Has your company recently engaged in Research & Development (R&D) activities to develop new products, services or product-related enhancements? Are you considering or currently in the planning stage for new initiatives; ideas that could help shape a new generation of Australians?
If so, the 30 April 2017 (for those companies with a 30 June year end) deadline is fast approaching in respect of the income year ended 30 June 2016. Companies have 10 months following the completion of their income year end to lodge their application with AusIndustry.
So just what is the R&D Tax Incentive, what are the eligibility requirements and what can you do next?
Let’s review the following:
The R&D Tax Incentive – what is it?
The R&D Tax Incentive was introduced in Australia to encourage industry investment in Research and Development with the broad-based program accessible across a diverse range of industry sectors. The main objective of the incentive is to promote R&D activities that would not otherwise be conducted due to the uncertainty of return from the activities, in cases where the knowledge gained is likely to benefit the wider Australian economy. Eligible companies will either have their tax bill reduced or will receive cash refunds from the Australian Taxation Office.
What are the eligibility requirements?
The eligibility requirements for the R&D Tax Incentive are:
- The tax incentive is only available to Australian tax resident companies, and certain companies incorporated overseas that conduct business in Australia through a ‘permanent establishment’.
- The company must conduct eligible R&D activities. Broadly, this involves ‘experimental activities’ conducted in a scientific way for the purpose of generating new knowledge or information on a worldwide basis.
The company must satisfy the $20,000 minimum annual R&D expenditure threshold.
What are the potential benefits?
Companies with a turnover of less than $20 million can obtain a refundable 45% tax offset for the income year ended 30 June 2016. All other companies are entitled to a non-refundable 40% tax offset for the income year ended 30 June 2016. The tax benefit arising from the tax offset depends on the tax profile of the company:
The potential benefits of the R&D Tax Incentive for the year ended 30 June 2016 are:
- A net benefit of 16.5 cents for every dollar spent may be available for ‘small’ companies in an otherwise tax payable position. Small companies are those companies with an aggregated annual turnover of less than $2 million. The tax rate for these companies for the 2016 income year is 28.5%.
- If the turnover of the company is between $2 million and $20 million, the net tax benefit is reduced to 15 cents in the dollar spent.
- If the company is considered ‘small’ and is otherwise in a tax loss position, the organisation will receive a full refund of 45 cents in the dollar spent for the 2016 income year.
All other companies will receive a tax benefit of 10 cents in the dollar spent.
From 1 July 2016, the rate of the refundable and non-refundable tax offset under the R&D Tax Incentive are both reduced by 1.5% to 43.5% and 38.5% respectively.
What is the claim process?
Companies that have determined they are eligible for the R&D Tax Incentive must obtain claim approval from AusIndustry. The claim itself is made in the company’s income tax return after AusIndustry approval is obtained.
What to do next:
If you feel your company is eligible and would like to explore the nature of an R&D Tax Incentive claim in greater detail, we recommend you contact your local Crowe Horwath tax specialist adviser for further guidance.