Monday 1st May 2017 is the deadline to register for the R&D Tax Incentive for eligible activities conducted during the year ended 30 June 2016 (last financial year).
Companies still seeking to lodge FY16 R&D claims who have not previously submitted their FY16 registrations should take immediate action to ensure their activities are adequately assessed, described and registered.
Companies registering R&D activities in FY16 need to provide details of:
- Core R&D activities and the corresponding hypothesis for each;
- Details of experiments undertaken for each Core R&D activity;
- Unknown technical outcomes and why knowledge generated from the Core R&D activities is new;
- Eligible Supporting activities and how these relate to a corresponding Core R&D activity.
What is the R&D Tax Incentive?
Research and development (R&D) is key for innovation, as it enables businesses to invest in activities that stimulate growth and bring new products and services to market quicker.
One way that the Australian government encourages organisations pursue R&D is through an incentive program, which offers eligible entities a tax offset on their research-oriented spending.
The R&D Tax Incentive has two main elements:
- A refundable tax offset for organisations with revenues under $20 million; and
- A non-refundable tax offset for all other eligible organisations.
According to the Australian Taxation Office (ATO), the incentive meant 13,700 entities spent a collective $19.5 billion on R&D in 2013-14 and were able to claim back approximately $3 billion.
However, the ATO has strict criteria regarding what can be claimed as R&D expenditure, so it’s important to contact an experienced accountant or R&D Specialist who can discuss the incentive in more detail with businesses that may be confused.
Broadly speaking, your eligibility to claim R&D tax offsets will depend on whether or not you are aAm I eligible for an R&D Tax Incentive?n R&D entity and, if you are, whether or not you have incurred notional deductions of at least $20,000 on eligible R&D activities.
You can only claim an R&D tax offset if you are an R&D entity. You are an R&D entity if you are a corporation that is any of the following:
- incorporated under an Australian law
- incorporated under a foreign law but an Australian resident for income tax purposes
- incorporated under a foreign law and you are both
- a resident of a country with which Australia has a double tax agreement that includes a definition of ‘permanent establishment’; and
- carrying on business in Australia through a permanent establishment as defined in the double tax agreement.
You are not eligible for an R&D tax offset if you are:
- an individual
- a corporate limited partnership
- an exempt entity (where your entire income is exempt from income tax)
- a trust (with the exception of a public trading trust with a corporate trustee).
- If you are an R&D entity, you may also need to consider the special rules applied to consolidated groups and R&D partnerships. Other conditions may also apply, depending on whom the R&D activities are being conducted for.
Your eligibility to claim the R&D tax offset will also depend on where you are conducting your R&D activities and, importantly, what those activities are.
Where you are conducting your R&D activities
Generally, only R&D activities conducted in Australia qualify for the R&D tax incentive. However, R&D activities conducted overseas also qualify if Innovation Australia makes a finding that your activities meet the conditions specified in section 28D of the Industry Research and Development Act 1986.
What R&D activities you are conducting
Your research and development activities must meet certain criteria to be eligible for the R&D tax incentive: they must be classified as either core R&D activities or supporting R&D activities.
Core R&D Activities
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 that
- is based on principles of established science; and
- proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions
- that are conducted for the purpose of generating new knowledge (including about creating new knowledge or improved materials, products, devices, processes or services).
Supporting R&D Activities
A supporting activity is one that is directly related to core R&D activities or, for certain activities, has been undertaken for the dominant purpose of supporting core R&D activities. Activities that must satisfy the dominant purpose requirement are those that produce – or are directly related to producing – goods or services; or are excluded from being core R&D activities.
Don’t miss out on the opportunity to make a claim. If you think you could be eligible contact us today for a FREE No Obligation Assessment. If you are eligible we can manage this process for you making it streamline and stress free. We will assess your eligibility and then collect and collate all the relevant documentation.