Andrew Chia - R&D tax incentive advice

Your advisor

Andrew Chia - Senior Tax Counsel

Innovation drives business forward. Of course, it’s appealing: engage in research and development (R&D) and produce your own improved materials, products, devices, processes or services. Set your business above the competition. But, is this realistic? How do you afford and plan R&D?

"We worked with a client who had set up a manufacturing business in Australia. We were able to demonstrate that while the client was from overseas, the business and the R&D activity made them eligible for the R&D grant. As a result, the R&D tax incentive helped them recover a large percentage of their investment."

The R&D tax incentive may seem irrelevant because you do not see research and development as a realistic activity. In reality, a large number of different businesses, both large and small, engage in activities relevant to the R&D tax incentives. Along with other small business grants such as the EMDG, Calibre helps you gain the financial incentives of the R&D tax offset rate.

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How to claim R&D tax incentives infographic

Our Clients

“We are a start-up technology business developing an App in the education space. Significant funds were invested as a start-up so the R&D tax incentive was critical for our cash flow. However, it was our first claim and we were worried that it might be a difficult and lengthy process. Calibre took the time to sit down with our development team to understand and define the R&D, and helped us document the plans until the forms were submitted. We completed the process in good time and our development team now has a great understanding of what is required for future claims.” EDWY

How can the R&D Tax Incentive practically help me?

Similar to the EMDG, the scope of the R&D tax offset rate is extensive. The R&D grant covers both SMEs and large corporations, and both companies that are with profit and those at a loss.

Incentive value based on company turnover

You receive a 43.5% refundable R&D tax offset rate, provided your business is not controlled by income tax exempt entities. For example, if you invest $90,000 into research and development you receive $39,150 back.

You will receive a 38.5% non-refundable R&D tax offset rate, and you may be able to carry forward unused offset amounts to future income years. For example, if you invest $200,000, you receive a benefit of $77,000.

The rate is reduced to the company tax rate for that portion of your R&D deductions that exceed $100 million for an income year. Yet the financial value of R&D tax incentives is powerful.

How do I know if I eligible for R&D tax incentives?

You are eligible for R&D tax incentives in Australia if you engage in core activities: activities that seek outcomes that cannot be determined by current knowledge, only by tests or experiments based on the principles of established science. You may also claim based on supporting activities, which complement core activities and relate to goods and services. If you think this covers activity that you engage in, there is a broad scope for potential eligibility for the R&D tax incentive:

Am I eligible for R&D Tax Incentives?

I am incorporated under Australian law
I am incorporated under a foreign law but am an Australian resident for income tax purposes
I am incorporated under a foreign law but am a resident of a country with which Australia has a double tax agreement, and carry on business in Australia through a permanent establishment (as defined in the double tax agreement).
My R&D activities are conducted for my benefit
My total notional deductions for an income year are at least $20,000
My total notional deductions for an income year are less than $20,000 Special rules apply
I am a consolidated group or a multiple entry consolidated (MEC) group or an R&D partnership Special rules apply
My R&D activities are conducted for another entity Special rules apply
James Maston - R&D tax incentive advice

Your advisor

James Maston - Tax Director

How do I apply?

It is important to undertake the right steps and move forward with clarity and precision with any small business grant, from the EMDG to Jobs Action Plan. The R&D tax incentive is no different.

Check that you meet the four initial eligibility requirements. Is your entity eligible? Does your R&D activity meet the criteria? Are you registered with AusIndustry? Do your notional deductions qualify?

Work out if you are controlled by any exempt entities. Understand the criteria to make sure just which entities are exempt.

Calculate your aggregated turnover. Make sure you have kept detailed records to substantiate your claim.

Work out which tax offset you can claim. Can you claim 43.5% or 38.5%?

Calculate your R&D tax offset rate and lodge your claim.

The R&D tax incentive allows you to not only offset a considerable amount of tax, but also attain innovative knowledge, products and services that drive your business forward. Calibre Business Advisory has considerable expertise in helping businesses realise that they too can engage in R&D, and we then can give you the best chance of successfully applying for the R&D tax incentives.

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