The R&D Incentive Scheme
(as applicable since 1 July 2011)
The existing R&D Tax Incentive scheme provides two core components:
- a 43.5% refundable tax offset on eligible expenditure for eligible entities less than $20 million turnover, or
- 38.5% non-refundable tax offset for eligible entities with turnover of $20 million or more
For financial years up to 30 June 2016 the the refundable offset rate was 45% and the the non-refundable offset rate was 40%.
The research and development tax incentive provides a tax offset for eligible R&D activities and is targeted toward R&D that benefits Australia. The incentive came into effect on 1 July 2011 to replace the former R&D tax concession.
Tax implications for R&D activities subsidised by JobKeeper payments
[27 July 2020] The Tax Office has released Draft Taxation Determination TD 2020/D1 which is intended to clarify when an R&D entity would trigger the at-risk rule and cannot notionally deduct all or part of its wage expenditure for having received a JobKeeper payment.
See further info:
- TD 2020/D1
- ATO news
- Article: Tax implications for R&D activities subsidised by JobKeeper payments (Johnson Winter & Slattery)
Expenditure below $100m offset reductions
The government reduced the offset rates by 1.5% from 45% to 43.5% and from 40% to 38.5% for the refundable and non-refundable tax offset rates respectively, first flagged in the 2014 Budget.
These rates apply from 1 July 2016. For details of the amending legislation see Budget Savings (Omnibus) Bill 2016.
(Current offset rates are here.)
Quarterly credits abandoned
A government-announced proposal to allow companies with aggregated turnover of less than $20 million to obtain the cash flow benefit of the their R&D offset offset on a quarterly basis, rather than waiting for a tax assessment was intended to commence 1 January 2014. However along with a number of other measures it was confirmed by the Federal Treasurer Joe Hockey in December 2013 that this measure would not proceed.
Deadline for registration
Companies that have undertaken R&D activities during the financial year ended 30 June must register their activities with AusIndustry by the following 30 April to qualify for the R&D Tax Incentive. If the deadline falls on a weekend or public holiday the effective final lodgement date is the next business day.
Non-30 June balancing companies have a registration lodgement date which is the end of the tenth month following the substituted accounting period end.
To be eligible for the R&D tax incentive you must be an R&D entity, engaging in eligible activities and in most cases have notional R&D deductions of at least $20,000.
Registration is required:
- for every income year the offset is claimed
- within 10 months of the end of your company’s income year
- prior to claiming the R&D tax offset in the company income tax return.
‘Eligible activities’ must meet a definition of core R&D activities. Other activities may be eligible as supporting R&D activities.
Detailed explanations and registration information: Ausindustry.
The Tax Office has issued a number of alerts targeting potentially incorrect R&D tax claims:
- Building or construction activities. TA 2017/2 refers to certain building or construction expenditure which is expressly excluded from being taken into account in calculating an R&D tax offset, or which does not otherwise relate to eligible R&D activities
- Ordinary business activities. TA 2017/3 refers to expenditure which relates to ordinary business activities and not to eligible R&D activities.
- Software development. TA 2017/5 refers to R&D Tax Incentive claims for certain software development costs which are not eligible R&D activities. An addendum to TA 2017/5 seeks to further clarify when routine testing steps in software development projects should not be claimed,
- Ineligible agricultural activities. TA 2017/4 refers to R&D Tax Incentive claims for certain agricultural activities which are not eligible R&D activities. This includes activities carried on by family trusts, such entities not being eligible to claim.
Pre July 2011 – and the transition from the R&D tax concession to the R&D tax incentive
Prior to 1 July 2011, the R&D tax concession allowed companies to claim a tax deduction of up to 125% (and in some cases up to 175%) of eligible R&D expenditure.
R&D expenditure incurred in respect of R&D activities performed prior to 1 July 2011, continue to be claimed under the R&D tax concession. See ATO detailed notes.
- R&D Tax Incentive – bulletpoint.com.au
- Developments in R&D: the year in review – PWC 1 April 2016
- ATO Information and Eligibility Guide
- Research and development tax incentive Fact Sheets
- TD 2020/D1
Income tax: notional deductions for research and development activities subsidised by JobKeeper payments
This page was last modified 2021-05-01