Maximising the Research and Development Tax Incentive

Research and Development Tax Incentive

A company’s ability to grow and expand is dependent on many factors. One of these is the degree to which they can engage in research and development activities. Research and development (or R&D) activities provide knowledge, industry insights, and skills, helping a company to identify their business goals and articulate a path to get themselves there.

However, this comes at a cost, particularly for small businesses with already stretched resources. R&D activities require funding and will involve employees stepping away from their normal responsibilities, potentially adding strain to business operations.

Fortunately, assistance is available. The Australian Government helps many businesses each and every year through the Research and Development Tax Incentive. The program makes planning and undertaking R&D activities affordable and achievable. 

Many businesses are thrilled at the fact they are eligible for this program, and rightly so. However, it’s one thing to be merely eligible and another entirely to use industry skill and knowledge to maximise your potential returns.

Calibre Business Advisory’s team of experienced taxation experts is here to help you make the most of the Research and Development Tax Incentive. We’ve helped companies of all shapes and sizes realise their R&D goals and expand business operations in ways they hadn’t previously thought possible.

What incentives are available?

There are two separate offsets available to businesses eligible for the Research and Development Tax Incentive. The offset you apply for will depend on your annual turnover.

For companies with an annual turnover of less than $20 million, the refundable R&D tax offset is your corporate tax rate plus an 18.5 percent premium.

For companies with an annual turnover of more than $20 million, the non-refundable R&D tax offset is your corporate tax rate, plus an incremental premium. Premium increments are based on your ‘R&D intensity’ — the percentage of your eligible R&D expenditure as a proportion of your total expenditure for the year.

If you find this language technical and confusing, contact Calibre Business Advisory. We’ll quickly determine whether your business is eligible for the program and which offset category you fall under.

How can I use the offset?

The Australian Government is very clear on the types of activities that fall under the definition of ‘research and development’.

To start with, generally only activities carried out within Australia are eligible. However, there are some exceptions to this rule, as per section 28D of the Industry Research and Development Act 1986. Again, Calibre Business Advisory’s team can use their financial and legislative knowledge to help determine the eligibility of your activities.

The Australian Government divides R&D activities into two separate categories: core and supporting. Core activities are defined as those whose:

  • Outcome cannot be known of determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that:
    • Is based on principles of established science; and,
    • Proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions.
  • Are conducted for the purpose of generating new knowledge.

Supporting activities, meanwhile, are those that directly relate to core activities.

Whether your activities are defined as core or supporting, it’s important that you keep appropriate documentation. You need to track how you have planned and conducted R&D activities and how those activities meet the above mentioned definitions.

The Research and Development Tax Incentive is an incentive and not a grant. This means that you (or your accountant) will provide the ATO with documentation regarding R&D activities at the conclusion of the financial year. The last thing you want is to invest considerable funds and resources into R&D, only to find that you haven’t kept appropriate records to be eligible for compensation.

This is why having the backing of Calibre Business Advisory’s experienced team is so important.

Maximising your returns

It’s not only matters of record keeping that Calibre Business Advisory can assist with. Having helped countless businesses across all industries apply for the Research and Development Tax Incentive, our tax and business advisors can also provide practical advice. Our experience has taught us what types of activities will help propel your business forward, opening up new and exciting opportunities.

This type of advice will be different for each and every business, which is why it pays to receive personalised, tailored assistance.

If you believe your company could benefit from the Research and Development Tax Incentive but can’t quite articulate how, or feel overwhelmed by the process and your record-keeping obligations, speak to Calibre Business Advisory today.