Are you leaving money on the table? Businesses in Australia miss out on significant and influential tax benefits every year simply because they don’t know about the R&D Tax Incentive.
We have witnessed the growth and change that may result from this incentive in our role as grant consultants focusing on R&D funding and government grants. If you want to ensure that your business takes advantage of the R&D Tax Incentive, which has a deadline of 30 April 2025, and everything in between, this blog post will break down everything you need to know.
Many Australian business owners and entrepreneurs we come across as grant consultants are unaware that the R&D Tax Incentive program offers them substantial financial benefits. This in-depth blog post will give you all the information you need on the R&D Tax Incentive, including how it works, its impact, and why it matters for your business. Learn how the R&D Tax Incentive, a government-backed initiative, can help your innovation efforts before the 30 April 2025 deadline.
What is the R&D Tax Incentive?
The R&D Tax Incentive, a program run by the federal government of Australia, motivates businesses to engage in research and development activities. By providing tax offsets for qualifying R&D activities, the program lowers the cost of innovation and makes it more accessible for businesses. By providing financial support, the program seeks to increase competitiveness and accelerate economic growth in Australia.
Key Dates and Deadlines
- Deadline for 2024-2025 Financial Year: 30 April, 2025
- Lodgement Requirement: Companies must register their R&D activities with AusIndustry within ten months of the end of their income period.
- Substituted Accounting Period (SAP): Businesses that use a substituted accounting period must lodge their claims ten months after the end of the fiscal year. For example, the R&D application deadline for companies with a year-end of 31 December 2023, must be submitted to AusIndustry by 31 October, 2024.
- Extension Application: If you are unable to complete your application by the due date, you can request an extension using the R&D portal. However, it is recommended that you submit your extension request before the application’s due date.
Who Qualifies for 2024 R&D Tax Incentive?
- Eligible Entities: Companies with an Australian incorporation or foreign resident status engaging in R&D activities in Australia.
- Expenditure Requirement: Businesses are required to spend a minimum of $20,000 on qualified R&D expenses in a financial year.
What Expenditures are Eligible?
- Salary and wages of employees directly involved in R&D activities.
- Contracted expenditure.
- Decline in value of assets utilised to perform the R&D activities.
- Additional costs may arise from using materials in the experiment or overhead expenses (such as rent or electricity).
Tax Offset Rates
- Small Companies (Annual Aggregated Turnover < $20 million): The refundable R&D tax offset for small businesses with an annual aggregated turnover less than $20 million is calculated by including 18.5% of your corporate tax rate.
- Larger Companies (Annual Aggregated Turnover ≥ $20 million): A larger company’s non-refundable research and development tax offset equals their corporate tax rate plus an incremental premium if their annual aggregated turnover is $20 million or more. Your company’s tax rate plus an 8.5% premium will be offset by a non-refundable R&D tax credit for all eligible expenditures up to 2% R&D intensity. A non-refundable R&D tax offset equal to your company tax rate plus a premium of 16.5% will be applied to any additional qualified R&D expenditures beyond 2% R&D intensity.
Why You Should Care
Financial Benefits
- The refundable tax incentive may immediately relieve some of the financial burden on smaller businesses.
- The non-refundable tax incentive can lower your business’s tax liability, freeing up capital and cash flow for further growth and investment.
- Big businesses may save millions of dollars on taxes.
Competitive Advantage
- By offsetting the costs of R&D, the incentive encourages innovation, helping you develop new products, processes, and services that can give you a competitive edge.
- Investing in R&D can help your business succeed in the long run by giving you an edge over the competition.
Government Support
- The R&D Tax Incentive demonstrates the Australian government’s dedication to promoting innovation, technological advancement, and growth.
- The expansion of the national economy is a direct result of your participation in the program.
Potential Changes
- The government has recently announced an amendment to the R&DTI program that will exclude gambling and tobacco-related industries for fiscal years beginning on or after July 1, 2025.
Recent Changes Impacting R&D Tax Claims
Reform: Increased Support for SMEs
- Enhanced Support: The refundable tax offset significantly supports small and medium-sized enterprises (SMEs) with an aggregated turnover of less than $20 million.
- Example: A small or medium-sized enterprise (SME) can get a cash refund or a tax credit equal to up to 43.5% of its eligible R&D expenditure if its corporate tax rate is 25%.
- Impact: This financial support can help SMEs improve their cash flow and reinvest in R&D, which drives growth.
Negative Change: Certain Activities Are Not Allowed
- Exclusion: For tax years beginning on or after July 1, 2025, you will not be able to claim any expenses associated with gaming or tobacco.
- Impact: Companies in particular sectors will no longer be able to take advantage of the tax incentive, which might cause them to invest less in R&D and innovation.
- Adaptation: To continue pushing innovation forward, impacted businesses may need to explore new forms of cooperation and alternative funding sources.
How to Get Started to Claim R&D Tax Incentive for the FY24/25
Check your Eligibility
- Check the requirements to see whether your business meets the eligibility criteria.
- Ensure your research and development activities include creativity, genuine experimentation and innovation.
Register Activities
- Register your R&D activities with AusIndustry.
- This step is vital for ensuring your R&D activities are recognised and eligible for tax offset.
Track Expenditure
- Keep detailed records of all eligible R&D expenditures.
- Sustaining and demonstrating eligibility requires accurate record-keeping.
Consult a Grant Specialist
- Contact Pattens Group if you are unsure or have any questions regarding the R&D Tax Incentive. Having worked in the field for over 30 years, we are highly regarded, highly competent and experienced R&D consultants in Australia.
- With our expert guide, your business can make the most of the process and get the most out of it. With our help, you can be confident that you will stay compliant and avoid potential pitfalls.
Conclusion
The R&D Tax Incentive is a powerful tool for Australian businesses looking to innovate and grow. With the 2024 R&D Tax Incentive deadline approaching, now is the time to assess your eligibility and take advantage of this valuable program. As grant consultants, we are here to guide you through the process and ensure you maximise the benefits available to your business. Stay tuned for more insights and updates on the R&D Tax Incentive. Don’t forget to check out our social media posts, email newsletters, and Facebook ads for additional information and tips on how to make the most of this program.
