Key points at a glance
- Australia’s R&D legislation is filled with technical terms and legalese.
- From Advance Findings to Variations, Nifty specialist Berrin explains many of the more complex R&D concepts.
- Do you know your tax offsets from your tax deductions?
AusIndustry, a division of the Department of Industry, Innovation and Science, is the body responsible for delivering the R&D Tax Incentive, alongside a wide range of other enterprise-focused grants and programs.
AusIndustry Innovation Australia Number
This is the registration number which the ATO uses to link your R&D Tax Incentive Schedule with your R&D project. Once you've lodged your claim with Nifty, AusIndustry will supply this, through Nifty. This number needs to be included in your company tax return.
Core R&D activities
The bread and butter of the R&D Tax Incentive, core activities are the main experiments a company undertakes in the pursuit of new knowledge. A lot of the expenses incurred during these processes are claimable under the scheme.
Occasionally, AusIndustry will select a company taking part in the R&D Tax Incentive and conduct a rule review. During this process, the company’s registered R&D activities will be evaluated using what’s known as a compliance continuum.
To maximise the success of a claim, businesses must keep sound records of eligible R&D activities and expenditure. These records must show to program administrators the nature of the R&D activities, provide an accurate record of expenses incurred, and link expenditure and activities together.
Non-core R&D activities such as supporting activities may still be eligible for a tax offset, provided they have a clear, close, and discernible impact on a company’s core R&D activities – i.e. they’re directly related.
This is the main reason for why an activity was undertaken. For certain types of work (e.g. internal software projects), if a company wishes to register an activity as a supporting activity to core R&D processes, the dominant purpose of that activity must be to support core R&D processes.
Businesses that fulfil the necessary criteria to claim the R&D Tax Incentive are known as ‘R&D Entities’. Only eligible entities can claim the offset – either themselves or by formally nominating a registered tax agent to do so on their behalf.
A genericised name for the R&D Tax Incentive and other initiatives, entitlement programs allow eligible entities to claim an offset for expenditure on certain registered activities.
If a company sells the physical products it creates as part of its R&D activities (or supplies it to others), it may be required to lodge a feedstock adjustment. These end products are known as feedstock outputs, while the materials and components used to create them are known as feedstock inputs.
The feedstock adjustment applies to the expenditure on the feedstock inputs, the energy consumed during the transformation processes, and the depreciation of certain assets.
National Innovation and Science Agenda
National Innovation and Science Agenda is an independent statutory body that helps oversee the government’s innovation and funding programs. It also assists in determining R&D eligibility and approves research service providers.
The foundation of the R&D Tax Incentive is the pursuit of new knowledge, whether it’s a breakthrough material, a new technology, or a cutting-edge service or process. Visit Nifty R&D to see examples of new knowledge in various industry sectors.
It might be possible to claim expenditure conducted overseas under the R&D Tax Incentive, however businesses must obtain what’s known as an overseas finding or overseas advanced finding.
Refundable tax offset
Similar to a tax offset, a refundable tax offset results in a cash refund if the offset exceeds the tax liability in a particular year for eligible entities.
R&D activities must be registered before they can be claimed. This must be done within 10 months of the end of the company’s financial year.
Research service provider (RSP)
An RSP is an Innovation Australia-registered organisation that can conduct research and development on behalf of other companies (especially small-to-medium sized ones). R&D activities conducted by an RSP can still be claimed under the R&D Tax Incentive, provided the activities are registered and eligible.
The R&D Tax Incentive is a self-assessment program, meaning it’s up to individual companies to register eligible activities, keep substantiating evidence on file and submit a claim.
Supporting R&D activities are non-core activities that might still be claimable under the R&D Tax Incentive. These activities must be directly related and, for certain activities, has been undertaken for the dominant purpose of supporting core R&D.
A tax concession is a reduction in the amount of tax that you have to pay due to a wide variety of circumstances that can be declared to the government.
A Tax offset is applied to the company’s overall tax liability, which is calculated by subtracting tax deductions from taxable income. Under the R&D Tax Incentive, a tax offset is 45% of an entitled company’s R&D tax expenditure is applied. From 1 July 2017, the offset will be 43.5%.
A tax rebate comes into effect when the tax liability is less than the total of taxes paid. These are also known as tax refunds.
A company’s tax position is determined by subtracting qualifying deductions from taxable income and applying the relevant tax rate. It is generally known as the amount of tax to be paid, or losses to be carried forward and it is declared within a business’s tax return each year.
A tax return is the form that you use to make your annual statement of income.
If a mistake occurs during the registration process, such as a misclassification of an R&D expenditure, a business will need to request an amendment to correct it.
Need more assistance navigating the R&D Tax Incentive? Nifty’s Specialists are here to help. Visit the Nifty Forms for more information.