Understanding the calculation process for your Research and Development tax benefits
The calculation of the Research and Development (R&D) tax incentive is primarily determined by a company’s aggregated turnover and the total amount of its notional R&D deductions. The core steps in the calculation are straightforward and designed to maximise your tax benefits while ensuring compliance.
1. Calculate Total Notional R&D Deductions
The R&D tax offset is applied to an entity’s notional research and development (R&D) deductions. These deductions encompass several components, provided certain conditions are satisfied:
R&D Expenditure
Expenditure on registered R&D activities during the income year.
Depreciating Assets
The decline in value of a depreciating asset used for registered R&D activities.
Balancing Adjustments
A balancing adjustment for depreciating assets used for R&D activities.
Associate Expenditure
Expenditure incurred by an associate entity is only deductible when the amounts are actually paid.
CRC Contributions
Expenditure incurred as a monetary contribution under the Cooperative Research Centre (CRC) program.
Minimum Threshold and Cap
Minimum Threshold: $20,000
To generally qualify for the R&D tax offset, the total of the entity’s notional R&D deductions must be at least $20,000.
Exceptions:
Expenditure incurred to an entity registered as a Research Service Provider (RSP) (if the provider is not an associate) or for monetary contributions made under the CRC program can attract an offset regardless of the $20,000 threshold.
Minimum Threshold: $20,000
To generally qualify for the R&D tax offset, the total of the entity’s notional R&D deductions must be at least $20,000.
2. Determine the Applicable Offset Rate
The rate of the tax offset, and whether it is refundable, depends primarily on the R&D entity’s aggregated turnover. For income years commencing on or after 1 July 2021, the rates are calculated as a premium above the company’s corporate tax rate.
A. Companies with Aggregated Turnover Less Than $20 Million Refundable
Expenditure incurred as a monetary contribution under the Cooperative Research Centre (CRC) program.
Example: Assuming a corporate tax rate of 25%, the refundable tax offset rate is 43.5% (25% + 18.5%).
If the company is in a tax loss position, this offset may result in a cash refund. However, the refundable offset is generally unavailable if the entity is controlled by one or more exempt entities.
B. Companies with Aggregated Turnover of $20 Million or More Non-Refundable
Entities with an aggregated turnover of $20 million or more are entitled to a non-refundable tax offset.
The rate is calculated using a two-tiered marginal R&D premium based on the entity’s R&D intensity, which is the proportion of notional R&D expenditure to total expenditure for the income year.
The non-refundable offset reduces the amount of tax payable, and any unused portion can generally be carried forward to be applied against future tax liabilities.
R&D Intensity Rate Table
|
R&D Intensity |
Premium Rate |
Tax Offset Rate |
|---|---|---|
|
Up to 2% of total expenditure |
8.5 percentage points |
Corporate Tax Rate + 8.5% |
|
Above 2% of total expenditure |
16.5 percentage points |
Corporate Tax Rate + 16.5% |
The total non-refundable offset amount is calculated by applying the relevant corporate tax rate plus the corresponding premium to the amounts falling within each tier of R&D intensity.
Ready to explore how we can help support your business growth?
Contact Pattens Group today for a complimentary consultation. With the right strategy and our expertise, you may maximise your benefits from the R&D Tax Incentive.