Check if you're eligible for the R&D Tax Incentive

You're an R&D entity if you are a corporation that is any of the following:

• incorporated under an Australian law
• incorporated under a foreign law but an Australian resident for income tax purposes
• incorporated under a foreign law and you are both:
  • a resident of a country with which Australia has a double tax agreement that includes a definition of 'permanent establishment'
  • carrying on business in Australia through a permanent establishment as defined in the double tax agreement.

If you’re an R&D entity, you may also need to consider the special rules applied to consolidated groups and R&D partnerships.

Members of a consolidated group or a multiple entry consolidated (MEC) group

• If you’re the head company of a consolidated group or MEC group, your subsidiary members are treated as part of you (the head company) for as long as they remain part of the consolidated or MEC group for income tax purposes.
• The R&D tax incentive applies to your consolidated group or MEC group as if it is a single entity conducting all R&D activities within the group.
• Only the head company of the group should register for, and claim, the tax incentive for these R&D activities.

Partners in an R&D partnership

• An R&D partnership is one where each partner meets the definition of an R&D entity.
• The partnership itself is not eligible to claim the R&D Tax Incentive for the R&D activities it undertakes because it is not an R&D entity.
• Each partner needs to register the R&D activities that they conducted as part of the partnership.

Not eligible

You're not an eligible R&D entity if you're:

• an individual
• a corporate limited partnership
• an exempt entity (where your entire income is exempt from income tax)
• a trust (except for a public trading trust with a corporate trustee).

Eligible activities are either core R&D activities or supporting R&D activities as defined in the ITAA 1997. In each year that you intend to register, you must conduct or plan to conduct at least one activity, that meets the definition of a core R&D activity.

You need to self-assess your R&D activities against the legislative requirements.

Only expenditure incurred on your registered R&D activities can be claimed through the tax offset. Amounts which you can claim under the program are called eligible notional deductions.

You need to self-assess if your expenditure is eligible under the program before claiming through your company tax return with the ATO.

This taxpayer alert (TA 2017/3) should be read with the following information in mind.

• Following the Full Federal Court decision in Moreton Resources Limited v Innovation and Science Australia [2019] FCAFC 120, we have updated how we assess whether an activity was conducted for the purpose of generating new knowledge.
• Activities involving the application of existing technology in a different context or location are capable of meeting the definition of ‘core R&D activities’. This will depend on the circumstances of the individual case, and whether all of the legislative requirements for ‘core R&D activities’ are met.
• Activities where the outcome could be known or determined in advance may still have been conducted for the purpose of generating new knowledge. However, activities need to meet both of these legislative requirements to be ‘core R&D activities’.