Starting a business that is eligible to claim the R&D Tax Incentive
Have you got an idea for an innovative product, process or system? Are you an innovator looking to commercialise a new idea? Are you spending over AUD$20,000 researching and developing your idea? If you answered yes to any of these questions, you could be on your way to being eligible to claim the Australian Research and Development (R&D) Tax Incentive – an up to 43.5% refundable (cashback) tax offset
What is the R&D Tax Incentive?
The Australian R&D Tax Incentive is an Australian Government incentive designed to encourage Australian businesses to create innovative products, processes or systems.
For many companies based in Australia, the R&D Tax Incentive can provide a beneficial source of funds necessary for businesses to upscale and continue to conduct R&D in the R&D phase.
If you know that you will be undertaking R&D activities during the financial year, having a plan and the correct business structure & legal instruments in place will give you the peace of mind you need to ensure your company is eligible and can continue innovating.
Broadly speaking, your eligibility to claim the R&D Tax Incentive will depend on whether you are an eligible entity and, if so, whether you have incurred expenditure of at least AUD$20,000 on eligible R&D activities.
Unsure of where to begin? Below are some tips to assist you in creating a business that is ready to claim the Australian R&D tax incentive.
You can only claim the Australian R&D Tax Incentive if you are carrying out your R&D activities in an eligible R&D entity. There are several types of companies or corporations that qualify as an R&D entity.
It is important to note that you are not eligible to claim the R&D Tax Incentive if you are carrying out your R&D activities as a sole trader or in a trust.
If this is the case, please do not hesitate to contact us to speak to one of our talented Tax Consultants or lawyers to see how we can restructure your business activities and set you up to claim tax incentives, ensure you are ready for commercialisation, protect your intellectual property and minimise your tax long term.
Another criterion to be eligible to claim the Australian R&D Tax Incentive is that you need to ensure that the activities associated with the product, process or system you are developing can be classified as R&D. Below are some criteria to assist you to determine if your R&D activities might be eligible:
- My product, process or system cannot be created with existing information in the public domain.
- My product, process or system is difficult to develop.
- My product, process or system cannot be developed using plug and play technologies (i.e. the building blocks are already available).
- My product, process or system has measurable goals I am trying to achieve.
- My product, process or system will require an iterative process to create as it is fundamentally difficult to develop without experimentation.
- My product, process or system will have commercial value.
If you have answered yes to all or majority of the above statements, you may have an eligible R&D activity or activities. As you commence the R&D process, we highly recommend keeping track of your activities on a contemporaneous basis. This includes keeping records about what you developed, how you tested it, what your outcomes were etc.
You must have eligible R&D expenditure of at least AUD$20,000 to be eligible to claim the Australian R&D Tax Incentive. Eligible expenses may include consultants fees, testing costs, overheads, staff salaries and more.
We can help you to identify your eligible R&D expenditure from the outset to ensure you are eligible to claim the Australian R&D Tax Incentive!
Now you are three steps closer to developing that innovative product, process or system that you have been dreaming of and potentially eligible to claim the up to 43.5% refundable (cashback) tax offset!
Co-written by Debora Kocak – R&D Consultant
The information contained in this blog is general in nature and should not be considered to be legal, tax, accounting, consulting or any other professional advice. In all cases, you should consult with a professional advisor familiar with your factual situation for advice concerning specific matters before making any decisions. By reading this blog, you confirm your understanding of this disclaimer.