Above $20 million the offset is non-refundable, and the rate depends on how much of your total spending goes on R&D. Getting that number right, across the whole group, is most of the work.
Prime Innovation is the R&D practice of Prime Partners, chartered accountants in North Sydney and Orange. We work with established companies and groups claiming the non-refundable offset: working out R&D intensity across connected and affiliated entities, documenting the claim so it holds up when AusIndustry or the ATO asks, and fitting the offset around your losses, franking and the rest of your tax position.
A company whose aggregated turnover is $20 million or more claims the non-refundable R&D tax offset. It is worth the company tax rate plus a premium: 8.5 percent on R&D spending up to 2 percent of the company's total expenditure, and 16.5 percent on the spending above that. The offset reduces the tax the company pays. It never comes back as cash, and any part the company cannot use in the year carries forward.
R&D intensity is your notional R&D deductions as a share of your total expenditure for the income year. The first slice of R&D spending, up to 2 percent of total expenditure, earns the lower premium. Everything above it earns the higher one.
| R&D spending | Offset rate | At a 30% tax rate | At a 25% tax rate |
|---|---|---|---|
| Up to 2% of total expenditure | Company tax rate + 8.5% | 38.5% | 33.5% |
| Above 2% of total expenditure | Company tax rate + 16.5% | 46.5% | 41.5% |
The tax rate matters more than people expect. A company with aggregated turnover under $50 million can be a base rate entity, paying 25 percent rather than 30, and its offset rates are lower by the same five points. Plenty of companies between $20 million and $50 million fall into this group without having thought about it.
The premium applies to notional R&D deductions of up to $150 million in an income year. Anything above that earns only the company tax rate.
A manufacturer turns over $60 million, has total expenditure of $50 million for the year, pays tax at 30 percent and spends $3 million on eligible R&D. Its R&D intensity is $3 million divided by $50 million, which is 6 percent.
| Step | Working | Amount |
|---|---|---|
| First 2% of total expenditure | $1,000,000 at 38.5% | $385,000 |
| The remaining R&D spending | $2,000,000 at 46.5% | $930,000 |
| Total R&D tax offset | $1,315,000 | |
| What an ordinary deduction would have been worth | $3,000,000 at 30% | $900,000 |
| Extra benefit from the incentive | $415,000 |
The same company at three levels of R&D spending shows why intensity matters. The rate on every dollar above the 2 percent line is almost double the rate below it.
| R&D spending | Intensity | Total offset | Extra over an ordinary deduction |
|---|---|---|---|
| $1,000,000 | 2% | $385,000 | $85,000 |
| $2,500,000 | 5% | $1,082,500 | $332,500 |
| $5,000,000 | 10% | $2,245,000 | $745,000 |
These figures assume every dollar is eligible and the company has the tax to use the offset in the year. In practice the work is in what goes into the $3 million and what goes into the $50 million, because both sides of that fraction move the answer. To try your own numbers, use our R&D tax incentive calculator.
The $20 million test uses aggregated turnover, which adds in the turnover of every connected and affiliated entity, in Australia and overseas. A company that turns over $8 million on its own can be well over the line once its parent and sister companies are counted.
Control, ownership and how the businesses act together all decide who is counted. Getting this wrong in either direction means claiming the wrong offset, so it is the first thing we settle.
Where the group is consolidated for tax, the head company makes one claim for all of its members, and the R&D spending of every member feeds one intensity calculation.
Where one company does the work and another pays for it, who claims depends on who bears the cost and owns the results. Amounts owed to an associate can only be claimed in the year they are actually paid.
R&D done outside Australia can only be claimed with an overseas finding from AusIndustry. The work has to be connected to R&D done here, and it has to be something that cannot be done in Australia. Larger groups with offshore testing, trials or engineering teams need to plan for this early, because the finding has to be in place for the year you claim.
An advance finding is a binding decision from AusIndustry on whether an activity is eligible. For a large program, or one that sits close to the line, it gives the board certainty on eligibility before the offset is relied on in forecasts or financial statements.
A company in losses has no tax for a non-refundable offset to reduce. The offset carries forward rather than being lost, but its timing changes the value of the claim and belongs in the forecast.
An unused offset can be carried into later income years if it meets the carry forward rules. A change in ownership or business between now and then can affect whether it survives.
Because the offset reduces the tax the company pays, it also reduces the franking credits that tax would have created. For a company paying franked dividends, that is worth modelling before the claim is lodged.
Activities have to be registered with AusIndustry within ten months of the end of the income year, before the offset goes into the company tax return. Missing the registration date usually means losing the claim for that year.
A large offset shows up in the financial statements. We prepare the working so your auditor can follow it, and agree the treatment with them before year end rather than after.
Directors sign off on a claim that can be reviewed for years. A clear summary of what is claimed, why it qualifies and what evidence sits behind it is part of what we deliver.
AusIndustry decides whether activities are eligible and the ATO decides whether the spending is right. Both review claims, and the bigger the claim the more likely a question becomes. A claim holds up when the evidence was made while the work was happening, which is far harder to rebuild afterwards.
A hypothesis written down before the experiment, the results as they came in, and the decisions made because of them. Project notes, test logs and design records usually hold most of this already.
Staff who work on R&D and on production need their time split on a basis you can show. Overheads, contractors and materials need the same care.
Where trial runs also produce saleable goods, the line between experiment and production is where reviews most often focus.
Our guide to an AusIndustry R&D review sets out what happens and how to prepare.
Which projects and activities qualify, core and supporting, across every entity in the group and every year they run.
Who is connected and affiliated, what counts as total expenditure, and the intensity calculation the offset rests on.
AusIndustry registration, the R&D schedule and the company tax return, prepared together so the figures agree.
Overseas and advance finding applications, planned around when the work happens.
We work alongside your finance team, your auditor and your existing accountant, or take on the whole claim.
The fee is agreed before the work starts and does not depend on the size of the offset.
Most of the value in a large claim is settled early: the grouping, the intensity calculation and the records kept while the work is happening. The sooner we start, the more of it we can get right.
Let's talk→Once a month we send our latest thinking on tax, business, and the moments that shape a year. Practical, considered, and written for people who would rather understand the why than chase the headline.
