How easy is it to get the R&D Tax Incentive?

A question we get all the time. Whilst the Research & Development (R&D) tax incentive claim process can seem quite complicated, the benefits of doing it properly are usually well worth the effort.

Want to see how you might benefit from the claiming the incentive this year? Here’s everything you need to know about the R&D tax incentive.

What is the R&D tax incentive?

The R&D tax incentive provides eligible entities with a tax offset for expenditure on eligible R&D activities and for the decline in value of depreciating assets used for eligible R&D activities.

What is the eligibility for the tax incentive?

Entitlement to the R&D tax incentive offset broadly requires that:

  • You are an eligible R&D entity, which is basically limited to companies;
  • You undertake experimental activities applying a systematic progression of work for the purpose of generating new knowledge;
  • You incur at least $20,000 on those core R&D activities and supporting activities;
  • You have registered your R&D activities with AusIndustry; and
  • You claim the R&D tax incentive in your tax return.

How could I benefit from the R&D tax incentive?

Companies with turnover less than $20 million:

The 45% R&D Tax Incentive is a refundable tax offset, which means that once a company’s tax liability is reduced to zero, companies may access a cash refund for any unused offset amount or if the company is in a tax loss position.

EXAMPLE – If the company is in a profit position, the benefit will be in the form of a reduction in tax liability and any unused offset amount will be refundable.

  • Company Taxable Profit: $300,000 (before R&D).
  • Eligible R&D Expenditure: $200,000.
  • 45% Tax Offset: ($90,000).
  • Profit following R&D Expenditure Add Back: $500,000.
  • Resulting in Tax Liability Before Offset: $150,000.
  • Apply Offset to Tax Liability ($150K): $90,000.
  • Reduced Tax Liability: $60,000.
  • Benefit from R&D Incentive: $30,000.

Companies with turnover greater than $20 million:

The 40% R&D Tax Incentive is a non-refundable tax offset, which assists to reduce a company’s tax liability. Once the liability has been reduced to zero, any excess offset may be carried forward into future income years.

What are the challenges involved in applying for the R&D tax incentive?

The reality in many cases is that the claim is not easy, because identifying eligible expenditure involves a detailed and complex analysis of a company’s activities along with the application of the R&D tax rules.

There can also be challenges in collating the necessary documentation to support a claim.