The R&D Tax Incentive is the largest Federal government program to encourage innovation in Australia. It is jointly administered by AusIndustry and the ATO.
Each financial year, companies can offset the cost of R&D activities through access to an R&D Tax Offset with a benefit dependent on 'group' turnover and tax position.
At the highest level, the scheme can provide up to 43.5% as a refund on R&D expenditure for a company in a sufficient tax loss position. At its lowest, it provides 8.5% as an additional tax saving for large companies, typically spending millions on R&D.
To qualify you need to assess:
that you are an eligible entity
the level of benefit you qualify for, identifying your 'group' turnover
that you have undertaken R&D activities, spending a minimum of $20K
that you have maintained appropriate contemporaneous documentation
R&D activities must be documented and registered with AusIndustry within ten months from the end of your company's income year. Related costs are calculated and an R&D Tax Schedule containing these must then be lodged as part of your company’s income tax return.
As it is a tax based entitlement program, it can be tricky to access, with complex legislative provisions that require careful analysis. Companies may be audited by either AusIndustry and/or the ATO retrospectively for up to four years.
Recent court cases have highlighted the importance of adequate record keeping, and understanding the legislative provisions.
In our experience, companies often misunderstand the:
definition of R&D activities,
scope of an R&D Tax Incentive claim, and
important legislative provisions.
Most are not keeping supporting records that would pass an AusIndustry and/or ATO review.