Does your project qualify for the R&D Tax Incentive?

Only a company can claim the R&D Tax Incentive: one incorporated in Australia, or a foreign company that is an Australian resident or carries on business here through a permanent establishment and is resident in a country Australia has a tax treaty with. A trust, partnership or sole trader cannot claim, even if the work itself would qualify.

Core R&D activities are experimental activities whose outcome cannot be known or worked out in advance from existing knowledge. If a competent person in your field could have told you the answer, or found it in published material, the work does not qualify, however hard it was.

The work has to follow a systematic progression: a hypothesis, an experiment to test it, observation and evaluation of the results, and conclusions drawn from them. Trial and error without that structure does not meet the test.

The activity has to be carried out to generate new knowledge, which can take the form of new or improved materials, products, devices, processes or services. Improving something for your business counts if the knowledge itself is new, and does not count if you are applying what is already known.

The company claiming has to bear the cost of the R&D and own the results. Where you carry out R&D for a customer under contract and they own what comes out of it, the work is usually theirs to claim, not yours.

These activities are excluded from core R&D by the legislation. Some of them can still count as supporting R&D where they directly support a core activity, which is why a yes here means the program needs a closer look rather than ruling it out.

A company generally needs at least $20,000 of eligible R&D expenditure in the year to claim. The exception is R&D done for you by a registered research service provider, or contributions to the Cooperative Research Centres Program, where there is no minimum.

A claim stands on evidence made at the time: the hypothesis, the experiments, the results and the decisions made because of them, along with timesheets that split R&D time from other work. Records written up afterwards are much harder to rely on if AusIndustry or the ATO asks.

Overseas R&D can only be claimed with an overseas finding from AusIndustry, which needs the work to be connected to R&D done here and to be something that cannot be done in Australia. It does not rule the claim out, but it has to be planned for.

Aggregated turnover adds in every connected and affiliated entity, in Australia and overseas. Under $20 million the offset is refundable and can be paid as cash. At $20 million or more it is non-refundable and the rate depends on your R&D intensity, which our page on the R&D Tax Incentive for larger companies explains.

Activities have to be registered with AusIndustry within ten months of the end of the income year, so by 30 April for a company with a 30 June year end. Once that date has passed, the claim for that year is generally lost, though R&D in the current year can still be registered.