Research and Development Tax Incentive

|by Shaun Ralph|Research and Development (R&D) Entitlements

The Research and Development tax incentive encourages companies to engage in Research and Development benefiting Australia, by providing a tax offset for eligible Research and Development activities. It has two core components:

  • a refundable tax offset for certain eligible entities whose aggregated turnover is less than $20 million
  • a non-refundable tax offset for all other eligible entities.

Who is eligible?

You are an eligible Research and Development entity if you are a company that is:

  • incorporated under Australian law, or
  • incorporated under foreign law with specific circumstances

You are not an eligible Research and Development entity if you are:

  • individuals
  • corporate limited partnerships
  • exempt entity (exempt from income tax)
  • trusts are generally not eligible

What are core Research and Development activities?

Under section 355-25 of the Income Tax Assessment Act 1997:

Research and Development activities are experimental activities:

  • whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that:
  1. is based on principles of established science; and
  2. proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and
  • that are conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes or services).

Some types of activities are excluded under section 355-25(2) of the legislation from being core Research and Development activities. Some of these excluded activities may be eligible for the Research and Development Tax Incentive as supporting Research and Development activities if they meet all of the requirements.

What are supporting Research and Development activities?

Under section 355-30 of the Income Tax Assessment Act 1997:

Supporting Research and Development activities are activities directly related to core Research and Development activities.

However, if an activity:

  1. is an activity referred to in subsection 355-25(2); or
  2. produces goods or services; or
  3. is directly related to producing goods or services;

the activity is a supporting Research and Development activity only if it is undertaken for the dominant purpose of supporting core Research and Development activities.

How do you apply?

To claim the Research and Development tax offset in your annual income tax return, you must first register your Research and Development activities under the Research and Development Tax Incentive. You must register separately for each income year you wish to claim.

Lodgement Dates

The Research and Development Tax Incentive application lodgement date is 30 April following the end of the Income Tax Year. i.e 2020 Tax Incentive Application is due for lodgement on 30 April 2021.

Company Income Tax Returns lodgement dates vary depending on certain situations but are usually due for lodgement 15 May following the end of the Income Tax Year. i.e 2020 Company Tax Return will be due generally due for lodgement on 15 May 2021.

If you feel like you require any assistance with your Research and Development activities, please don’t hesitate to contact our office on 07 5504 5700 to speak with our Research and Development experts.

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