R&D Tax Incentives

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:

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.

Further information:

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.

Basic Eligibility

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 annually

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 activitiesTA 2017/3 refers to expenditure which relates to ordinary business activities and not to eligible R&D activities.
  • Software developmentTA 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.

Further information

This page was last modified 2021-05-01