For companies with an aggregated turnover of less than AUD 20 million, the Australian Tax Office (ATO) provides for a Research and Development Tax Incentive, meaning that if your company is in a tax loss or the offset exceeds your tax liability, you may receive a cash refund. For many small businesses, this cash refund can be up to 43.5% on your eligible R&D expenditure.
Eligibility
To qualify, your R&D activities must:
- be systematic, investigative, and experimental.
- aim to generate new knowledge or improve existing products, processes, or services.
- involve a level of technical risk or uncertainty that necessitates a systematic approach.
These may include:
- employee costs including salaries, superannuation, and other related expenses for staff directly involved in R&D.
- contract expenditure including payments to external R&D service providers (subject to specific limits).
- overheads and consumables including the costs of materials and operating expenses directly attributable to R&D.
Requirements for Obtaining the Incentive
Your business must be an eligible company incorporated in Australia or carrying on business in Australia, with the R&D activities conducted in Australia. Further, you must register your eligible R&D activities with the Australian Government’s relevant body within 10 months of the end of your income year.
Finally, you maintain detailed records of all R&D activities, including experiment designs, outcomes, and technical reports and documents to support all eligible expenditures to substantiate your claim.
Limitations and Exemptions
Not all R&D-related expenses are eligible. For instance, capital expenditure or costs related to routine product testing are generally excluded. Further, if you outsource R&D work (contract expenditure), there are caps and additional rules that must be adhered to.
How to Get Paid
Once you register your R&D activities you will generally work with your accountant or a specialised R&D advisor to accurately calculate your eligible R&D expenditure and include the R&D tax incentive claim in your company’s annual tax return. The ATO will assess your claim based on the documentation provided. For small businesses eligible for a refundable offset, if your claim exceeds your tax liability, you will receive a cash refund, and once the claim is approved, the offset is applied to reduce your tax payable. For refundable claims, any excess is processed as a refund directly into your nominated bank account.
For Canadian businesses considering an expansion into Australia (especially in the face of U.S. tariff pressures), this incentive can offset costs of expanding your business to Australia.
About MCLP
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