What is the Research and Development Tax Incentive?
R&D UPDATE - Changes to the R&D Tax Incentive
Companies that have income years starting on or after 1 July 2021 the R&D tax incentives will change to the following:
1/ For companies with an aggregated turnover of $20 million or more, the Government will introduce a two-tiered premium that ties the rates of the non-refundable R&D tax offset to the incremental intensity of the R&D expenditure as a proportion of total expenditure for the year. The new rates will be the claimant's company tax rate plus:
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8.5 percentage points for R&D expenditure up to 2 per cent R&D intensity
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16.5 percentage points for R&D expenditure above 2 per cent R&D intensity
R&D intensity is calculated by R&D expenditure/total company expenditure. Total company expenditure is taken from the company’s income tax return (in the current ATO form it is expenditure shown Item 6).
2/ For companies with an aggregated turnover below $20 million, the refundable R&D tax offset will be a premium of 18.5 percentage points above the claimant's company tax rate. Small Companies tax rate for 2022 is at 25% so the R&D tax offset will stay the same for most companies at 43.5%.
Currently, companies have two R&D tax offsets available:
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43.5 per cent refundable tax offset for eligible companies with an aggregated turnover of less than $20 million per annum; or
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non-refundable 38.5 per cent tax offset for all other eligible companies.
In order to be eligible, your R&D projects need to be either ‘core’ R&D activities or ‘supporting’ R&D activities.
Core R&D activities are defined as experimental activities;
A: Whose outcome cannot be known 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 that:
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Is based on principles of established science; and
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Proceeds from hypothesis to experiment, observation and evaluation and leads to logical conclusions; and
B: That are conducted for the purpose of generating new knowledge including new knowledge in the form of new or improved materials, products, devices, processes or services.
Both A and B are the two ‘positive limbs’ of the test of what is a “Core” activity and both must be satisfied.
Supporting R&D activities are activities directly related to, or for the dominant purpose of, supporting the core R&D activities
These activities must demonstrate a direct, close and relatively immediate relationship with the core R&D activities.
If you think you may be eligible please give us a call for a no obligation chat.
Technical Information & Updates