The R&D Incentive for Innovation in the Construction Industry

Key points at a glance
  • PwC R&D Specialist, Hamish Gregory talks research & development (R&D) in the construction industry
  • Innovation in construction is vital and can help with things such as building transport or high-density housing to meet our booming population
  • Companies can claim back up to 45% of eligible R&D activity expenses through the Government's R&D Tax Incentive
  • R&D activities in construction industry are generally in relation to that are developing/testing new construction materials or processes things such as waste disposal or treatment.
  • An ineligible activity would have a known outcome
  • Companies in the construction sector can use Nifty Forms, backed by PwC, ensure their claim is compliant

Innovation in the building and construction industry

There is a common misconception that conducting research & development involves white coats in laboratories. Or that innovation is the domain of trendy startups in warehouse conversions. Less people think about construction sites with dirt, dust and hardhats! Yet the construction industry is intrinsically developmental in nature and innovation is required to meet our ever-changing environments and modern living. From housing to commercial infrastructure, many local businesses within the construction industry are developing innovative approaches to engineering, materials, and processes.

Innovation in the construction sector helps to build transport or high-density housing to meet our booming population. It seeks out new materials that are sustainable and designed to cope with a changing climate. Innovation also supports growth in the economy and develops new and exciting careers for our nation.

About the R&D Tax Incentive

The Australian Government recognises the importance of innovation within this key industry and helps to reduce the financial risk for businesses taking on research and development activities with the R&D Tax Incentive.

If your business helps to address challenges within the construction industry through improved processes or the advancement of technology, you could be eligible for generous tax offsets under this program. Unlike a grant, you don’t need to compete with other businesses to claim the tax incentives.

Why is innovation necessary?

Particularly when R&D activities aren’t generally undertaken for commercial purposes, it’s a valid question to ask “why would I?”. The benefits of innovation are far-reaching and can be seen at every level of a business. Innovation helps to streamline processes, create efficiencies, increase competitiveness in the marketplace, and attract top talent.

Innovation helps to create new sources of growth and demand, as well as define more environmentally-friendly approaches to construction. At the end of the day if we’re talking dollars and cents — conducting R&D can help to future-proof your business and ensure that you’re not left behind while your competitors steam ahead.

How to determine R&D activity eligibility for tax purposes in construction

R&D activities in the construction industry typically entail experiments that are necessary to develop/test new construction materials, or develop new processes for things like waste disposal or treatment.

You need to start with a hypothesis and, because there is a gap in knowledge with respect of the technology, you can’t determine what the outcome will be without experimentation and testing.

What is classed as R&D in construction

Activities can’t be claimed if they apply existing engineering techniques, processes or materials to particular sites — work should be carried out to develop new knowledge that you couldn’t find simply by hiring a qualified professional.

What is not classed as R&D in construction

Non R&D building and construction activities have a known outcome and are generally undertaken for profit. This differs from the purpose of undertaking R&D activities to gain new knowledge and usually have some financial risk attached. This is often the easiest way to distinguish between the two.

If you need more assistance in determining if your business is eligible for the R&D Tax Incentive or want specific advice that suits your situation, help is available. You can find a complete list of guidance from AusIndustry here, including new advice introduced in November 2016 that is specific to the building and construction industry.

These documents can be quite complex and will tell you what you can’t claim, but may fall short in defining whether or not your activities are eligible for a tax rebate. That’s where it pays to seek help from a qualified consultant, who can give you the right advice for your business. As a starting point you can read an overview of this advice here.

If you spendº less than $500,000 per financial year on R&D, check out Nifty R&D (backed by PwC). You can check your eligibility to claim for free - if you're eligible, you won’t be charged a cent. If you spend more than $500,000 per financial year, PwC R&D consulting services is the way to go.