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R&D Tax Incentive

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If your business creates new knowledge or performs innovative R&D improving its products and services, then it might be eligible for the R&D Tax Incentive.

The R&D Tax Incentive is a tax offset equal to your corporate tax rate plus a turnover-based premium up to 18.5%.

Each year, thousands of Australian businesses benefit from this grant and billions of dollars in tax offsets are administered by the Australian Government.

What is the R&D Tax Incentive?

The R&D Tax Incentive (R&DTI) helps organisations to perform eligible research and development activities which they may otherwise not, often for reasons such as risk or uncertainty of a financial return.

This grant is jointly administered by the ATO and the Department of Industry, Innovation and Science.

On this page, we’ll show you how an R&D grant consultant can help your business benefit from this program. And we’ll also provide a high-level overview of the program’s eligibility criteria — these are best discussed with your R&D grant consultant as each case is unique.

To learn more about the program’s intricacies, explore the Australian Government’s R&DTI overview page.

Important:

  • Prior to 1 July 2021, this program was delivered in offsets of up to 43.5% (sub $20M annual turnover), or 38.5% (more than $20M annual turnover), though this has now changed to the current tax-rate-plus-premium model
  • a minimum R&D spend of $20,000 applies.

R&DTI level of support

The R&DTI offers a range of tax offset rates based on your company’s annual aggregated turnover, split into two categories for businesses with turnovers either below or exceeding $20 million annually.

R&D grant turnover categories:

For businesses with less than $20M in aggregated annual turnover, R&D grant support is a refundable tax offset equal to your corporate tax rate plus an 18.5% premium.

For businesses with annual turnovers above $20M, the incentive is a non-refundable offset equal to your corporate tax rate, and there is an incremental premium of between 8.5% and 16.5%, depending on the intensity of your R&D expenditure:

  • All eligible R&D expenditure up to 2% R&D Intensity will receive a non-refundable R&D tax offset equal to your corporate tax rate plus 8.5% premium.
  • Additional eligible R&D expenditure above 2% R&D Intensity will receive a non-refundable R&D tax offset of your corporate tax rate plus 16.5% premium.

R&DTI important details that you will need to know

The R&D Tax Incentive is designed to help SMEs to perform potentially risky R&D which in turn generates new knowledge that is beneficial to the Australian economy.

This program exists to support companies that invest in R&D because such companies often grow rapidly and can provide significant economic contributions.

Unlike some government grants, this grant isn’t limited to specific sectors of industry, but it is aimed directly at organisations regularly creating new knowledge. As a result, it’s popular with startups, though it’s important to understand that you are not eligible for an R&D grant simply by being a company that is engaged in R&D — your R&D activities must meet the criteria.

Pharmaceutical companies, manufacturers and software or tech companies are some examples of the types of companies that regularly benefit from this grant.

The Australian Government defines eligible R&D organisations as those which are:

incorporated under an Australian law

incorporated under a foreign law but an Australian resident for income tax purposes

incorporated under a foreign law and you are both:

  • a resident of a country with which Australia has a double tax agreement that includes a definition of ‘permanent establishment’
  • carrying on business in Australia through a permanent establishment as defined in the double tax agreement.

 

The following are not eligible R&D entities:

  • individuals
  • corporate limited partnerships
  • exempt entities (where your entire income is exempt from income tax)
  • trusts (except for a public trading trust with a corporate trustee).

 

Eligibility for this grant program is complex and easily misinterpreted. As the government’s determinations for R&D are open to interpretation, we recommend reading the in-depth Guide to Interpretation and the other documents on the government’s R&D Eligibility Assessment web page.

There are two types of R&D activities which may be eligible for R&D grant support:

  • Core R&D activities (the outcome of which cannot be known or determined in advance by a competent professional)
  • Supporting R&D activities (those activities directly related to a core R&D activity)

 

You need to provide evidence of how your supporting activities relate to your core R&D activities. This could come from plans, reports or other documentation.

Learn more about the different types of eligible activities.

What is an R&D tax consultant and what do they do?

An R&D grant consultant specialises in understanding the R&DTI’s eligibility criteria as well as providing guidance in how R&D activities should be planned and performed by your organisation to maximise the grant’s benefits.

While this program is designed so that business owners can apply themselves, the nuanced eligibility criteria must be thoroughly understood, and this takes time and technical knowledge.

Your R&DTI grant consultant will provide a range of assistance to make the application process much less demanding on you as the business owner or director, including:

  • helping to ensure your business is properly registered
  • assisting you with the application and reporting processes
  • helping to plan your R&D activities
  • confirming that the activities you’re seeking grant support for are eligible as defined by the government.

 

Understanding eligibility is where many businesses come unstuck; often being unaware that their company’s ‘new’ research isn’t actually eligible for the tax offset. This could lead to a lot of wasted time on an invalid application.

The application process for this highly popular grant can be fraught with complexities. As a result, many businesses seek out the assistance of a professional R&D Tax Incentive consultant to help de-risk the process, ensure their submission is compliant, and increase the potential benefits to their business.

Start the conversation with GrantHelper today to get assistance applying for the R&D grant.

Can I lodge my R&DTI application myself?

The answer to this question depends on your availability and your appetite for risk. Yes, you can write and lodge your own R&DTI application — if you have time.

You should account for the fact that it could take many hours just to determine which of your activities are eligible, let alone documenting, reviewing and submitting the application. What’s more, as the R&DTI is an annual program, this is time you’ll need to carve out every time you wish to apply.

We find that the majority of business owners simply don’t have the time or the inclination to do their R&D grant applications themselves. There’s also significant risk to be considered — claiming ineligible R&D could result in a hefty fine from the ATO.

Is this a task for my accountant?

No, usually only some of the reporting workload is done by an accountant. Most of the work associated with this grant involves understanding the eligibility criteria and planning your R&D properly so you maximise the opportunity. This is best done by a professional grants consultant who understands the synergies between R&D, business and grants.

How does an R&D tax consultant help you win grant funding?

An R&D tax consultant provides additional skills, experience and resources which help you to lodge an effective R&D grant application.

They will also help you determine which activities are and are not eligible for the R&DTI offset. This is a critical step and a common stumbling block for applicants — there is often a disconnect between an organisation’s perception of R&D and what is deemed eligible by the government.

For example, you could be conducting R&D to develop a new piece of software that solves a problem in a new way, but if the methodology and technology being utilised are not themselves innovative, this activity may not actually be eligible R&D. It’s critical to be aware of these nuances and that’s where your R&D consultant will provide a lot of value and certainty.

The consultant also helps to ensure your submission complies with relevant legislation such as Section 355.25 of the ITAA 1997, which covers R&D.

Need help applying for grants?

Our Insights showcase some of the grant-winning methods we employ at GrantHelper, and they will help you create a stronger grant application. But no matter how well prepared you are, winning grants takes time—something we know many business owners and directors just don’t have. And that’s why we’re here to help.

GrantHelper can assist with your organisation’s next grant application, no matter what stage of the funding journey you’re at.

Our in-depth eBook is the single most valuable resource you will find that helps organisations to truly understand how to win government grants.

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Get your copy of the Guide to Winning Grants now.

Is your business eligible for this government grant? Or perhaps you’re not sure and want to know more?

GrantHelper offers a range of government grant services, helping businesses of all sizes to discover, apply for, and win the best grant opportunities. We can help you with anything from finding the right grants, to writing your application, formulating an ongoing grant strategy, and more.

Get started now by filling in the form below, or tap the ‘Book a Discovery Call’ button to schedule a no-obligation virtual meeting with an experienced government grants consultant.

Prefer to talk? Call 0409 478 850 now for a no-obligation discussion. We’re here to help your business better understand grants, submit your best possible application, and get you in the winners’ circle.

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Hi, I’m Steve Dowling – founder of GrantHelper. I’m a former champion of marketing and export business development turned business builder.

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