The Research and development (R&D) tax incentive provides a tax offset for eligible R&D activities and is targeted towards innovation that benefits Australia. The incentive came into effect on 1 July 2011 and replaced the R&D tax concession. There are several objectives to this incentive; it aims to boost competitiveness and improve productivity across the Australian economy, while encouraging industry to conduct R&D that may not otherwise have been conducted. The incentive should also provide business with more predictable, less complex support and improve the incentive for smaller firms to engage in R&D.
The incentive has two core components. Entities engaged in R&D may be eligible for:
• a 45% refundable tax offset (equivalent to a 150% deduction) for eligible entities with an aggregated turnover of less than $20 million per annum, provided they are not controlled by income tax exempt entities
• a 40% non-refundable tax offset (equivalent to 133% deduction) for all other eligible entities (entities may be able to carry forward unused offset amounts to future income years).
The R&D tax incentive has replaced the R&D tax concession for activities and expenditure in income years beginning on or after 1 July 2011.
The R&D tax concession still applies to activities and expenditure in income years commencing before 1 July 2011.
Are you eligible?
You assess for yourself whether or not your entity is eligible to register R&D activities and claim R&D tax offsets in any given year. Broadly speaking, your eligibility to claim R&D tax offsets will depend on whether or not you are an R&D entity and, if you are, whether or not you have incurred notional deductions of at least $20,000 on eligible R&D activities.
You are an eligible R&D entity if you are a corporation that is:
• incorporated under an Australian law or
• incorporated under foreign law but an Australian resident for income purposes or
• incorporated under foreign law and
– a resident of a country with which Australia has a double tax agreement, including a definition of ‘permanent establishment’ and
– carrying on business in Australia through a permanent establishment as defined in the double tax agreement.
You are not eligible for the R&D tax incentive if you:
• are a corporate limited partnership
• are an exempt entity (because your entire income is exempt from income tax).
Registering for the incentive
If your company is an R&D entity and you want to claim an R&D tax offset in your company’s income tax return, you must first register your R&D activities with AusIndustry (who act on behalf of Innovation Australia). You must register your R&D activities:
• for every income year you want to claim the offset
• within 10 months of the end of your company’s income year
• prior to claiming the R&D tax offset in your company income tax return.
If you are unsure whether your business is eligible for the research and development tax incentive, or if you would like assistance in registering and making a claim, please contact the experienced team of accountants and tax agents here at The Quinn Group. For more information on the incentive or for any other business tax related queries submit an online enquiry or call us on 1300 QUINNS (784 667) or on +61 2 9223 9166 to book an appointment.