This recognises that research and development drive small business innovation and growth, which in turn drives the economy and job creation.
Put simply, the R&D Tax Incentive aims to incentivise Australian companies to conduct research and development activities onshore.
Companies need to apply following their financial year-end, i.e. companies with a 30 June financial year-end can lodge a claim on 1 July.
The R&D Tax Incentive is an annual process, and the minimum R&D expenditure required in order to claim in each financial year is $20k.
How does the R&D Tax Incentive work?
The R&D Tax Incentive is administered by two regulatory authorities, AusIndustry and the ATO.
AusIndustry is responsible for reviewing the R&D activities and the ATO is responsible for reviewing the costs associated with the activities.
Once a company has determined that it meets the eligibility criteria, then the process for claiming the R&D Tax Incentive is as follows:
1. Application Form
The company lodges with AusIndustry its Application for Registration of R&D Activities (also known as the Application Form). This Application Form must be lodged within 10 months of the end of the financial year.
If the Application Form is not lodged within 10 months of the end of the financial year, the company is not eligible to claim the R&D Tax Incentive for that year. For example, a company with a financial year ending 30 June 2019 has from 1 July 2019 to 30 April 2020 to lodge its Application Form with AusIndustry.
Extensions to the lodgement period are typically not granted.
2. Notice of Registration
Upon lodgement of the Application Form, the company will receive from AusIndustry its Notice of Registration within 5 to 10 business days.
This Notice of Registration contains within it a unique Registration Number. This Registration Number will be used by the company when lodging its income tax return. The Notice of Registration states that the activities described within the Application Form have been registered with AusIndustry.
3. Expenditure Calculation
The Australian-based costs associated with the activities described in the Application Form are calculated.
These costs include salary and on-costs of staff involved in the R&D activities, related contractor and direct costs, a proportion of overheads, as well as other costs such as depreciation and feedstock (if relevant).
4. R&D Schedule and Company Income Tax Return
The R&D Schedule is completed, and forms part of the company income tax return. The R&D Schedule includes the costs associated with the registered R&D activities as well as the tax offset available for the financial year.
At the top of the R&D Schedule, the Registration Number provided in the Notice of Registration is included. This highlights to the ATO that the costs included in the R&D Schedule relates to activities that have been registered with AusIndustry. The information within the R&D Schedule flows through the company income tax return.
Upon lodgement of the company income tax return, the R&D refund (if anticipated) is generally processed by the ATO within 30 to 60 days.
The R&D Tax Incentive is aimed at onshore R&D, however there are certain circumstances under which offshore R&D activities are eligible for the program.
If you’d like more information about your business’ eligibility and how to access the R&D Tax Incentive, contact the BridgePoint Innovation Advisory team on 1300 656 141.