R&D Tax Incentives and Eligibility
The R&D tax incentive is a tax offset benefit provided to companies who invest in eligible research and development activities.
If you are an eligible company you can get a refundable tax offset equal to 43.5% of your first $100m of eligible research and development activities if your turnover is less than $20m.
If your turnover is higher than $20m you may get a non-refundable tax offset equal to 38.5% of your eligible R&D expenditure.
You can apply for the R&D tax offset any time within 10 months of the end of the income year. I stress that you must apply before 30th April of the following year. No extensions are possible.
To find out if you are eligible and how to apply for the offset, review the steps below or give us a call. This is a difficult and often misunderstood area. Also with the right advice often the R & D Claim can resort in a significant financial boost to your business:
Step 1 Do you meet the four eligibility requirements?
1. Are you an eligible R&D entity?
You need to be an incorporated entity, rather than an individual, partnership or trust – call us or check the ATO’s site for full eligibility criteria
2. Have you conducted eligible R&D activities in the respective income year?
3. Have you registered with Ausindustry?
You need to register with Ausindustry before you lodge your claim
4. Do your notional deductions qualify?
Step 2 Are you controlled by an exempt entity? (an entity exempt from income tax)
If you are controlled by an exempt entity you can still claim the 38.5% non-refundable tax offset.
Step 3 Calculate your aggregated turnover
Step 4 Work out which tax offset to claim
You can claim 43.5% or 38.5% . You are eligible for the higher rate if your turnover is less than 20m and you are not controlled by an exempt entity.
Step 5 Calculate your tax offset by multiplying your notional deductions by either 43.5% or 38.5%.
The notional deductions are calculated by reviewing all amounts incurred in a year and ascertaining what proportion or what amounts are applicable to R & D. For example you may attribute part of admin wages to R & D, travel costs, or other specific costs that relate to the project you are doing. To qualify expenses need to be incurred in research that has no known outcome. Hence there is an element of risk associated with the expenses that may not yield any future benefit.
Step 6 Lodge your claim
You need to complete a Research and development tax incentive schedule and the relevant labels of the company tax return and lodging them with the ATO
We are happy to assist and do this for you.
ATO and AusIndustry Audits
The ATO and AusIndustry are the two organisations which administer the R&D tax incentive.
They will undertake undertake compliance activity for the 2016 financial year R&D applications over the coming months.
Four industries have been identified for auditing due to the significant number of claims with issues. These industries are:
- building and construction
- software development.
The remaining areas of concern are not industry based and include:
- ordinary activities vs eligible R&D activities
- apportionment of overheads
- payments to associates
- record keeping
- R&D consultants’ fraud.
It really pays off to get professional help with your taxes.
Not all tax agents are the same. We all have different levels of knowledge and experience.
I have personally helped many companies save significant amount of money off their tax bill, and in this pharmaceutical company’s case this saving was as high as $732, 000.