The R&D tax incentive deadline is approaching. Here’s what businesses should know
Introduced by the federal government in 1986 and updated in 2011, the R&D tax incentive is jointly administered by the ATO and AusIndustry.
The cost of doing business is rising, economic conditions are harsh, and organisations across the spectrum are searching for ways to trim their overheads and operational costs. While balancing this financial tightrope, many businesses remain unaware of a generous tax benefit that fosters innovation and growth — the Research and Development Tax Incentive (R&DTI).
But time is running out to apply for R&DTI for the 2023 financial year.
The essence of the R&D tax incentive
Introduced by the federal government in 1986 and updated in 2011, R&DTI is jointly administered by the ATO and AusIndustry. It is a policy that encourages Australian businesses to engage in research and development (R&D) activities that they otherwise might not otherwise be able to pursue.
The tax incentive operates retrospectively, allowing organisations to claim for projects commenced in the previous financial year. It represents an ongoing commitment to innovation, with recent reforms at the start of FY22 injecting an additional $2 billion into the incentive. This boost secures its future and provides businesses with much-needed clarity and certainty to plan their R&D projects. You can read more about R&DTI here.
What the R&DTI offers
The R&DTI caters to businesses of all sizes. For eligible companies with an annual turnover of less than $20 million, the incentive can translate into a cash refund of up to 43.5 cents for every dollar spent on eligible R&D activities. This is effectively the company tax rate plus an 18.5% premium.
Larger eligible companies, with turnovers of more than $20 million, can benefit from a non-refundable tax offset offering an incremental premium over the company tax rate of between 8.5 to 16.5% (based on an R&D intensity measure – the higher the proportion of R&D expenditure relative to total company expenses, the higher the benefit).
Eligibility and compliance
As a self-assessment incentive, businesses are responsible for ensuring their R&D activities and expenditures align with ATO and AusIndustry requirements. Eligible organisations typically include those incorporated under Australian law, foreign entities that are Australian residents for tax purposes, or those operating in Australia through a permanent establishment defined under a relevant double tax agreement.
However, navigating the eligibility criteria and compliance requirements can be daunting, and seeking the help of a professional can save time and stress.
The role of R&D tax consultants
Given the intricacy of the R&DTI and the looming deadline for FY 2023 claims, enlisting the expertise of an R&D tax consultant is a wise starting point. They can help break down the eligibility criteria and manage and guide businesses through the application process, identifying compliance considerations with ATO and AusIndustry rules, and identifying eligible R&D activities to preparing the necessary documentation for assessment.
Why now?
With the deadline to claim for FY 2023 rapidly approaching at the end of April, time is of the essence. Businesses should aim to have identified eligibility or spoken to a professional R&D tax consultant by the end of March to allow time to prepare documents for the April 30 deadline.
Broad industry relevance
It’s important to remember that R&D spans across all industry sectors. Whether you’re in technology, healthcare, manufacturing, or any other field, the potential to innovate and claim significant tax incentives under the R&DTI exists. A consultant with a strong reputation and industry-specific expertise can make all the difference in maximising your R&D tax refund.
In the face of economic challenges and the ever-increasing cost of business operations, the R&DTI represents a golden opportunity for Australian businesses to innovate and grow. By understanding the incentive’s structure, identifying eligibility, and seeking the guidance of experienced R&D tax consultants, companies can maximise compliance with the regulatory requirements and significantly benefit from their R&D investments.
The clock is ticking, and the time to act is now — unlock the potential of your business’s innovation with the R&D tax incentive.
Saurav Malhotra is the director of R&D Tax Incentives at Mackay Goodwin.
