Under $20,000,000.00 qualifies for refundable offset
R&D Spend
$500,000.00
Tax Saving
$219,250.00
Offset Rate
43.9%
Net R&D Cost
$280,750.00
R&D Spend vs Tax Incentive
Refundable Offset (43.9%)
Turnover under $20,000,000.00 -- you receive a cash refund even if you have no tax liability.
R&D Tax Incentive
The R&D Tax Incentive encourages companies to invest in R&D by providing a tax offset on eligible R&D expenditure. The offset is above and beyond the normal tax deduction, effectively reducing the cost of R&D activities.
Refundable vs Non-Refundable
Companies with aggregated turnover under $20 million receive a refundable offset at 43.5% (even if they have a tax loss). Larger companies receive a non-refundable offset at 38.5%, which can only reduce tax payable to zero -- no cash refund.
Eligible Activities
Eligible R&D activities must involve systematic investigation or experimentation to generate new knowledge. Core activities require an outcome that cannot be determined in advance. Supporting activities are those directly related to core R&D.
Registration Requirements
You must register your R&D activities with AusIndustry (within 10 months after the end of the income year). You also need to include the offset in your company tax return. The minimum R&D expenditure is $20,000 (unless using an RRTO).
Note: This is a simplified calculation. The actual R&D Tax Incentive involves intensity thresholds for larger companies and specific eligibility requirements. Consult an R&D tax specialist for detailed advice.
How the government supports research and development through tax offsets for eligible companies
What is the R&D Tax Incentive?
The R&D Tax Incentive is a government program that provides tax offsets for companies conducting eligible research and development activities. For companies with turnover under A$20 million, the offset is a refundable 43.5% (meaning you can get cash back even if you have no tax to pay). For companies with turnover of A$20 million or more, the offset is non-refundable at the company tax rate plus a premium.
Who can claim the R&D Tax Incentive?
You must be a company incorporated under Australian law or a foreign company with a permanent establishment in Australia. Sole traders, partnerships, and trusts cannot claim directly. Your company must have spent at least A$20,000 on eligible R&D activities in the financial year (or used a registered Research Service Provider). You must register your R&D activities with the Department of Industry before lodging your tax return.
What counts as eligible R&D?
Eligible R&D includes core activities that involve experimenting to generate new knowledge where the outcome cannot be known in advance. It must follow a systematic process based on principles of science, technology, engineering, or mathematics. Supporting activities that are directly related to core activities also qualify. For example, developing a new software algorithm, testing a new manufacturing process, or creating a prototype of a new product can all qualify.
What does NOT qualify as R&D?
Activities excluded from the R&D Tax Incentive include market research, quality control, routine data collection, adapting existing technology to your business without new knowledge, arts-related activities, social science research, and activities done overseas (unless approved). Simply using existing software, improving a product based on customer feedback without experimentation, or copying a competitor's approach do not qualify.
How much can you save with the R&D Tax Incentive?
A small company (under A$20 million turnover) that spends A$200,000 on eligible R&D gets a 43.5% refundable offset worth A$87,000. After subtracting the 25% company tax deduction they would have received anyway (A$50,000), the extra benefit is A$37,000 in cash back. For larger companies, the benefit is smaller but still significant. The maximum eligible R&D expenditure is capped at A$150 million per year.
How do you register and claim?
First, register your R&D activities with AusIndustry (Department of Industry, Science and Resources) within 10 months of the end of your financial year. Then claim the offset in your company tax return. You need to keep detailed records of your R&D activities, including experiment plans, results, time sheets, and costs. The ATO and AusIndustry can audit your claims, so thorough documentation is essential.
What are common mistakes when claiming R&D?
Common mistakes include claiming activities that are not truly experimental, not registering with AusIndustry before lodging your tax return, poor record-keeping that cannot prove the R&D was done, including ineligible expenditure (like capital costs or non-R&D salaries), and claiming the same expenditure under other government grants. The ATO has increased scrutiny of R&D claims, and penalties for overclaiming can be severe.
Can you claim R&D activities done overseas?
Generally no, unless you get advance approval from the Industry Minister. Overseas R&D activities may qualify if they cannot reasonably be done in Australia — for example, testing in conditions not available here, or using equipment that only exists overseas. You must apply for an overseas finding before the activities begin. The application process is detailed and approval is not guaranteed.
ATO-Aligned: Based on 2024-25 ATO rates and thresholds. For personal advice, speak to a qualified tax agent.
Disclaimer: This calculator provides estimates based on current ATO rates and thresholds for the 2024–25 financial year. It does not constitute professional tax, financial, or legal advice. Your actual liability may differ depending on your individual circumstances. Always consult a qualified tax agent before making financial decisions. Read our terms
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