R&D Tax Concession

The aim of the R&D Tax Concession is to provide financial assistance to Australian companies undertaking R&D via the tax system.

Overview

The R&D Tax Concession allows companies to claim a deduction from their taxable income of $1.25 for every $1 spent on eligible R & D activities. It is administered jointly by the Industry Research & Development (IR&D) Board (through AusIndustry) and the Australian Taxation Office (ATO).

Companies must be registered with the IR&D Board in order to claim the concession. Registration is available to any eligible company incorporated in Australia, and applications must be lodged annually within ten months of the end of the company’s year of income.

An incremental tax concession (175% Premium) and R&D tax offset (‘Offset’) are also available in certain circumstances.

Making a claim is a two-stage process. An application for registration must first be made with AusIndustry. On receipt of a registration number, the R&D Claim entry for your company tax return can then be lodged.

Who is entitled to apply?

All companies incorporated in Australia and undertaking eligible R&D activities are entitled to apply.

Trust partnerships and trusts cannot apply. Companies that are acting in the capacity of a trustee or nominee (other than in the capacity of a trustee of a public trading trust) cannot claim a deduction for the R&D Tax Concession.

Definition of R&D

A broad outline of what R&D means according to the Income Tax Assessment Act and the AusIndustry guidelines is mentioned below. Please note that this is just an overview and a full definition of what R&D means is actually more thorough than this. Should you need further clarification and wish to discuss your business activities further, then please call one of our consultants.

Under section 73B of the Income Tax Assessment Act 1936, the legislative definition of R&D is as follows:

Research and development activities means:

     (a) systematic, investigative and experimental activities that involve innovation or high levels of technical risk and are carried on for the purpose of:

          (i) acquiring new knowledge (whether or not that knowledge will have a specific practical application); or
          (ii) creating new or improved materials, products, devices, processes or services; or

     (b) other activities that are carried on for a purpose directly related to the carrying on of activities of the kind referred to in paragraph (a).

To establish an activity was experimental there needs to be evidence that the tests were undertaken to discover something unknown, to test a hypothesis (that is, in the context of the R&D Tax Concession, a proposed solution to a technical problem) or to find something out, not simply to confirm something already known or to demonstrate an already known fact.

Companies need to show that the R&D activities were undertaken with the main purpose of creating new knowledge, or new or improved materials, products, devices, or processes. It is not necessary to actually achieve the purpose.

We will meet with any potential applicant to determine R&D eligibility and assist in maximising their R&D Tax Concession claim.