Research & Development (R & D) Rebate

The R & D rebate is an excellent incentive for businesses engaged in research & development. The biggest issue I find with the R & D rebate is that businesses are unaware of the rebate or unaware of what constitutes R & D. This is further compounded as it is quite hard for me to tell when reviewing the financial records of a business if they are undertaking R & D.

The R & D rebate provides a 43.5% tax offset for eligible expenditure in excess of $20,000 for entities with a turnover of less than $20M (38.5% if greater and is non-refundable). It’s important to understand that the R & D expenses are denied as tax deductions, so the benefit is really 15% for the business entity; that is, 15% of money back on R & D expenditure. Also, only the depreciation on plant & equipment qualifies for the rebate in each year, not the full capital cost.

So what is R & D – it’s when new science or technology is created or attempted to be created. For most businesses, that means technology – the application of science. The activity needs to have a real risk of failure in a practical (non-financial) sense. Essentially the business tries to develop something innovative but doesn’t know if it can. Within the overall project, there are activities which are akin to experiments that may fail or succeed that then lead to further activities.

The R & D offset is available for companies for the most part (or partnerships of companies) and before recording the R & D information in the company tax return the R & D activities must be registered (approved) by AusIndustry. AusIndustry has a close off date of 30 April every year for the preceding year’s R & D activities and if you miss it, there’s no recourse.

I have considerable experience lodging R & D AusIndustry applications and the subsequent completion of the company tax returns so if you think you’ve undertaken R & D activities last year and would like more information please contact me WELL BEFORE 30 APRIL. I’ve actually received a speeding ticket once driving an application to AusIndustry before 5:00 PM 30 April one year due to information being supplied at a really late date (30 April). Thankfully the forms are electronic now.

If you would like to learn more about the R & D Rebate or if you have any other questions, please feel free to contact us.