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Research and Development (R&D) Tax Incentive
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1. WhatistheResearch&Development(R&D)TaxIncentive?
1.1 Description
TheResearch&Development(R&D)TaxIncentiveisatargeted,generousandeasytoaccessentitlementprogramthathelpsbusinessesoffsetsomeofthecostsofdoingR&D.TheprogramaimstohelpmorebusinessesdoR&Dandinnovate.Itisabroad-basedentitlementprogram.ThismeansthatitisopentofirmsofallsizesinallsectorswhoareconductingeligibleR&D.
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AbouttheProgram
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2. AbouttheProgram
2.1 Overview
TheR&DTaxIncentiveprovidestargetedresearchanddevelopment(R&D)taxoffsetsdesignedtoencouragemorecompaniestoengageinR&D.
TheR&DTaxIncentivehastwocorecomponents.Entitiesengagedinresearchanddevelopmentmaybeeligiblefor:
• a43.5percentrefundabletaxoffsetiftheirturnoverislessthan$20millionperannumprovidedtheyarenotcontrolledbyincometaxexemptentities;or
• a38.5percentnon-refundabletaxoffsetforallothereligibleentities(entitiesmaybeabletocarryforwardunusedoffsetamountstofutureincomeyears).
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2.2 Objectives
TheR&DTaxIncentiveaimsto:
• BoostcompetitivenessandimproveproductivityacrosstheAustralianeconomy
• Encourageindustrytoconductresearchanddevelopmentactivitiesthatmaynototherwisehavebeenconducted;
• Providebusinesseswithmorepredictable,lesscomplexsupport;and
• Improvetheincentiveforsmallerfirmstoengageinresearchanddevelopment.
2.3 Administration
AusIndustry(onbehalfofInnovationAustralia)andtheAustralianTaxationOffice(ATO)administertheR&DTaxIncentivejointly.AusIndustryregistersyourR&Dactivitiesandcheckthattheycomplywiththelaw.TheATOdetermineswhetherornottheexpenditureyouareclaimingforyourR&Dactivitiesiseligible.
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2.4 Legislation
TheR&DTaxIncentiveisadministeredunderthefollowinglegislation:
• Division355oftheIncomeTaxAssessmentAct1997;and
• PartIIIoftheIndustryResearchandDevelopmentAct1986.
TheTaxLawsAmendment(ResearchandDevelopment)Bill2010ExplanatoryMemorandumprovidesaguidetotheinterpretationandintentofthesectionsofthoseactsthatrelatetotheR&DTaxIncentive.
TwolegislativeinstrumentsandtheiraccompanyingexplanatorystatementshavebeendevelopedtosupportadministrationoftheR&DTaxIncentive:
• IndustryResearchandDevelopmentRegulations2011
• IndustryResearchandDevelopmentRegulations2011-ExplanatoryStatement
• IndustryResearchandDevelopmentDecision-makingPrinciples2011
• IndustryResearchandDevelopmentDecision-makingPrinciples-ExplanatoryStatement.
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EligibilitytoClaimtheIncentive
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3. EligibilitytoClaimtheIncentive
Tobeeligible,entitiesmustsatisfyeachofthefollowingcriteria:
3.1 Criteria1:ApplicantEligibility(assessedbyATO)
Anapplicantmustbe:
• AcompanyincorporatedinAustralia;• AcorporationthatisanAustralianresidentfor
taxpurposes;• AforeigncorporationthatcarriesonR&D
activitiesthoughapermanentestablishmentinAustralia;or
• Acorporationactingastrusteeofapublictradingtrust.
YourR&Dmustbeundertakenonyourownbehalf,meaningyoumust:
• Beartechnicalandfinancialrisk;• Beabletoinfluenceorcontroltheconductand
directionoftheR&D;and• Eitherownorhaveeffectiveownershipofthe
R&Dresults,includingtherighttoexploittheresults.
ActivitiesmustbeundertakenwithinAustralia.Inexceptionalcircumstances,overseasactivitiesmaybedeemedeligible,however,aseparatesubmissionmustbemadetotheBoard,whichmustapprovetheseactivitiespriortothemoccurringoverseas.
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EligibilityChecklist
Question1:Isyourbusinessincorporatedasacompany?
Yes. PleaseproceedtoQuestion2.No. YouarenoteligiblefortheR&Dtaxincentive.
Question 2: Is your company incorporated under Australian law or incorporated under foreign law but an Australianresidentforincomepurposes?
Yes. PleaseproceedtoQuestion3.No. YouarenoteligiblefortheR&Dtaxincentive.
Question3:Isyourcompanya‘ForProfit’entity?(i.e.youarenotaNot-For-Profitentitysuchasacharityorassociation?)
Yes. PleaseproceedtoQuestion4.No. YouarenoteligiblefortheR&Dtaxincentive.
Question4:Didyouincurexpensesofmorethan$20,000inthelastfinancialyear?
Yes. PleaseproceedtoQuestion5.No. YouarenoteligiblefortheR&Dtaxincentive.
Question5:Foryourindustry,couldyouconsiderthatyouhavebeencreatingneworimprovedproducts,processesand/orservicesaspartofgrowingyourbusiness? (i.e.areyoudoingsomethingdifferent towhat isavailable in themarketandbeinginnovativefromatechnicalperspectiveasopposetoacommercialperspective?).
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NOTE:Thereisadifferencebetweentechnicalandcommercialinnovation.Ifyouarenotsureaboutthedistinctionbetweenthetwo,pleasecontactustodiscuss...
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3.2 Criteria2:ActivityEligibility(assessedbyAusIndustry)
UndertheR&DTaxIncentive,adistinctionhastobemadebetweencoreandsupportingR&DactivitieswiththeadditionalrequirementthatcoreandsupportingR&Dactivitiesbereportedseparately.
3.2.1DefinitionofCoreActivities
CoreR&Dactivitiesareexperimentalactivities:
a. Whoseoutcomecannotbeknownordeterminedinadvanceonthebasisofcurrentknowledge,informationorexperience,butcanonlybedeterminedbyapplyingasystematicprogressionofworkthat:
i. Isbasedonprinciplesofestablishedscience;andii. Proceedsfromhypothesistoexperiment,observationand
evaluation,andleadstologicalconclusions;b. Thatareconductedforthepurposeofacquiringnewknowledge
(includingknowledgeorinformationconcerningthecreationofneworimprovedmaterials,products,devices,processesorservices).Furthertothisgeneralprinciple,someactivitiesarespecificallyexcludedfromqualifyingascoreR&Dactivities.
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3.2.2DefinitionofSupportingR&DActivities
SupportingR&DactivitiesareactivitiesdirectlyrelatedtocoreR&Dactivities.Ifsupportactivitiesareundertakenfornormaloperationalreasons,theyonlyremaineligiblewherethedominantpurposeforconductingthemistosupportcoreR&Dactivities.
3.3 Criteria3:ExpenditureEligibility(assessedbyATO)
TheR&DTaxIncentiveisnotsubjecttoanexpenditurecap.However,foranyR&Dexpenditureabove$100million,companieswillonlybeabletoclaimataxoffsetatthecompanytaxrate,whichbasicallymeansthereisnoadditionalR&Dbenefit.
MostexpenditurerelatedtoR&Dactivitiesareeligible,includingsalaries,overheads,contractorcosts,feedstock,R&Dplantdepreciationamountandmaterials.
Applicantsmustmeettheminimumexpenditurethresholdof$20,000,althoughthisthresholdiswaivedifR&Discontractedtoaregisteredresearchprovider.
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LodgementofApplications
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4. LodgementofApplicationsYouregisterR&DactivitiesbylodginganapplicationwithAusIndustry.AusIndustryadministersregistrationfortheR&DTaxIncentiveonbehalfofInnovationAustralia.
4.1 ApplicationDeadline
YourapplicationforregistrationmustbereceivedbyAusIndustrywithintenmonthsoftheendofyourcompany’sincomeyearinwhichtheactivitieswereconducted.IfthedeadlinefallsonaSaturday,Sundayorapublicholiday,thedeadlinebecomesthenextworkingday.
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4.2 ReviewofApplications
AusIndustryreviewsallapplicationsforregistrationfortimelinessandcompletenessincluding:
• Receiptwithinthestatutorydeadlines;• Scrutinisingforadequacyof:
o formcompletion;o descriptionofactivities.
• Thattheapplicationissubmittedbyanappropriateperson;and
• ThattheregistrationisconsistentwithpreviousfindingsmadebyInnovationAustralia.
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ApplicantsfortheR&DTaxIncentiveself-assesswhethertheyareanR&DentityandtheeligibilityoftheircoreR&DactivitiesandsupportingR&Dactivities.InthemajorityofcasesAusIndustryacceptstheaccuracyoftheinformationprovidedintheapplicationformandregistertheactivities.However,AusIndustrycanchoosetoexaminearegistrationapplicationandthismayleadtoafindingbyInnovationAustraliaaboutsomeoralloftheactivitiesdescribedintheapplication.
AusIndustrygenerallymakesadecisiononregistrationwithin30daysofreceiptofahard-copyapplication,andgenerallywithin10daysiftheapplicationislodgedelectronicallyonline.AusIndustrysendsaletteradvisingoftheregistrationdecisiontoallapplicants.Ifapproved,thedateofthisletteristhedateofregistration.IncludedinthisletterisaregistrationnumbertobequotedontheATO’sR&DTaxIncentiveSchedule.TheregistrationnumberisuniquetotheR&Dentityforthatincomeyear.
Registrationofactivitiesdoesnot,byitself,rendertheactivitiesdescribedintheregistrationaseligibleR&Dactivities,norisitanindicationofcompliancewiththerequirementsoftheR&DTaxIncentive.Afterregistration,AusIndustrymayexaminearegistrationindetailandthismayleadtoaformalfindingbyInnovationAustraliaabouttheeligibilityofallorsomeoftheregisteredactivities.
Yourcompanymustkeepadequaterecordstosupporttheassessmentsyoumakeinyourapplicationforregistration.
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KeepingRecords
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5. KeepingRecordsIfyouintendtoregisterandclaimtheR&DTaxIncentive,youmustkeepadequaterecordstodemonstratetotheAustralianTaxationOffice(ATO)andAusIndustrythatyoudidcarryouteligibleresearchanddevelopment(R&D)activitiesandthatyoudidincureligibleexpenditure.
Yourrecordsmustbesufficienttoverify:thenatureoftheR&Dactivities;theamountofexpenditureincurredonR&Dactivities;and,therelationshipoftheexpendituretotheactivities.
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5.1 KeepingRecordsaboutR&DActivities
TheR&DTaxIncentiveprogramoperatesonaself-assessmentbasis.Youareresponsibleforensuringthatyourregisteredresearchanddevelopment(R&D)activitiesmeettheprogram’seligibilitycriteria.
AformalR&DplanisnotmandatoryundertheR&DTaxIncentive.However,aspartofacompliancereview,AusIndustrymayaskyoutoproviderecordsthatshowthatyourcompany’sR&Dactivitieswerecarriedoutandwereeligible.
Yourcompany’srecordsmustbesufficienttoshowthattheclaimedR&Dactivitiestookplaceandthattheymetallaspectsofthelegislativedefinitionforeither‘coreR&Dactivities’or‘supportingR&Dactivities’.
Asyouselfassessyourcompany’seligibilityfortheprogram,youshouldaskyourself:
1. Domycompany’sactivitiesmeetallaspectsofthelegislativedefinitionforeithercoreR&DactivitiesorsupportingR&Dactivities?
2. HaveIretained,andcanIaccess,sufficientrecordstoshowthattheactivitiesmeetallaspectofthelegislativedefinitionforeithercoreR&DactivitiesorsupportingR&Dactivities?
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5.2 WhichRecordsshouldIkeep?
IndecidingwhatrecordsarerequiredinordertodemonstratetheeligibilityofR&Dactivities,youshouldconsidereachaspectofthedefinitionsofcoreandsupportingR&Dactivity.Youshouldthenconsiderwhichrecordsareappropriatetodemonstratethatyourcompany’sactivitiesmeetthesedefinitions.
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TechwittyR&DServices
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6. TechwittyR&DServicesAtTechwittywehaveanumberofresearchanddevelopmentspecialiststoassistyouwithyourapplication.
Ourconsultantsandtaxagentswill:
1. Assessyoureligibility;2. DetermineandclassifythetypesofR&DActivities;3. AssessthenatureandextentoftheR&DActivities;4. Collectandcollatealloftherequisitedata;5. PrepareyourapplicationforLodgement;6. SubmityourapplicationtoAusIndustry;and7. LiaisewithAusIndustryandtheATOonyourbehalf.
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ContactDetails
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7. ContactDetails
Techwitty
Address: Suite5,Level2,2GrosvenorStreetBondiJunctionNSW2022Postal: POBox2499BondiJunctionNSW1355Phone: (02)93875900Mobile: +61499220252Email: [email protected]
Web: www.techwitty.com.au