R&D Tax Incentive
What is the Research and Development (R&D) Tax Incentive?
The R&D Tax Incentive Program is implemented and designed by the Australian government through the Australian Taxation Office (ATO) and AusIndustry to support businesses to participate in the Australian Innovation Economy.
This program encourages businesses to undertake research and development activities and projects to improve their products and services that will serve to benefit their clients and consumers to grow thorugh both local an international markets.
The R&D Tax Incentive can be referred to as either the R&D tax offset, R&D tax rebate, or R&D tax credit – they are all one in the same.
What are the benefits of the R&D Tax Incentive?
Depending on your aggregated turnover, the program provides businesses with either a refundable payment or a tax offset against tax liabilities or a combination of the two:
Small Businesses and Startups
Eligible businesses or entities undertaking R&D related activities and projects with an annual total turnover of less than $20 million, that are not regulated by any entities that are exempt from income tax, are eligible for a refundable tax offset which is paid at a rate of 18.5% above the nominal tax rate, currently providing a 43.5% refundable payment.
Other eligible entities with a turnover above $20 million that are undertaking R&D related projects and activities are eligible for a non-refundable tax offset, depending on their R&D intensity levels.
The new threshold measure for non-refundable offset rates is calculated as a percentage of R&D expenditure over total expenditure, (the R&D Intensity).
R&D expenditure below 2% of the total expenditure has an offset rate of +8.5% over the company tax rate. R&D expenditure exceeding 2% has an offset rate of +16.5% over the company tax rate Providing an exceptional position for businesses that are investing heavily into local R&D activities.
To provide an example, if a company’s total expenditure is $15m then the R&D intensity threshold (at 2% of company expenditure) is $300,000.
If the company spends $500,000 on R&D, then the first $300,000 will provide the nominal tax rate plus +8.5% offset, and the additional $200,000 will provide an additional +16.5% offset on top of the normal tax rates.
If the company tax rate is 25% ($20m < Aggregated Turnover < $50m for FY22), then the total R&D offset is:
(300,000*33.5%) + (200,000*41.5%) = $183,500
If the company tax rate is 30% (Aggregated Turnover > $50m) then the total R&D offset is:
(300,000*38.5%) + (200,000*46.5%) = $208,500
Note that tax consolidated groups will have a higher total expenditure than independent entities.
Example R&D Tax Incentive Calculations:
R&D Tax Incentive Eligibility Guidelines:
The research and development project activity that an organisation is undertaking must meet specific criteria in order to be considered as eligible for the program. These activities have to be categorised into wither Core or Supporting research activities.
A project must carry both technical and financial risk for an organisation, be undertaken for the purpose of generating new knowledge and have an unknown outcome. A company must also apply a scientific methodology to a project and structure its documents and supporting evidence accordingly
Still not sure if you qualify? Get in touch with our team for a complimentary assessment of your R&D activities.
How Avant Group can help
Our team can help you get the R&D tax incentive.
When you’re a business owner, you may not have time to work through the red tape and audits required to apply for government grants.
Avant Group is your partner for success. We take all the hassle out of the application process whilst working with your team to assist with reporting and compliance requirements – so you can focus on running your business.
Avant Group offers:
- All AusIndustry auditing management for engaged clients included at no additional cost
- Hands-on technical project management covering application writing and administration aspects
- A highly skilled advisory team with consultants from engineering, marketing and finance disciplines
- A dedicated account manager who will work with you every step of the way with your grant application
Learn more about the R&D Tax Incentive
How to prepare your R&D Tax Incentive claim in preparation for the end of financial year
How to register Avant Group as your agent for the R&D Tax Incentive AusIndustry portal