Research and Development Incentive

When people think of research and development (“R&D”), they often think of people in white lab coats. But most R&D in Australia is performed by small to medium sized businesses.

To encourage this, the government introduced a tax break known as the R&D Incentive for companies undertaking innovative R&D, be it developing new technology, experimenting with new products or developing a new, more effective way of manufacturing things.

What does the R&D Incentive mean?

The R&D Incentive provides a tax offset of 43.5% of R&D expenditure, which reduces your tax bill. For a company in a tax payable position, this means that for every $100 spent on R&D, there is a further tax savings of $13.50. If your company makes a loss, the ATO will refund the benefit once you lodge your tax return.

How do you know if you are eligible?

Broadly speaking, to be eligible for the R&D tax incentive you need to operate a company, and the company needs to have spent at least $20,000 on eligible R&D activities.

An eligible R&D activity is generally time spent solving a problem you’re unsure how to resolve, and it requires research, experimentation with different potential solutions, evaluation of success, retrying, before hopefully finding a way to solve your problem.

R&D is in fact broader than white lab coats. It could be an engineering business trying to figure out a way to improve a processing system in the workshop to gain efficiency.

Any cost incurred directly in researching, developing and testing a new processing system, as well many indirect costs incurred in connection with these activities could be eligible for the incentive. 

Many businesses today make the error of overlooking R&D activities because they’re considered to be part of everyday business activities from a commercial perspective.

In order to claim the R&D Incentive you need to register your projects with AusIndustry. If you think you could be eligible, you should speak to your accountant.