Business owners, large and small, should always be looking for opportunities to save on expenses without detrimentally cutting corners.
Loopholes, rebates, incentives, and more efficient accounting can all save businesses some funds which can be funnelled into improved goods and services. Not only that, but spare funds can also be spent on improving the workplace, staff bonuses, and bigger marketing budgets.
With these benefits in mind, there is plenty of money to be saved in the research & development (R&D) department – if we only look at Australia’s R&D Tax Incentive (RDTI).
R&D Tax Incentives
Australia is one of many global jurisdictions which offer an RDTI to encourage R&D projects which develop a nation.
Many variations of RDTIs can also be found across the United States, Canada, India, China, plus much of Europe and Southeast Asia – to name a few.
In Australia, 2019 saw more than 10,000 businesses take up this offer to claim their R&D on tax, slightly down from a peak in 2016 when 12,920 did so.
In 2019, the cost of Australia’s government tax relief totalled $2.17 billion – the eighth year in a row this figure surpassed $2 billion.
There is no doubt, then, about the popularity and benefit of Australia’s RDTI. So how exactly does it work?
An Australian Context
There is an abundance of resources available on every jurisdiction’s own RDTI. In fact, the Global Research Institute offers courses and programs to advise accountants and researchers on exactly how their local incentive works. Make sure to contact us if you’re unsure of the benefits available to you and your business.
But for the interest of this blog, we’ll outline how the Australian Government’s RDTI is structured.
The RDTI involves two mutually exclusive offsets available to companies whose aggregated turnover is either more or less than $20 million.
Those who sit below the $20 million line may claim a refundable R&D offset rate equal to their corporate tax rate plus an 18.5% premium.
Those who turnover more than $20 million per year may receive a non-refundable R&D tax offset rate equal to their corporate tax rate plus an incremental premium.
This incremental premium will depend on the worth of R&D expenditure as a proportion of the company’s yearly expenditure. For companies spending less than 2% of revenue on R&D, there is an 8.5% premium, while additional R&D spending above 2% earns a 16.5% premium.
These rules were updated in Australia as of the 2022 financial year, so make sure you’re claiming R&D according to the correct tax rates.
Ask Those Who’ve Benefited
If you’re still unsure about the benefits of the RDTI, do what’s commonplace when researching anything else – look for reviews!
The Australian Government has presented a terrific resource recounting a range of RDTI case studies.
There is proof of its benefits for a range of companies in various industries such as agriculture, biotechnology, construction, energy, manufacturing, mining, software, and more.
One familiar example comes from Queensland-based company, Capilano Honey. Now a household name, Capilano’s 60 years of growth have seen it expand into more than eight flavours and nine packaging options.
One might think there couldn’t be much R&D to pursue with a product as simple as honey, but there is always growth to be had when you export to 33 countries and have operated for almost 70 years.
Capilano CEO Ben McKee says their R&D projects have greatly benefited the business.
“We have improved quality control, product sustainability and business efficiency,” McKee says.
Visit Australia’s business.gov.au to view more case studies from the RDTI.
(Almost) Anyone Can Claim
The accessibility of the RDTI makes it another popular program across industries. Whether you’re making a loss or your finances are blissfully in the black, the RDTI is open to all.
As the case studies mentioned above show, all kinds of companies can take advantage of the tax credits on offer, so long as they’re undertaking the right kind of research.
Global Research Institute can help you to take the necessary steps in assessing and submitting your R&D activities for the RDTI, but here we offer some general principles.
A company must conduct or plan to conduct at least one core R&D activity to register for the RDTI. This core activity must be an experimental venture where the outcome cannot be known or determined prior to the activity. The core activity must be undertaken with the goal of acquiring new knowledge in the form of new materials, products, services, systems or devices.
This activity must be appropriately documented using a hypothesis, experiment, observation, evaluation and must come to a logical conclusion.
These broad guidelines leave much room for R&D activities to take place, encouraging all kinds of new and exciting developments to take place within Australian businesses.
Contact Global Research Institute
We have developed rigorous courses and webinars based on the world-renowned Frascati Methodology – the gold standard for research and development processes.
If you’re still learning how to claim your R&D processes on tax, get in touch and learn from a team of experts with backgrounds in taxation, finance, and law.
