R&D Tax Incentive: Quarterly credits

The R&D tax incentive is a key element of the Government's support for Australia's innovation system. In conjunction with other programs the Incentive helps SMEs to grow, creating further business opportunities and jobs for the future.

The Australian Government is encouraging more companies to undertake more R&D — this is good for business and good for the economy. A Plan for Australian Jobs sets out the Government’s vision and strategic framework for driving business growth and creating new high‐skilled jobs.

Summary of the R&D Tax Incentive Quarterly Credits:

  • R&D quarterly credits will be an opt-in element of the R&D tax incentive available to eligible companies with an annual aggregated turnover of less than $20 million.
  • The company must advise the Commissioner of Taxation of its intention to receive quarterly credits. This should be done before the 15th day after the end of the quarter in which it would like to receive the first payment.
  • Three eligibility tests for participation in the quarterly credits system (see below).
  • Quarterly credits will be accessible for each quarter commencing on or after 1 January 2014.
  • An EOY process will reconcile the company’s expected income tax position with its actual income tax position.
  • The annual EOY registration and claiming process for the R&D refundable tax offset has not changed and will still need to be completed by companies.
  • The Commissioner will advise the company of a ‘standard amount’. This amount is calculated on the basis of the latest year for which a company’s income tax has been assessed (similar to PAYG instalments).
  • The standard amount will be paid on the 28th day after the end of each quarter (except for the quarter ending in December, in which case it will be paid on 28 February).
  • If a company wishes to vary the standard amount then it will have to notify the Commissioner. A company can notify the Commissioner as late as 14 days after the quarter has ended. However, GIC is payable on excessive varied amounts (see consultation paper for more info).
  • A company can voluntarily withdraw from participation at any time during the year (or up to 14 days after the end of the income year).

Three eligibility tests:

1)      Reasonable receipt test

  • Must reasonably expect to receive the R&D refundable tax offset
  • This means a company expects to:

o    Be an R&D entity;

o    Have aggregated annual turnover of less than $20m;

o    Not be controlled by an exempt entity; and

o    Undertake eligible R&D activities.

2)      Complying taxpayer test

  • As quarterly credits are payments in advance of a company’s annual income tax return lodgement, such payments should only be open to companies that have complied with its taxation and lodgement obligations
  • The complying taxpayer test requires a company to comply with its obligation under:

o    Taxation laws; and

o    For the R&D tax incentive, Part III of the Industry Research and Development Act 1986

o    This test applies to the income year in which it receives quarterly credits and over the previous five years. The compliance histories of affiliated and connected entities are considered when applying the complying taxpayer test.

3)      History test

  • A company must have been entitled to, and have claimed, the new R&D tax incentive in at least one of the last 5 income years
  • Start-up companies may be eligible for the R&D refundable tax offset received at the end of the year, just not on a quarterly basis
  • When such a company has established at least one year of R&D tax incentive history, it can opt-in to quarterly credits (providing all other eligibility tests are met).

Source: The Australian Government the Treasury

R&D Tax Incentive Quarterly Credits (Exposure Draft Consultation Guide April 2013)

Please do not hesitate to contact Azure Group if you have any queries regarding the new R&D tax incentive at ourteam@azuregroup.com.au.

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About Author

Tanya Moran
Tanya Moran

Tanya Moran is a Senior Partner and the Lead Taxation Partner of Azure Group. She has more than 20 years' experience working with a large array of businesses from small accounting firms to large international corporations.

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