Offset your R&D costs to help innovate and grow your business

You are an eligible R&D entity if you are a company that is:

• incorporated under Australian law, or
• incorporated under foreign law with specific circumstances

You are not an eligible R&D entity if you are:

• individuals
• corporate limited partnerships
• exempt entity (exempt from income tax)
• trusts are generally not eligible

More information on eligible R&D entities is available from the Australian Taxation Office (ATO).

Under section 355-25 of the Income Tax Assessment Act 1997:

Core R&D activities are experimental activities:

1. whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that:
   1. is based on principles of established science; and
   2. proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and
2. that are conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes or services).

Some types of activities are excluded under section 355-25(2) of the legislation from being core R&D activities. Some of these excluded activities may be eligible for the R&D Tax Incentive as supporting R&D activities if they meet all of the requirements.

Under section 355-30 of the Income Tax Assessment Act 1997:

Supporting R&D activities are activities directly related to *core R&D activities.

However, if an activity:

1. is an activity referred to in subsection 355-25(2); or
2. produces goods or services; or
3. is directly related to producing goods or services;

the activity is a supporting R&D activity only if it is undertaken for the dominant purpose of supporting *core R&D activities.

Under section 355-25 of the Income Tax Assessment Act 1997 none of the following activities are core R&D activities :

1. market research, market testing or market development, or sales promotion (including consumer surveys);
2. prospecting, exploring or drilling for minerals or * petroleum for the purposes of one or more of the following:
   1. discovering deposits;
   2. determining more precisely the location of deposits;
   3. determining the size or quality of deposits;
3. management studies or efficiency surveys;
4. research in social sciences, arts or humanities;
5. commercial, legal and administrative aspects of patenting, licensing or other activities;
6. activities associated with complying with statutory requirements or standards, including one or more of the following:
   1. maintaining national standards;
   2. calibrating secondary standards;
   3. routine testing and analysis of materials, components, products, processes, soils, atmospheres and other things;
7. any activity related to the reproduction of a commercial product or process:
   1. by a physical examination of an existing system; or
   2. from plans, blueprints, detailed specifications or publically available information;
8. developing, modifying or customising computer software for the dominant purpose of use by any of the following entities for their internal administration (including the internal administration of their business functions):
   1. the entity (the developer ) for which the software is developed, modified or customised;
   2. an entity * connected with the developer;
   3. an * affiliate of the developer, or an entity of which the developer is an affiliate.

Subject to eligibility criteria and exclusions, your company can generally claim a tax offset for:

• expenditure incurred on R&D activities
• decline in value of depreciating assets used in R&D activities
• balancing adjustments for depreciating assets used only in R&D activities.

However, under the programme you cannot claim:

• interest expenditure
• expenditure that is not at risk
• core technology expenditure
• expenditure included:
• in the cost of a depreciating asset
• to acquire or construct a building.

Amounts which you can claim under the programme are called notional deductions. Only companies that have incurred notional deductions of at least $20,000 can apply for the R&D Tax Incentive.

However, you can claim less than $20,000 in notional deductions if you have conducted your R&D through a Research Service Provider or Co-operative Research Centre.

Want to know more?

Find out more on eligible notional deductions from the ATO website.

Try the ATO’s R&D Tax Incentive calculator to calculate the amount of a potential R&D offset claim.

Contact the ATO for information on eligible entities and notional deductions on 13 28 66.

Under some circumstances, R&D activities that can’t be conducted in Australia may be registered under the program. To register these activities, you will first need to obtain an Overseas Finding.

When you self-assess your R&D activities against the eligibility requirements, you need to judge whether your activities meet the criteria.

You are responsible to ensure that your company’s registration and claim for the R&D Tax Incentive are correct.

Read the Guide to Interpretation to help you self-assess the eligibility of your R&D activities.

You can also read specific guidance for your sector.

You will need to self-assess whether your company:

• is an eligible R&D entity
• undertakes eligible R&D activities
• can identify eligible expenditure or assets used in your activities

We expect you to keep records that describe

• what you do
• the expenditure and assets you use
• the connection between your expenditure and your assets and activities

RSPs are registered by the department. They provide scientific or technical expertise and resources to perform research and development on behalf of other companies.

Find out how to register as an RSP or work with one.

If you are unsure whether your R&D activities are eligible for the R&D Tax Incentive, you can request an Advance Finding by us

You need to apply for an advance finding before the end of the first income year in which you conduct your activities.

You can ask for an advance finding for:

• activities you conduct in your current income year, whether you start or complete them in that year
• activities you plan to conduct in the subsequent two income years.

You will still need to apply to register your R&D activities after an Advance Finding. You do not need an advance finding to apply to register your activities.

If you conduct most of your R&D activities in Australia, with some done overseas because it can’t be done in Australia (and its external territories), you may be able to claim an offset for what you spend overseas if you obtain an overseas finding.

An overseas finding by us shows whether the R&D activities you conduct outside Australia are eligible for expenditure claims.

An overseas finding includes an advance finding for your overseas activities. This determines if the activities are eligible activities for the R&DTI. Your overseas activities need to have a significant scientific link to your core R&D activity in Australia.

You need to apply for an overseas finding before the end of the first income year in which you start your overseas R&D activities. You need to include information about:

• your R&D activities in Australia that relate to your overseas activities
• your overseas R&D activities

To read more about How long does an Overseas Finding last or What does 'not available in Australia' mean read Key documents: Findings.

R&D activities must satisfy 4 requirements to be eligible. An overseas activity must:

• Be an eligible R&D activity
• Have a significant scientific link to an Australian core R&D activity
• Be unable to be solely conducted in Australia or its external Territories, and
• Cost less than the related activities undertaken solely in Australia.

An eligible R&D activity

If you seek an overseas finding on a core or a supporting R&D activity, you need to demonstrate that the activity satisfies the definition of either a core or supporting R&D activity.

Scientific link to an Australian core R&D activity

In your advance/overseas finding application, you need to show the link between your planned overseas activity and your Australian core R&D activity. This link must show that your Australian core R&D activity could not be completed without first conducting the overseas activity.

We will examine your claimed Australian core R&D activity to ensure it is eligible. We will do this even if you do not ask us to assess your Australian core R&D activity.

Unable to be conducted in Australia

To be eligible for the R&DTI, the R&D activities you propose to conduct overseas must not be able to be conducted solely in Australia (or its external Territories) for 1 of 4 reasons.

• Facilities, expertise or equipment are unavailable
• They would contravene a law relating to quarantine
• A population (of living things) is unavailable
• Geographical or geological features are unavailable

Financial reasons alone are insufficient

Total expenditure on eligible overseas activities of your project must be less than your expenditure on your related Australian R&D activities.

If the expenditure on overseas activities (stated in your application and reasonably anticipated in all income years) is greater than your expenditure on activities conducted in Australia, you will not be eligible for an overseas finding for your overseas activities. R&D activities conducted solely in Australia may be eligible for the R&DTI. Apply for an advance or overseas finding

• design of experiments
• project planning documents
• project records and laboratory notebooks
• records of trial runs
• progress reports and minutes of project meetings
• test protocols, test results, analysis of test results and conclusions
• photographs and videos
• samples, prototypes, scrap and other artefacts
• contracts
• records of resources allocated to the project (e.g. asset usage logs)
• staff time sheets
• tax invoices

In a pre-registration examination, your application for registration is assessed against the eligibility criteria of the program. We will contact you during this process and ask you to provide contemporaneous records which prove the eligibility of each of your activities. You will have 30 days to provide your records to us. If the evidence cannot be provided within the 30 days, you or your nominated contact can request an extension in accordance with the Decision-making Principles. This allows for a further period of up to 14 days, if you, or your nominated contact, explain why the evidence cannot be given in time and confirm that the evidence can be given within 14 days after that time.

We may organise a meeting to discuss your registration, either via teleconference, videoconference, or a site visit. Should we request a meeting, it is recommended that this meeting be arranged as early as possible, and that the technical staff working on the R&D be present at the meeting. This will avoid delays in the examination.

In a post-registration examination, your registration (or registrations) is assessed against the eligibility criteria of the program. We will contact you during this process and ask you to provide contemporaneous records which prove the eligibility of each of your activities. You will have 30 days to provide your records to us. If the evidence cannot be provided within the 30 days, you or your nominated contact can request an extension in accordance with the Decision-making Principles. This allows for a further period of up to 14 days, if you, or your nominated contact, explain why the evidence cannot be given in time and confirm that the evidence can be given within 14 days after that time.

We may organise a meeting to discuss your registration, either via teleconference, videoconference, or a site visit. Should we request a meeting, it is recommended that this meeting be arranged as early as possible, and that the technical staff working on the R&D be present at the meeting. This will avoid delays in the examination.

The examination of your registration may lead to a Finding about the eligibility of all or some of your registered activities. Findings enable Innovation and Science Australia (the statutory authority responsible for administering the program) and its delegates to determine if activities in your specific circumstances are eligible for the R&D Tax Incentive.

You cannot claim an offset for activities found to be ineligible.

If you disagree with a Finding, you can apply for an Internal Review of the decision. An Internal Review will confirm, vary or set aside the original Finding. If you disagree with an Internal Review decision, you can apply to the Administrative Appeals Tribunal (AAT) for a further review of that decision. The AAT can provide an independent review of decisions made by the Australian Government.

• Activity: An R&D activity you have registered (claimed R&D activity) or are proposing to register for the R&D Tax Incentive.
• Advance Finding: A finding made by Innovation and Science Australia regarding a proposed activity by a company. This is usually done to confirm eligibility of the activity for the R&D Tax Incentive before a claim is made.
• Contemporaneous records/documents: In the context of the programme, contemporaneous records or documents are documents that were created during the time when the R&D activity (e.g. the experimentation) was occurring or before the activity occurred in the case of planning documents.
• Core R&D Activity: Experimental activities where the outcome of the activity can only be determined by applying a systematic progression of work and are conducted for the purpose of generating new knowledge.
• Directly Related: A proposed supporting R&D activity is considered ‘directly related’ to a core R&D activity if it has a direct, close and relatively immediate relationship with one or more components of the relevant systematic progression of work done in a core R&D activity. When assessing supporting activities for eligibility, you need to identify and record what that relationship is to the core activity. Activities that directly contribute to the conducting or evaluation of the core experiment are likely to meet this requirement.
• Dominant Purpose: The ruling, prevailing, or most influential purpose for undertaking an activity. The dominant purpose does not need to be more important than all of the other purposes combined, but it does need to be the most important purpose of undertaking the activity.
• Evidence: In the context of the programme, evidence refers to the contemporaneous documents and records that were created when the experimentation was being conducted or when it was being planned or when supporting activities were being undertaken. Evidence is the contemporaneous record provided by the business to confirm eligibility for the activities being claimed under the programme.
• Examination: An examination is where an application for registration or registration/s is assessed against the eligibility criteria of the program. During this process, contemporaneous records which prove the eligibility of activities will need to be provided. An examination may lead to a Finding about the eligibility of all or some of the registered activities.
• Experiment: An event you set up and conduct to test an hypothesis.
• Findings About Applications for Registration: A decision made by Innovation and Science Australia regarding the eligibility of activities described in an application for registration of R&D activities for the R&D Tax Incentive.
• Finding: A decision on eligibility for the R&D Tax Incentive issued by Innovation and Science Australia.
• Hypothesis: A hypothesis is a statement that can be proven right or wrong by conducting an experiment. The hypothesis reflects a particular technical or scientific idea and is commonly expressed as a relationship between variables (or technical features) which can be proven or disproven. The hypothesis is the idea being investigated through the systematic progression of work. The hypothesis will generally direct the design and conduct of the experiment, observation and evaluation.
• Integrity Assurance: In the context of the programme, the delivery of the programme in such a manner that best supports the programme objectives while maintaining effective compliance.
• Internal Review: If you disagree with a Post-Registration Finding or an Advance or Overseas Finding, you can apply for an Internal Review of the decision. The Internal Review is conducted by a different departmental officer in a different office to the officer who conducted the original Finding.
• Interpretive Guidance: Interpretative guidance products are designed to help you interpret and apply the provisions of the Legislation to your particular circumstances.
• Legislation: Legislation of the R&D Tax Incentive refers to Division 355 of the Income Tax Assessment Act 1997 and Part III of the Industry Research and Development Act 1986 and associated regulations as most recently amended.
• Overseas Finding: A finding made by Innovation and Science Australia regarding a proposed activity by a company, which will be undertaken outside Australia (or its external territories). This is required in order to claim expenditure for R&D activities being undertaken overseas.
• Programme: The R&D Tax Incentive
• Notional Deduction: An amount you can claim under the R&D Tax Incentive.
• R&D: Research and Development
• Registration: An application by a company providing details of the R&D activities they have undertaken in a given income year that has been accepted by the department. Note that a registration does not prove eligibility for the R&D Tax Incentive.
• Research Service Provider: A registered organisation that under section 29A of the Industry Research and Development Act 1986 that has the appropriate scientific or technical expertise and resources to perform R&D on behalf of other companies.
• Significant scientific link: An overseas activity has a significant scientific link to a core R&D activity conducted solely in Australia if that Australian core R&D activity cannot be completed without the overseas activity being conducted.
• Supporting R&D Activity: Activities that directly relate to core R&D activities. If the supporting activity is an excluded activity or produces goods or services, or is directly related to producing goods to services, the activity must be undertaken for the dominant purpose of supporting a core R&D activity.
• Systematic Progression of Work: For the purposes of the R&D Tax Incentive, a systematic progression of work is a coordinated body of work that proceeds from hypothesis to experiment, observation and evaluation and leads to logical conclusions.