R&D Tax Incentive – How the R&D Tax Rebate is Calculated?

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What is the R&D tax rebate?

The R&D tax incentive is a cash rebate of up to 43.5% of the R&D costs for developing new products and services.

 

How is the R&D rebate calculated? 

The R&D rebate is pretty much based on what you spend on R&D.

If your business makes less than $20 million a year, you can get back 43.5% of what you spent on R&D.

Pretty cool, right?

And if your business is making a profit, you get an extra bonus—an 18.5% offset on top of the usual 25% company tax rate.

 

Some examples of how the R&D rebate is calculated

R&D CostsProfit/Loss SituationRebate CalculationRebate/Offset Amount
$100,000$100,000 Loss$100,000 x 43.5%$43,500 Refund
$100,000$50,000 Loss$50,000 x 43.5% for Loss + $50,000 x 18.5% $21,750 + $9,250 = $31,000
$100,000$0 Profit$100,000 x 18.5%$18,500 Refund
$100,000$100,000 Profit$100,000 x 18.5%$18,500 Offset

Scenario 1: $100,000 R&D Costs with $100,000 Loss

Here, the company has experienced a loss equal to their R&D expenditure.

R&D Tax Offset Calculation:
= $100,000 x 43.5%
= $43,500

The company can claim a refund of $43,500.

Scenario 2: $100,000 R&D Costs with $50,000 Loss

Here, the company has a loss of half its R&D expenditure.

R&D Tax Offset Calculation for the Loss:
= $50,000 x 43.5%
= $21,750

R&D Tax Offset Calculation for the Remaining Amount:
= $50,000 x 18.5%
= $9,250

Together, the company can claim a rebate of $31,000.

Scenario 3: $100,000 R&D Costs with $0 Profit

In this instance, the company has broken even.

R&D Tax Offset Calculation:
= $100,000 x 18.5%
= $18,500

The company can offset its tax by $18,500.

Scenario 4: $100,000 R&D Costs with $100,000 Profit

In this profitable scenario, the company has a profit equal to its R&D costs.

R&D Tax Offset Calculation:
= $100,000 x 18.5%
= $18,500

The company can offset its tax by $18,500.

 

What if my tax bill is not large?

If your tax bill turns out to be less than the $18,500 from the last scenario, guess what?
You’ll actually get the difference back in cash. It’s like a bonus for your hard work and innovation.
Keep innovating, and we’ve got your back with some extra cash in your pocket.

 

Calculate Your R&D Rebate Right! 

Confused about R&D calculations?

Dive deep into our guide and ensure every dollar counts!

R&D Rebate

 

How is the R&D Rebate Processed?

To get the R&D rebate:

  1. Register with AusIndustry: First, ensure your R&D activities are registered with AusIndustry.
  2. Add the R&D Schedule to Your Tax Return: Next, include the R&D schedule in your annual tax return. This signals the ATO to process your R&D rebate.
  3. Wait for the Rebate: The R&D rebate from the ATO usually takes between one to four weeks.
  4. Track the Status: Your accountant can check the status of your income tax return and the potential rebate in your ATO portal.

 

Why You Might Not Receive the Full R&D Rebate

If you’re anticipating a full R&D rebate but find a discrepancy in the amount, it’s essential to consider your existing tax debts and payment plans.

The ATO uses your R&D rebate to clear any outstanding tax debts, such as PAYG, GST, and income tax.

Furthermore, if you have an ongoing payment plan with the ATO, the rebate can be used to reduce or completely offset that debt.

This might result in a modification or even cancellation of your payment plan, depending on the rebate’s size. Once these obligations are settled, any remaining rebate will be refunded to you.

 

How Long Does the ATO Take to Process the R&D Rebate?

One of the frequent questions that businesses have is the length of time it takes for the Australian Tax Office (ATO) to process and pay out the R&D tax rebate. The timeline can vary based on multiple factors:

  1. Peak Periods: There are certain times of the year when the ATO is inundated with rebate claims. July, for instance, is a particularly busy period. Start-ups and other businesses, eager to boost their cash flows for the new fiscal year, typically file for their rebates during this month. This rush can lead to a slight delay in processing times.
  2. Income Tax Return (ITR) Deadlines: Another peak time for the ATO is around the ITR deadlines. For many companies, the deadline for lodging their income tax return is usually at the end of May. As businesses rush to meet this deadline, there’s a surge in rebate claims, which can contribute to a backlog.
  3. Holiday Season Delays: The Christmas season is another period where processing might be slower than usual. With public holidays and reduced staffing during the festive season, it’s natural that some delays might occur.
  4. Compliance Checks and Audits: It’s worth noting that the ATO also conducts compliance checks and might delve deeper into certain claims to ensure their validity. If your claim is chosen for a more detailed review, this can extend the processing time. However, such in-depth checks are standard procedure and are in place to maintain the integrity of the R&D tax incentive program.
  5. ATO’s Compliance Metrics: The ATO regularly publishes compliance metrics which include the average turnaround times for processing various claims, including the R&D rebate. While these metrics provide a general guideline, the actual processing time can vary based on the factors mentioned above. It’s always a good idea to check the latest metrics on the ATO’s official website for a more accurate estimate.

Avoid ATO R&D Red Flags! 

Discover critical signs that could trigger an ATO review.

Be informed, compliant, and ready.

R&D Rebate

Is Your R&D Rebate Taking Longer Than Normal to Process?

If you’ve noticed that your R&D rebate is taking an unusually long time to be processed, it’s quite possible that the ATO is conducting a compliance check on your claim. We’ve observed an uptick in such checks recently. Some common triggers or ‘red flags’ that might lead the ATO to take a closer look include:

  • New Entity Claims: If your business entity is claiming the R&D rebate for the first time, it can be subject to additional scrutiny.
  • High R&D Costs Relative to Overall Costs: If a significant portion of your company’s expenses is dedicated to R&D compared to other operational costs, it might raise eyebrows at the ATO.
  • Large Proportion of Associate Costs: Claims that have a high ratio of associated costs relative to overall R&D expenditure can also be a cause for closer examination.

Calculating the R&D Rebate for Companies Over $20M in Revenue

For companies with revenues over $20 million, the R&D rebate is determined by their R&D Intensity. Depending on the intensity, companies can avail of tax offsets ranging from 8.5% to 16.5%.

To understand the exact calculations and how they might apply to your business, read our comprehensive guide on R&D Intensity here.

 

Maximise Your R&D Claim, Stay Compliant, and Be Audit-Ready

Navigating the intricacies of the R&D Tax Rebate can be challenging. Ensuring you’re maximising your legitimate claim, staying within the bounds of compliance, and being prepared for a potential ATO audit requires expert insight.

At Bulletpoint, we specialise in guiding businesses like yours through these complexities. With our deep understanding of the R&D Tax Incentive landscape, we can:

  • Optimise Your Claim: By identifying all eligible R&D activities and expenses, ensuring you’re not leaving any potential rebate on the table.
  • Ensure Compliance: With ever-evolving legislation and ATO guidelines, we keep you updated and compliant, reducing the risk of disputes or adjustments down the track.
  • Prepare for ATO Audits: With our comprehensive documentation review and audit preparation services, we ensure you’re always in the best position, should the ATO take a closer look.

If you’re serious about making the most of the R&D Tax Incentive, while also safeguarding your business against potential pitfalls, it’s time to take the next step.

Ready to tap into our expertise?

Remember, when it comes to R&D tax claims, it’s not just about what you claim, but how you claim it. Let Bulletpoint be your trusted guide on this journey.

Why the Delay in Your R&D Rebate? 

Unravel the reasons behind rebate delays and navigate

for quicker refunds with our expert tips.

R&D Rebate

Frequently Asked Questions

The R&D tax rebate is a rebate of up to 43.5% of the R&D costs incurred in developing new products and services.

For firms with a turnover under $20 million, the rebate is typically 43.5% of the R&D costs. However, if the company is profitable, the rebate is 18.5% above the standard company tax rate of 25%.

If the company has a loss equal to its R&D expenditure, it can potentially claim up to 43.5% of its R&D costs.

If a company is profitable, it benefits from an 18.5% rebate above the standard 25% company tax rate.

R&D intensity is the percentage of eligible R&D expenditure in relation to total expenditure. For larger companies with revenues over $20 million, their rebate is influenced by their R&D intensity, which can range between 8.5% to 16.5%.

Yes, the ATO uses your R&D rebate to clear any outstanding tax debts first. This includes PAYG, GST, and income tax. If you have an ongoing payment plan with the ATO, the rebate may also adjust that debt.

Begin by registering your R&D activities with AusIndustry, then include the R&D schedule in your annual tax return to trigger the rebate process with the ATO.

Typically, it takes between one to four weeks after submitting the necessary documentation.

Yes, your accountant can check the status of your income tax return and potential rebate in your ATO portal.

The amount of your R&D rebate is determined by your R&D expenditure, company turnover, profitability, and any existing tax debts or payment plans with the ATO.

The difference in rates helps cater to the specific financial needs and capacities of smaller versus larger businesses, and also to the R&D intensity of larger companies.

It’s always possible that tax laws and incentives might change. It’s best to consult with an R&D tax consultant or regularly check with the ATO for any updates.

The R&D tax rebate is available to companies across all industries, as long as they engage in eligible R&D activities.

Eligibility criteria are set by AusIndustry. Consulting with an R&D tax specialist or referring to AusIndustry guidelines can help determine your eligibility.

Yes, startups can claim the R&D tax rebate if they meet the criteria and have eligible R&D expenditures.

The ATO conducts compliance checks and audits. If discrepancies are found, there could be penalties or you might have to repay the excess amount claimed.

Yes, companies typically need to register their R&D activities with AusIndustry within 10 months of the company’s income year end.

Yes, companies typically need to register their R&D activities with AusIndustry within 10 months of the company’s income year end.

Yes, the outcome of the R&D activity doesn’t impact eligibility. It’s the nature of the activity and expenditure that matters.

The R&D rebate is processed like a tax refund. Once all debts are cleared, any remaining rebate amount is refunded to the company.

Yes, consulting with an R&D tax specialist or a firm like Bulletpoint can provide clarity and assistance in maximising your rebate.

What is the #1 grant for start-ups?

12,000+ companies access the R&D tax incentive per year that yields a CASH REBATE of up to 43.5%.
This might be perfect your start up.
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