Your business could be eligible for a R&D Tax Credit

The R&D Tax Incentive was introduced by the Federal Government to encourage businesses to conduct research and development activities that are likely to benefit the wider Australian economy. For the purposes of the incentive, ‘research and development’ requires the company to conduct at least one ‘core R&D activity’ during the income year, which has three key components:

1. New technical knowledge: the activity is carried out for the purpose of generating new knowledge in the form of new or improved materials, products, devices, processes or services.
2. Technical uncertainty: the outcome of the activity cannot be known or determined in advance on the basis of current knowledge, information or expertise.
3. Experimentation: the activity is experimental in nature and involves a systematic progression of work based on the principles of established science that proceeds from hypothesis to experiment, observations and evaluations, and leads to logical conclusions.

Where a core R&D activity has been conducted during the income year, any ‘supporting R&D activities’ may also be eligible for the incentive. As the name suggests, supporting R&D activities are those activities conducted for the purpose of supporting the core R&D activity (but do not form a part of the experimentation) and can include preliminary research, project management and data collection.

The R&D Tax Incentive tends to be claimed by businesses in the following industries:

• Software development
• Advanced manufacturing
• Energy and renewables, and
• Life sciences.

Eligibility

In addition to conducting at least one core R&D activity during the income year, businesses intending to claim the incentive must also satisfy the following eligibility criteria:

• The applicant is an Australian tax resident company
• The R&D activities are conducted in Australia
• The company incurs at least $20,000 of eligible R&D expenditure during the income year

Eligible expenditure

If a business is conducting at least one core R&D activity during the year and satisfies the above eligibility criteria, then the next step is to calculate the expenditure attributable to the core and supporting R&D activities conducted.

Eligible R&D expenditure may include:

• Employee salary and wages
• Labour on-costs such as superannuation, workers compensation and payroll tax
• Contractor expenses
• Depreciation of plant and equipment
• Expenditure to research service providers and co-operative research centres
• Overhead expenses including rent, electricity, telephone and internet
• Travelling expenses from attending technical conferences or on-site testing

In contrast, the following expenditure is unlikely to be eligible for the incentive:

• Financing costs such as interest and bank charges
• Sales, marketing and advertising costs
• Legal and accounting fees
• Building construction costs, fit outs or improvements
• Cost of acquiring depreciating assets (but the depreciation of that asset may be eligible)
• Other routine or ‘business as usual’ expenses
• Overseas expenditure (unless pre-approval has been granted by the government)

Speak to us to check your eligibility for R&D Tax Credit.