What is the research and development tax offset?

The research and development tax offset is an incentive to encourage Australian companies to invest in R&D activities.

The Australian Taxation Office and the Department of Industry, Innovation and Science work together to deliver the Research and Development (R&D) Tax Incentive Programme. This programme provides tax offsets to companies (but not to other entities) for expenditure spent on eligible R&D activities.

The R&D Tax Incentive can reduce the cost and risk involved in undertaking research and development activities for a business. This benefit helps companies doing eligible work to create new or improved products, processes and services by reducing their tax.

The program is open to eligible companies of all sizes, in all industry sectors and aims to boost competitiveness and improve productivity across the Australian economy.

How much is the offset?

For income years from 1 July 2016 onwards:
• A 43.5% refundable tax offset is available for eligible companies with an aggregated annual turnover of less than $20 million per year, provided they are not controlled by income tax exempt entities.
• A 38.5% non-refundable tax offset is available for all other eligible companies. Unused offset amounts may be carried forward to future income years.

For income years before 1 July 2016, the refundable tax offset is 45% and the non-refundable tax offset is 40%.

What are the steps to claim the offset?

1. Determine if you are eligible for the R&D Tax Incentive. The following ATO link outlines the eligible entities and activities (https://www.ato.gov.au/Business/Research-and-development-tax-incentive/Eligibility/)
2. Make sure you keep records as evidence of your eligibility.
3. Apply to register your R&D activities with the Department of Industry, Innovation and Science.
4. Claim the offset through your company’s income tax return.

Author: Shaun Coelho
Email: shaun@faj.com.au