The Federal Government’s R&D Tax Incentive program is targeted at Australian companies, particularly small to medium enterprises (SMEs) carrying out R&D in Australia and overseas. Early stage high-tech companies investing heavily in R&D stand to gain significantly because there is no upper limit on the amount of R&D expenditure per year under the scheme.
SMEs
SMEs which have an annual turnover of less than $20 million are eligible for a refundable tax credit at a flat rate of 45 per cent. If the amount of the tax credit exceeds a company’s tax liability, that company will receive up to 45 cents in the dollar as a cash refund.
From 1 January 2014, SMEs will have the option to access quarterly payments of the tax credit. This will assist with the management of cash flow and financing for R&D activities.
Offshore R&D
In certain circumstances, R&D activities conducted offshore as part of an Australian project may qualify for the tax credit, including, for example, activities which cannot be conducted in Australia due to lack of facilities, expertise or equipment.
Eligible R&D Activities
Both ‘core’ and ‘supporting’ R&D activities can be claimed. Core activities are experimental activities which follow the ‘scientific method’ for the purposes of generating new knowledge in the form of new products and processes. Under the scheme, software development cannot be a core R&D activity if the dominant purpose for seeking to develop the software is internal business administration of the claimant, its members or affiliates.
Supporting activities which can be claimed must be undertaken for the dominant purpose of supporting core R&D activities, rather than a commercial or other purpose.
Claiming the R&D Tax Incentive
Claimants must register their R&D activities with AusIndustry each year. Once registered, the ATO determines whether the expenditure claimed is eligible. Successful applicants can then claim the R&D Tax Incentive via the income tax return.
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