Apply for Research & Development Incentive

The Benefit and Classification of the R&D Incentives Program:

Eligibility:

• Incorporate Australian companies (PTY LTD/ LTD)

  • incorporated in another country but be an Australian resident for tax purposes

  • incorporated in a country with which Australia has a double tax agreement and undertakes R&D activities through a permanent establishment in Australia.

*R&D activity and expenditure with related entities must be take place within the eligible entity. (avoid inter-entity and pre-incorporation issues)

Grouping rule: (entities that need to include in calculation of aggregated turnover)

• Entities are connected when either

  • entity owns at least 40% of the other entity’s equity.

  • entities have the rights to receive at least 40% of any distribution of income of the other entity.

  • 40% any distribution of capital of the other entity

  • rights to exercise or control the exercise of at least 40% voting power of the other entity.

• Exempt entities (e.g. universities)

  • Exempt entity is grouped with the R&D entity when it owns at least 50% of the R&D entity’s equity. (50% of other condition provided above. )

• Affiliates:

  • entities are affiliates of one another when they can reasonably control the actions of each other.

  • e.g. husband and wife business owners, individually own less than 40% but combined ownership is at least 40%, in this case they will be grouped.

DUAL Administration:

Eligible Activity: (Qualification)

• Core R&D Activity: (at least one ‘core’)

  • activity’s outcome cannot be known or determined in advance; but can only be determined by

    • a. Applying a systematic progression of work that proceeds from hypothesis to experiment, observation and lead to logical conclusions.

    • b. Conducted for the purpose of generating new knowledge.

      • 1. Knowledge gap

  • that exists and the activity aims to resolve through a scientific process, that is, that the outcome of the hypothesis, is not known without conducting the experiment.

  • State of the art assessments / technology and competitor reviews conducted at the start of a project that establish the existing knowledge base, and subsequently identify a technical knowledge gap;

    • Consider of Knowledge Gap:

    • A. whether a competent professional in the field knows or can determine the outcome (whether the hypothesis is true or false), without conducting an experiment as part of a systematic progression of work.

    • B. on the basis of knowledge, information or experience that is publicly available or reasonably accessible, any where in the world.

    • 2. Systematic progression:

      • Hypothesis: A hypothesis is specific and details the technical and scientific ‘idea’ that will be developed and tested to generate the technical objective.

      • Experiment: to test the hypothesis.

Reasons and excuses are NOT evidence, evidence requires documents and no documents equals no claim. (test and study is not equal to R&D activity)

• Observations:

  • observations, measurement, recording of information and results related to experiments must be captured.

• Logical Conclusions:

  • bring together results of experiments to form a considered view on whether the experiments showed the hypothesis to be right or wrong.

    • 3. Create ‘new knowledge’ = requirement to be significant to the intention of the activity.

• Excluded Core activities: (R&D Tax legislation)

  • market research

  • prospecting, exploring or drilling for minerals or petroleum

  • management studies or efficiency surveys

  • research in social sciences, arts or humanities

  • activities associated with complying with statutory requirement or standards.

  • commercial, legal and administrative aspects of patenting, licensing or other activities

  • any activity related to the reproduction of a commercial product or process

  • computer software for internal administration.

*It is important to note that excluded activities may still qualify as supporting R&D activities if they are directly related to core R&D activities and undertaken for the dominant purpose of supporting core R&D activities.

Read full report about R&D Tax incentive and your business from RSM:

[https://www.rsm.global/australia/insights/tax-insights/rd-tax-incentive-and-your-business]

All the photos posted are from RSM.