Research and Development Tax Incentive

The Research and Development (R&D) Tax Incentive is a government measure aimed at stimulating investment in R&D.  It is available to eligible Australian incorporated companies that carry on eligible R&D activities.  R&D activities can be undertaken by companies operating in many industries, including manufacturing, engineering, agriculture, biotechnology and information technology and software.

From 1 July 2021, companies with a turnover of less than $20 million will receive a refundable tax offset equal to their company tax rate plus 18.5% (for the 2020/21 year, the rate for these companies is 43.5%).  The tax offset reduces a company’s tax payable or is paid as a cash refund if the company is in a tax loss position. Companies with a turnover of $20 million or more will receive a non-refundable tax offset equal to their company tax rate plus a premium based on their level of incremental R&D intensity for their R&D expenditure (for the 2020/21 year, the rate for these companies is 38.5%).

Now that the new financial year has commenced, you should consider whether any activities that your company intends to carry on will be eligible for the R&D tax incentive. The company must conduct at least one Core R&D activity and must register with AusIndustry by 30 April following year-end to be able to claim the tax incentive.  You should also consider the R&D activities undertaken in the 2020/21 financial year and collate the relevant documentation necessary to make a claim.  The application for the 2021 year R&D tax incentive must be prepared and lodged by 30 April 2022.

Core activities are activities where the outcome is not known or cannot be determined in advance based on current knowledge and experience, and which must be conducted for the purpose of generating new knowledge in the form of products, materials, services or processes. Core activities can only be determined by undertaking work that is based on an hypothesis or principles of established science and include planning, conducting and evaluating experiments, for example, an idea is investigated or tested through a systematic progression of work.  Certain types of activities are excluded from being Core activities but may be considered Supporting activities that assist or facilitate a Core activity.

It is important to keep records to help you to assess whether your company is carrying on eligible R&D activities, to determine the costs of carrying on those activities and also to meet Australian Taxation Office (ATO) compliance obligations.

We recommend that you keep records of the following:

• Research information showing how you determined that the knowledge was new and how the outcome could not have been known in advance.
• Planning documents showing how you intend to carry out the R&D activities, including how the R&D activities will follow a systematic progression of work from the original hypothesis through to experimentation, observation, evaluation and the formation of logical conclusions.
• Records of the experiments undertaken and the conclusions reached.

You should also keep records of costs incurred in respect of R&D activities, including purchases made specifically to undertake a project and timesheets or similar records of the time spent by employees and consultants on R&D activities.

If you are unsure whether any of the activities carried on by your company are eligible for the R&D tax incentive, we can assist you with a review of your company’s activities.  We can also help you to maintain appropriate records that will ensure that you maximise your company’s entitlement to the tax incentive offset.

By Jennifer Jones – Tax Advisory Manager – Venture Private Advisory

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