Research & Development (R&D) tax credits

The research and development (R&D) tax incentive encourages companies to engage in R&D benefiting Australia, by providing a tax offset for eligible R&D activities. It has two core components:

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

The incentive has two core components. Entities engaged in R&D may be eligible for:

• a 43.5% refundable tax offset for eligible entities with an aggregated revenue of less than $20 million per annum, provided they are not controlled by income tax exempt entities
• a 38.5% non-refundable tax offset for all other eligible entities (entities may be able to carry forward unused offset amounts to future income years).

The rate of the R&D tax offset is reduced to the company tax rate for that portion of an entity’s notional R&D deductions that exceed $100 million for an income year. This change applies to assessments for income years starting on or after 1 July 2014 and before 1 July 2024.

The R&D tax incentive aims to boost competitiveness and improve productivity across the Australian economy by:

• encouraging industry to conduct R&D that may not otherwise have been conducted
• improving the incentive for smaller firms to undertake R&D.
• providing business with more predictable, less complex support

The ATO and the Department of Industry, Innovation and Science (on behalf of Innovation and Science Australia) jointly administer the R&D tax incentive. Your R&D activities must be registered with the Department of Industry, Innovation and Science before the tax offset is claimed, and we determine if the expenditure claimed in your tax return for your R&D activities is eligible for the tax offset.

You assess for yourself whether or not your entity is eligible to register R&D activities and claim R&D tax offsets in any given year.

Broadly speaking, your eligibility to claim R&D tax offsets will depend on whether or not you are an R&D entity and, if you are, whether or not you have incurred notional deductions of at least $20,000 on eligible R&D activities.