The R&D Tax Incentive is an activity-based program where eligible deductions are claimed on eligible activities in projects of eligible companies.
The R&D Tax Incentive is administered by AusIndustry and the Australian Taxation Office, and works as a ‘reward’ for eligible companies that adopt effective knowledge management systems and strategies in the pursuit of new technology that takes its form in new or improved products, systems, processes, services or devices.
The Incentive is a targeted, generous, rules based self-assessment entitlement program that helps businesses offset some of the costs of doing R&D.
The Incentive is provided to over 13,000 companies annually and is Australia’s premier business incentive in which there are two streams depending on the level of aggregated group turnover and structure of the applicant and words as either cash refund or reduction/offset of tax liabilities.
With the Australian R&D Tax Incentive, background or resulting IP generated from clinical development does not need to reside in Australia and, depending on your company group turnover, the incentive can provide either a 43.5% cash refundable or 38.5% non-refundable tax credit; enabling foreign (non-Australian) owned and controlled companies cash out nearly half of their R&D investments in Australia.
In some circumstances, R&D undertaken outside Australia, but which supports the Australian R&D investment, can also be supported by the R&D Tax Incentive through a mechanism called the Advanced/Overseas Finding.
The Incentive is governed by legislation, which includes a definition of what ‘R&D activities’ are for the purposes of registering with the program. This means that companies that wish to apply for an incentive must self-assess whether their work meets the program’s definition of ‘R&D activities’.
There are two main types of activities:
- the experiments (core activities), such as clinical trials, and
- the activities that support experiments via a direct, prerequisite scientific link (supporting activities). This would generally include such activities as recruitment, data management, etc.
Core activities are defined as experimental activities whose outcome cannot be determined in advance based on current knowledge, and which can only be determined by applying a systematic progression of work that is based on principles of established science and are conducted for the purpose of generating new knowledge in the form of improved materials, products, devices, processes or services.
R&D investments in clinical development are ideally placed to satisfy the eligibility definitions of the R&D Tax Incentive program.
The Incentive works through the Australian Corporate Tax System, meaning the benefit is triggered by the lodgement of an Australian company income tax return.