The R&D Tax Incentive is a government initiative that focuses on providing a tax offset for some of the company’s costs associated with research and development activity.
While there is legislation that determines eligibility it is self assessed. What does that mean?
You need to determine whether your company and the research and development that you are conducting meet the eligibility criteria that has been defined in the legislation.
To apply you need to register your R&D activity with the Department of Industry, Innovation and Science. You also need to keep records and documentation to demonstrate that it is eligible.
Under the R&D Tax Incentive Scheme start ups may be eligible because eligibility is determined on an activity basis rather than on a project one. Eligible activities fall into two classes, core R&D activities and supporting R&D activities, both of which can be claimed. You also need to be a company that is liable to pay income tax in Australia. You also need to apply each year that you wish to claim the grant, even if you have previously been accepted.
Core R&D activities
Core activities are experimental. These are activities where the outcome is unknown and proceeds from hypothesis to experiment, observation and evaluation and leads to a logical conclusion. The purpose of this activity is to generate new knowledge such as improved materials, products, devices or processes and services).
Activities excluded as core activities include market research, market testing or market development and sales promotions. Also excluded is many activities based around prospecting, exploring or drilling for minerals or petroleum. Management studies, efficiency surveys, research in social sciences, arts or humanities, commercial legal and administrative aspects of patenting and licensing are also all excluded as a core activity.
Supporting R&D Activities
An activity is eligible as a supporting R&D activity where it is directed related to a core R&D activity and has been undertaken for the dominant purpose of supporting the core R&D activity.
How do you determine if an activity is an eligible supporting activity?
Supporting R&D activities usually have to occur in order for the core R&D activity to take place. They can occur at different times and locations to the core activity by they need to maintain the relationship. Some of the areas that were precluded from being a core activity can actually be a supporting activity.
Generally the activities need to be conducted in Australia in order to be eligible for the R&D tax incentive. However, under certain circumstances some overseas activities may also qualify. However, if you are wanting to claim spending overseas then you need to apply to Innovation Australia for a decision about the eligibility of the overseas activities.
As tech industry professionals Azure Group are well versed in supporting business with their R&D plans and lodgements. For more information on the eligibility criteria and the application process get in touch here.
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