What is the lucrative R&D Tax Incentive and how do I apply?

During these uncertain times, many organisations are taking extraordinary steps to try and steady the ship and continue business as usual. Subsidies like JobKeeper and the Cash Flow Boost are extremely well known, however, how much do you know about the R&D Tax Incentive? This article details how to determine whether you are eligible, and what has changed with this scheme.

What is the benefit?

The benefit of qualifying is receiving a tax offset for expenditure incurred on eligible R&D activities. The extent of the benefit is determined by the company’s aggregate annual turnover and the benefits listed below are applicable from 1 July 2021.

If your group’s annual turnover is less than $20 million, you will be able to access an offset of your corporate tax rate + 18.5%. Companies in a loss position may also be able to receive a cash refund and receive up to their respective tax rates + 18.5% premium. There is no cap on this refundable tax offset.

If your group's annual turnover is more than $20 million, you are entitled to an R&D tax offset equal to your corporate tax rate plus a premium based on the level of their incremental R&D intensity for their R&D expenditure.

What are considered eligible activities?

The definition of eligible R&D activities is very vague (of course). However, the company must be undertaking a core R&D activity to claim the R&D offset.

Under the legislation, core R&D activities are experimental activities in which the outcome of the activities cannot be predicted or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work.

Core R&D activities are conducted to generate new knowledge (in the form of new or improved materials, products, devices, processes or services), and are based on principles of established science, which proceed from hypothesis to experiment, observation, and evaluation leading to logical conclusions.

Other activities that have a direct relationship to ‘core’ R&D activities, but do not themselves involve experimentation or new knowledge development (such as preliminary research), are eligible as supporting R&D activities.

How do I process my claim?

In order to claim the R&D Tax Incentive in respect of R&D activities, an application must be registered with AusIndustry (this is the regulatory body administering the scheme) within 10 months of the end of the company’s year of income.

If you are looking for more information, or to find a comparison between the previous R&D Tax Offset Scheme and the revised incentive, click here.

If you would like to gauge our opinion to see if you are eligible for this incentive, contact Link Advisors here.