Understanding the Research & Development Tax Incentive (R&DTI)
Innovation is the lifeblood of any progressive economy. Recognising this, the Australian Government’s Research & Development Tax Incentive (R&DTI) aims to spur economic growth by fostering investment in research and development activities.
What is the R&DTI?
The R&DTI is a tax incentive encouraging companies to invest in R&D activities, particularly those that might seem too risky due to uncertain returns. By doing so, the incentive aims to promote innovation, enhance the economy, and support job creation.
Who Can Benefit?
Companies incorporated in Australia or foreign companies with an Australian permanent establishment are typically eligible. Moreover, these companies must have incurred a minimum of $20,000 in eligible R&D expenditure within the income year.
Key Incentives Offered:
Refundable Tax Offset: Companies with an aggregated annual turnover less than $20 million (except those controlled by income tax-exempt entities) can receive a 43.5% refundable tax offset.
Non-refundable Tax Offset: Larger companies, with an aggregated annual turnover of $20 million or more, receive a non-refundable tax offset at 38.5%. Any unused offset can be carried forward to subsequent years.
What Constitutes Eligible R&D Activities?
Two main categories define R&D activities:
Core R&D activities: Experimental activities whose outcome cannot be known or determined in advance based on current knowledge, information, or experience but can only be determined by applying a systematic progression of work.
Supporting R&D activities: These activities are directly related to core R&D work.
Keeping Track of Expenditures:
Companies must keep records to demonstrate that their activities are eligible and to substantiate all R&D expenditure claimed.
How to Get Started?
Companies must register their R&D activities with AusIndustry (part of the Department of Industry, Science, Energy, and Resources) before claiming the R&D tax offset in their tax return. There's an annual deadline for registration, typically 10 months after the end of a company's income year.
For most companies that have a standard income year (1 July to 30 June), the deadline would be 30 April of the following year.
Guidance and Compliance:
The joint administration of the R&DTI program is handled by the Australian Taxation Office (ATO) and AusIndustry. While AusIndustry evaluates the eligibility of R&D activities, the ATO focuses on the tax-related aspects of the incentive.