerative medicine company dedicated to the development of novel collagen medical devices and cellular therapies for the repair and regeneration of human tendons, bone, nerve and cartilage defects.

Source

DroneShield has announced its receipt of a $2 million cash payment, awarded via a grant from the Australian government as an R&D Tax Incentive.

The grant, awarded for DroneShield’s work throughout 2021, represents the largest recorded government incentive since the company’s inception.   

Oleg Vornik, DroneShield’s CEO, said the award is a reflection of the company’s continual growth in the counter-UAS space, both domestically and abroad.  

DroneShield appreciates the substantial support it receives from the Australian government, through grants and export support for overseas sales, alongside of our current and under proposal contracts with the Australian Defence Force,” Vornik said.

“At over 40 engineers, DroneShield has grown to be an Australian-based global leader in the artificial intelligence, electronic warfare and adjacent technologies, which are becoming increasingly in demand in current uncertain times around the world.

“This record grant receipt reflects the unique R&D work that we do, here in Australia.”

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