If your business is focused on innovation and undertaking R&D activities, the Research and Development Tax Incentive Offset can provide additional funding for your efforts. Since its inception in the 1980s, the incentive has helped tens of thousands of businesses nationally boost their research and development efforts. The scheme is designed to provide tax credits for R&D, reducing effective R&D expenditure. If your business is carrying out Core R&D Activities and aggregate turnover of less than $20 million per annum, you may be eligible for a tax offset.
In this article, we’ll go into what the R&D tax offset scheme can do for you, whether or not you’re eligible, and how much you can receive for your business through this incentive.
What You Need to Know About the Research and Development Tax Incentive
The Research and Development Tax Incentive was specifically designed to help Australian businesses lower the cost of pursuing technical innovation. It applies to all sectors of research and development, and is even available in specific forms for overseas businesses undertaking R&D in Australia.
As a tax incentive, the cash benefit is received from the ATO through details lodged in your entity’s tax return. Depending on your circumstances and eligibility, you may be able to receive tax credits equal to 18% plus the corporate tax rate. The Australian Tax Office may check if the R&D expenditure you are claiming in your company tax return is eligible, so it’s important to make sure you are both correct in your records and that you’re taking full advantage of the scheme.
Eligibility for the R&D Tax Incentive
If your company meets the requirements below and has a turnover of less than $20 million and is in a tax loss position, you may be eligible to receive a refundable tax offset in the form of a cash refund. Only companies that spend a minimum of $20,000 within the space of a financial year are eligible.
- incorporated under Australian law
- incorporated under foreign law but an Australian resident for income purposes
- incorporated under foreign law and a resident of a country with which Australia has a double tax agreement
What Type of Research and Development Qualifies?
The tax offset is available for core research and development activities that :
- Are experimental activities based on an established area of science.
- Involve unknown outcomes/outcomes that are unable to be determined in advance.
- Lead to new knowledge or the creation of a new or improved product, program, process, or service.
- Are for your benefit and not for the benefit of a third party such as an investor or contractor.
Additionally, only Australian R&D expenses will be eligible, and companies are generally the only business structures that are eligible. Occasionally, body corporates in the capacity of a trustee for a public trading trust are also eligible.
Calculating Your Research and Development Tax Incentive
The size of the tax offset you’re entitled to is calculated based on three factors:
- Eligible expenditure incurred on R&D activities
- Depreciation on assets used in R&D activities (i.e. in-house software, physical assets).
- Balancing adjustments on the above.
How You Can Make the Most of the R&D Tax Offset
Technology is one of the biggest areas for R&D. If your business or company operates online, our accountants can assist you in making the most of your research and development efforts. With certain actions regarding app, website, and technology development falling under the tax incentive, there are many different ways you can receive a cash refund or reduced tax offset through the scheme.
infinity22 can work with you to ensure you receive the maximum possible benefit from the R&D Tax Incentive. We can work with you to ensure that your outfit or business is compliant, claimable credit.
We have a number of accountants on staff who are very familiar with the Research and Development Tax Credit. Contact infinity22 today for a consultation and we’ll create a personalised plan for you to help you make the most of the incentive.
