Summary of R&D Tax Incentive

The Australian government supports innovation by encouraging local businesses to develop new or improved products and original solutions. This support is offered through the Research & Development (R&D) Tax Incentive, reducing the financial risk involved in undertaking R&D activities. By reducing the risks and costs associated with conducting R&D, the incentive seeks to boost productivity, innovation and economic growth for the nation.

The R&D Tax Incentive offers a targeted tax offset of up to a 45% refund of costs for eligible Research & Development activities that benefit Australia.

Many businesses in Australia are already completing eligible R&D activities without realising. In fact, only 30% of eligible small businesses conducting R&D currently claim this tax incentive. You don’t need to be conducting experiments in a lab to qualify for R&D incentives. If your business prides itself on innovation or is considering new developments, read on to find out more about how the R&D Tax Incentive could provide cash back to your company.

What is R&D?

Research & Development, or R&D, involves conducting an experiment or trial to gain new knowledge. This new knowledge could be used to develop new or improved materials, products, devices, processes, software, or services. An experiment doesn’t have to be scientific, all it means is that at the start of this process you’re unaware of what the outcome will be and need to conduct further research, testing and trialling in order to overcome this uncertainty. The results seek to bridge the gap in knowledge that you started with.

A wide range of businesses and industries conduct R&D activities including (but not limited to):

  • Professional services
  • Manufacturing
  • Agriculture
  • Retail
  • Fashion
  • Science
  • Technology

Benefits of conducting R&D activities

Research and Development helps to improve workforce skills and knowledge, venture capital opportunities, and technical proficiencies within a business. Innovation and cutting-edge solutions not only puts your company at the forefront of competition, it also supports the development of the Australian workforce and economy.

Financial benefits of R&D Tax Incentive

Undertaking R&D involves significant technical and financial risk. The R&D Tax Incentive was introduced to encourage businesses in Australia to take on R&D activities. Unlike a grant, you are not applying for funding or competing with other businesses for this financial incentive. Instead, the financial benefit is received in the way of tax offsets against expenses and is available to all eligible businesses.

Small businesses (turnover below $20million) can receive a 45% R&D tax offset against expenses in a financial year. Larger companies (over $20million aggregated turnover) can receive a 40% R&D tax offset.

Companies that have experienced a tax loss can also benefit from the R&D Tax Incentive and could be eligible to offset 45cents for every dollar spent on R&D activities.

Eligibility to claim the R&D Tax Incentive

Is your business missing out on tax offsets? More than 20,000 small businesses are currently eligible for the R&D Tax Incentive, yet only 7,000 currently apply for this program.

To be eligible for the R&D Tax Incentive, you must be a for-profit company incorporated in Australia and have at least $20,000 in expenses on eligible R&D projects. Your business can only benefit from the program if your initiatives are considered eligible R&D activities and meet the legal requirements. This is to ensure that companies do not take advantage of the program solely for the purpose of gaining additional income.

PwC can review your eligibility at any time, with no upfront fees or obligation. If we find that your businesses is ineligible, we won’t charge you a cent.

Registration of R&D activities

Before you can apply for the R&D Tax Incentive, you need to register your activities. A complete guideline of requirements can be accessed here [link].

When registering R&D activities, you need to ensure that you:

  • Only register R&D activities that have been carried out and meet the legal requirements for eligibility
  • Only include expenditure that has been incurred on R&D activities and do not include ordinary business activities
  • Maintain sufficient records that support your claim

AusIndustry provides a form [link] for the purpose of carefully assessing and evaluating your R&D activities against the required criteria. One your activities have been evaluated, you are ready to apply.

Applying for the R&D Tax Incentive

Important things to note when applying for the R&D Tax Incentive:

  • You need to register for every income year you want to claim the offset
  • Ensure that a new version of the application form is downloaded each time you apply
  • Submit your application no later than 10 months after the end of the income year in which the activities were conducted (on or before April 30 for standard Australian financial year ending June 30)

The application form can only be submitted once, so ensure details are accurate and checked carefully. If you’re unsure where to start or would like assistance with handling your R&D Tax Incentive application, contact one of our R&D tax specialists, we are here to help.

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