What you need to know about the R&D Tax Incentive

The Australian Agricultural industry has certainly dealt with its fair share of challenges in recent times, including labour shortages, numerous biosecurity threats such as varroa mite and lumpy skin disease, volatile commodity prices and unpredictable weather. While tackling these challenges, the industry is grappling with contrasting goals focused on ambitious production and environmental targets.

These challenges invariably create opportunities for innovation. In support of this, the Australian Government offers the Research and Development (R&D) Tax Incentive. The program incentivises companies to undertake R&D activities they might not otherwise do due to uncertain results. Given the diverse challenges and opportunities within the agricultural industry, the program merits serious consideration for those looking to invest in developing new or improved products, processes, or devices.

In this article, our R&D Tax experts unpack what you need to know about the R&D Tax incentive.

The benefits of the R&D tax incentive

The benefits a company gains from claiming eligible R&D activities are determined by its aggregate turnover, which includes any connected or affiliated entities. Specifically:

Aggregate turnover less than $20 million: The refundable R&D tax offset for applicable companies is the corporate tax rate plus an 18.5 per cent premium.
- Companies with an annual aggregated turnover of less than $20 million can receive a refundable R&D offset of 43.5 or 48.5 per cent for expenditure incurred on eligible R&D activities, with the incentive component being 18.5 per cent above the prevailing corporate tax rate (25 to 30 per cent).
Aggregate turnover of $20 million or more: The non-refundable R&D tax offset for applicable companies is their corporate tax rate plus an incremental premium. The premium increment is based upon the ‘intensity’ of the company’s R&D expenditure as a proportion of total expenditure for the year.
- Under 2 per cent: If the company’s R&D intensity (calculated from R&D expenditure over total company expenditure) is up to 2 per cent, the tax offset will be equal to the company tax rate plus an 8.5 per cent premium
- Over 2 per cent: Where the company’s R&D expenditure is above 2 per cent, the offset will be equal to the company tax rate plus 16.5 per cent.

It is important to note that to obtain this benefit, potential claimants must spend more than the minimum R&D expenditure threshold of $20,000 in the financial year.

R&D activity eligibility

The definition of ‘eligible R&D activities’ for tax purposes is broad, however, the company must be undertaking a core R&D activity to claim the R&D offset. Under the legislation, a core R&D activity is an experimental activity:

Where the outcome cannot be known or determined in advance based on current knowledge, information, or experience, but can only be determined by applying a systematic progression of work based on the principles of an established science
That is conducted for the purpose of generating new knowledge (in the form of new or improved materials, products, devices, processes, or services, etc.)

Any other activity that has a direct link to ‘core’ R&D activities but does not involve experimentation or new knowledge development (e.g. preliminary research) can be eligible to support R&D activities.

Registration of R&D activities

If a company wishes to claim an R&D tax offset within its tax return, it must first register its R&D activities with AusIndustry. This application must be lodged within ten months of the relevant financial year whereby R&D activities were conducted.

When does the R&D tax incentive expire?

For any company that has carried out R&D activities during the financial year ending 30 June 2023, the registration deadline of 30 April 2024 is approaching.

Requirements specific to the Agricultural industry

Corporate structure: Generally, only companies are eligible for the benefit. Trusts and individuals are not considered to be eligible entities
Guidance on whole of farm claims: R&D claims for whole farms are not viewed favourably by the administrators of the program, given this indicates a lack of technical uncertainty and systematic progression of work
Importance of documentation: It is crucial to document R&D activities and the expenditure incurred on those activities as they are undertaken
On behalf provisions: R&D activities be undertaken, to a significant extent, for the R&D entity. This weighs up who owns the resulting IP or know-how arising from R&D activities, who controls the direction of the R&D activities and who bears the financial burden of the R&D activities
Payments to associates: Where costs are incurred to associates, amounts must be paid and not just incurred.

Visit our Research & Development and Government Grants page to learn more about the R&D Tax incentives and how they can benefit you.