R&D Tax Incentive – key points for tax advisors

Many companies have never heard of the R&D Tax Incentive and generally rely on their tax advisors to have knowledge of these kinds of programs. Therefore, tax advisors should always ask their clients, especially those in the manufacturing, mining, health, food, software and agriculture industries, if they have conducted any R&D related activities. If companies undertake projects or activities for the purpose to improve an existing product (making it lighter, more durable, increasing functionality), or overcame technical risks to create a new product, it is likely the related activities may be eligible for the R&D Tax Incentive.

Who can apply

The R&D Tax Incentive is available to companies incorporated under an Australian law, a company that is incorporated under foreign law however, is an Australian resident for tax purposes; and a company that is incorporated under foreign law that is a resident of a foreign country with a double tax agreement with Australia and who carries on business through a permanent establishment of the body corporate in Australia.

Know what kinds of expenditure companies can claim

Expenditure is subject to eligibility criteria and exclusions. A company can claim a tax offset for:

expenditure incurred on R&D related activities;
depreciation on assets used in R&D activities; and
balancing adjustments for depreciating assets used only in R&D activities.

Examples include direct labour or wages, equipment used for prototyping and experimentation, subcontractors, percentage of overhead, travel and material costs. These deductions are known as ‘notional deductions’. These deductions for an income year must be at least $20,000 minimum to claim the tax offset. Additionally, a common misconception is that the R&D Tax Incentive is a government grant. It is a tax incentive and its benefits flow through the company tax return. This means that the R&D Tax Incentive has nothing to do with government grants

How and when do companies apply

The R&D Tax Incentive requires companies to lodge an application for registration of R&D activities with AusIndustry within 10 months after the end of the company’s Australian income year in which the activities were conducted.

By law, anyone advising businesses on R&D Tax for a fee must be a registered tax agent. Make sure that your adviser is one and has the experience necessary to guide you.

Need help preparing a R&D tax claim?

82% of accountants think that preparing R&D claims without specialist help is too risky. TaxTrex allows you to prepare R&D claims with little or no risk.

TaxTrex includes the tools you need to manage and offer an R&D claim service in-house from initial assessment to the claim submission.

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