Tax Concession for Research and Development. Overview

Transcription

1 Tax Concession for Research and Development Overview May 2009

2 INTRODUCTION 1 WHO ADMINISTERS THE SCHEME?... 1 ELEMENTS OF THE R&D TAX CONCESSION 1 125% R&D TAX CONCESSION... 1 R&D TAX OFFSET... 1 R&D INCREMENTAL (175% PREMIUM) TAX CONCESSION % INTERNATIONAL PREMIUM... 2 WHO CAN APPLY? 2 HOW TO APPLY 2 REGISTRATION... 3 CLAIMING... 3 ADVANCE REGISTRATION... 3 BASIC ELIGIBILITY REQUIREMENTS 3 DEFINITION OF R&D... 4 RESEARCH AND DEVELOPMENT ACTIVITIES 4 EXCLUDED ACTIVITIES 4 COMPUTER SOFTWARE ACTIVITIES 5 DIRECTLY RELATED ACTIVITIES 5 AUSTRALIAN-CENTRED RESEARCH AND DEVELOPMENT ACTIVITIES 5 R&D RECORDS AND PLANS... 6 SUMMARY OF R&D ELIGIBILITY... 6 OTHER ELIGIBILITY REQUIREMENTS 6 MINIMUM EXPENDITURE... 7 ON OWN BEHALF... 7 EXPLOITATION OF RESULTS... 7 CARRIED OUT IN AUSTRALIA... 7 ADEQUATE AUSTRALIAN CONTENT... 7 QUALIFYING EXPENDITURE 7 EXPENDITURE DEFINITIONS... 7 GRANTS RECEIVED (IF APPLICABLE)... 8 GOODS AND SERVICES TAX (GST)... 8 COLLABORATIVE ARRANGEMENTS 8 REGISTERED RESEARCH AGENCIES... 8 CONTRACTING TO OTHERS... 9 ELIGIBILITY CHECKLIST 9 TWO FINAL POINTS TO REMEMBER MORE INFORMATION? 11 DISCLAIMER DEFINITIONS 12 Tax Concession for Research and Development Overview, May 2009 page (i)

3 Introduction The R&D Tax Concession was introduced in 1986 to encourage Australian industry to undertake research and development (R&D) activities. It aims to make eligible companies more internationally competitive by encouraging innovative products, processes and services and by promoting technological advancement and strategic R&D planning. It is part of creating an environment that is conducive to increased commercialisation of new process and product technologies developed by eligible companies. The concession is broad-based and market-driven. The R&D Tax Concession enables eligible companies to claim a tax deduction of up to 125% of qualifying expenditure on eligible R&D activities when lodging their annual tax returns. In addition, under specific circumstances, companies may claim a 175% premium deduction for additional investment in R&D and small companies may elect to claim the concession as an offset, enabling them to cash out tax losses. Who administers the scheme? The R&D Tax Concession is administered jointly by: Innovation Australia (the Board), assisted by AusIndustry; and the Australian Taxation Office (the Tax Office). Membership of the Board is drawn primarily from the private sector, and members qualifications and experience cover a wide range of commercial and technical areas in various industries. AusIndustry is the business program delivery division in the Department of Innovation, Industry, Science and Research and it provides a range of incentives to support business innovation. Note: Detailed information on applying for and claiming the R&D Tax Concession is available on the respective departmental websites at and Elements of the R&D Tax Concession The key elements of the R&D Tax Concession are: a 125% Tax Concession (for investment in R&D which is Australian-owned ); an R&D Tax Offset for small companies, enabling them to cash out any tax losses (in relation to Australian-owned R&D only); an R&D incremental (175% Premium) Tax Concession for additional investment in Australianowned R&D; and a 175% International Premium incremental tax concession for additional investment in foreignowned R&D Note: The terms Australian-owned R&D and foreign-owned R&D are explained below (see Basic Eligibility Requirements). 125% R&D Tax concession Under the R&D Tax Concession, all Australian companies undertaking eligible Australian-owned R&D activities are entitled to claim a concessional deduction in their annual tax returns of up to 125% of qualifying expenditure incurred on the R&D activities. Eligible Australian-owned R&D activities and qualifying expenditure are outlined below. R&D tax offset The R&D tax offset allows small companies, particularly those in tax loss, to obtain a tax offset equivalent to their tax concession entitlements, including (where applicable) the R&D Incremental (175% Premium) Tax Concession, when their tax liabilities are assessed. The R&D tax offset is available to eligible Australian companies undertaking Australian-owned R&D whose: annual group turnover is less than $5 million; R&D expenditure exceeds $20,000; Tax Concession for Research and Development Overview, July 2008 Page 1

4 Tax Concession for Research and Development Overview grouped expenditure on R&D undertaken for an income year between and is below $1 million; and grouped expenditure on R&D undertaken in is below $2 million. Note: The R&D Tax Offset is not available in respect of the 175% International Premium (see below). R&D Incremental (175% Premium) Tax Concession The R&D Incremental (175% Premium) Tax Concession allows companies to deduct 50% of certain additional expenditures incurred on qualifying Australian-owned R&D activities. To claim the premium concession, companies must have increased their total R&D expenditure for the year above a base level determined by their average R&D expenditure over the previous three years. [This is moderated if there have been significant prior-year downswings in R&D expenditure.] Companies therefore require a three-year history of registering for, and claiming, the R&D Tax Concession, or of receiving grants for R&D projects under the Board's R&D Start or Commercial Ready programs. Grouping rules and anti-avoidance mechanisms also apply. 175% International Premium The 175% International Premium is available for increases in foreign-owned R&D activities carried on by a company incorporated in Australia on behalf of a foreign company grouped with the Australian company at the time the R&D was undertaken. For R&D activities undertaken in Australia in income years commencing from 1 July 2007, companies belonging to multinational enterprise groups may claim: a 100% deduction for R&D expenditure incurred on behalf of a grouped foreign company, and an additional 75% deduction for additional R&D expenditure incurred on behalf of the grouped foreign company, above a rolling three-year average of expenditure. Similar grouping rules and anti-avoidance mechanisms apply as for the Incremental (175% Premium) concession for Australian-owned R&D activities. NB: Transitional arrangements apply in the first income year commencing from 1 July Note also that where a company has undertaken R&D in both Australian-owned and foreign-owned R&D activities, the increment calculations operate to account for any downswings in the level of one category (for example foreign-owned R&D) against increases in the other category. Who can apply? All companies incorporated in Australia and undertaking eligible R&D activities are entitled to apply for registration for the R&D Tax Concession. Annual registration of the company s R&D activities is a prerequisite for claiming the Tax Concession. Note: Companies acting in the capacity of a trustee or nominee (other than in the capacity of a trustee of a public trading trust) cannot claim a deduction for the R&D Tax Concession. How to apply You access the R&D Tax Concession by a two-stage process: (i) Register your company s R&D activities with Innovation Australia. [This includes Australian companies undertaking R&D in Australia on behalf of a grouped foreign company.] (ii) Claim the tax concession in your company s annual tax return. The tax return must be accompanied by the Tax Office s R&D Tax Concession Schedule detailing the R&D expenditure incurred. Note: A claim for the R&D Tax Concession, whether as the 125% concession, R&D tax offset or R&D Incremental (175% Premium) Tax Concession for Australian-owned R&D activities, or the 175% International Premium Tax Concession for foreign-owned R&D activities, is not valid unless the company s R&D activities have been registered for the relevant income year. Tax Concession for Research and Development Overview, May 2009 Page 2

5 In particular, for the purposes of claiming the 175% International Premium, a company and each group member of that company in Australia must register all their foreign-owned R&D activities, whether or not they are covered by an R&D Plan (subsection 73B(14C), ITAA 1936). Registration An application for registration by Innovation Australia under section 39J of the IR&D Act must be lodged within 10 months after the end of the company s year of income. For example, a company whose income year ends on 30 June must lodge its registration application by 30 April the following year. Applications must be made on the form approved by the Board. Application forms are available from the R&D Tax Concession Online Gateway on the AusIndustry website as either a downloadable PDF document or a fully online form. A valid username and password is required for all customers wishing to access R&D Tax Concession registration forms, not only from those who wish to lodge online. Companies can apply for a username and password also via the R&D Tax Concession Online Gateway. Note: Usernames issued to companies prior to 1 July 2007 are no longer valid, and must be renewed. Applications may be lodged through any AusIndustry office. [For contact details, see the AusIndustry website at Information required for a registration application includes: company information and contact details; a description of the company s R&D activities (both Australian-owned and foreign-owned where applicable), and the qualifying expenditure incurred; a declaration by a company officer that an R&D plan and appropriate records have been maintained and that all eligibility requirements for the R&D Tax Concession have been met. The Board may refuse registration if the activities concerned are not eligible R&D activities, or if the application is received after the legislative deadline. The Board has the discretion to accept late applications, but this is limited to exceptional circumstances, such as personal accident or delivery delays that are beyond the applicant s control. Claiming When Innovation Australia registers a company s activities in respect of a particular income year, a unique registration number is allocated for the company s registered activities for that income year. Subject to meeting all other eligibility criteria (see Basic eligibility requirements below), the company may then claim the R&D Tax Concession deduction in its company tax return. In making this claim, the company must also complete the Tax Office s R&D Tax Concession Schedule, and provide on the Schedule the Board s registration number for the relevant income year. [See the Tax Office s R&D Tax Concession Schedule and Instructions at Note: A company s R&D Tax Concession claim is not allowable if the company has not obtained registration by Innovation Australia. The claimant company is responsible for self-assessing the eligibility of its R&D activities and the qualifying expenditure claimed. R&D claims may be subject to assessment by the Board in respect of eligible activities or by the Tax Office in respect of eligible expenditure. Advance Registration Companies may apply to Innovation Australia for Advance Registration (under section 39HH of the IR&D Act) for up to three years for R&D activities they are planning to undertake. Advance Registration provides certainty that the company s proposed activities meet the legislative requirements. However, companies granted Advance Registration must still apply for and receive registration annually in respect of each year of income for which Advance Registration was given, in order to validly claim the concessional deduction for their qualifying R&D expenditure in those years. Basic eligibility requirements Tax Concession for Research and Development Overview, May 2009 Page 3

6 DEFINITION OF R&D For the purposes of registering for and claiming the R&D Tax Concession, two categories of R&D activities are defined in subsection 73B(1), ITAA 1936: 'research and development activities' (or Australian-owned R&D activities); and 'Australian-centred research and development activities' (or foreign-owned R&D activities). The distinction between the two categories of R&D activities is outlined below. For further information, however, see Part B of the Guide to the R&D Tax Concession at Research and Development Activities The term research and development activities (also referred to as Australian-owned R&D activities) is defined in subsection 73B(1) of ITAA 1936, as follows: (a) (b) systematic, investigative and experimental activities that involve innovation or high levels of technical risk and are carried on for the purpose of: (iii) acquiring new knowledge (whether or not that knowledge will have a specific practical application); or (iv) creating new or improved materials, products, devices, processes or services; or other activities that are carried on for a purpose directly related to the carrying on of activities of the kind referred to in paragraph (a). This means that eligible Australian-owned R&D activities must be either systematic, investigative and experimental activities involving innovation or high levels of technical risk (SIE activities), or activities directly related to the carrying on of one or more of the SIE activities in the project. The requirement for eligible SIE activities applies to both Australian-owned and foreign-owned R&D activities. To be eligible, therefore, all projects must contain at least SIE activities. In fact most projects consist of both SIE and directly related activities. Important characteristics of SIE and directly related activities are elaborated on below. Innovation and high levels of technical risk These terms, which are integral to the definition of SIE activities, are themselves further defined in subsection 73B(2B) of ITAA 1936, as follows: (a) (b) activities are not taken to involve innovation unless they involve an appreciable element of novelty; and activities are not taken to involve high levels of technical risk unless: (i) the probability of obtaining the technical or scientific outcome of the activities cannot be known or determined in advance on the basis of current knowledge or experience; and (ii) the uncertainty of obtaining the outcome can be removed only through a program of systematic, investigative and experimental activities in which scientific method has been applied, in a systematic progression of work (based on principles of physical, biological, chemical, medical, engineering or computer sciences) from hypothesis to experiment, observation and evaluation, followed by logical conclusions. Excluded activities The following activities are excluded as SIE activities, and may be claimed only if they are directly related to the carrying on of eligible SIE activities: market research, market testing or market development, or sales promotion (including consumer surveys); quality control; prospecting, exploring or drilling for minerals or natural gas for the purpose of discovering deposits, determining more precisely the location of deposits or determining the size or quality of deposits; making cosmetic modifications or stylistic changes to products, processes or production methods; Tax Concession for Research and Development Overview, May 2009 Page 4

7 Tax Concession for Research and Development Overview management studies or efficiency surveys; research in social sciences, arts or humanities; making donations; pre-production activities, such as demonstrating commercial viability, tooling-up, and trial runs; routine collection of information, except as part of the research and development process; preparation for teaching; commercial, legal and administrative aspects of patenting, licensing or other activities; activities associated with complying with statutory requirements or standards, such as maintenance of national standards, calibration of secondary standards, and routine testing and analysis of materials, components, products, processes, soils and atmospheres; specialised routine medical care; and any activity related to the reproduction of a commercial product or process by physical examination of an existing system or from plans, blueprints, detailed specifications or publicly available information. [subsection 73B(2C), ITAA 1936] Computer software activities Computer software development activities are eligible as SIE activities only if the activities are carried out: for the purpose, or for purposes that include the purpose, of sale, rent, licence, hire or lease to two or more non-associates of the company (counting a non-associate of the company and the associates of such a non-associate together as one person). [subsection 73B(2A), ITAA 1936] This requirement, which is particular to software development, is commonly referred to as multiple sale. Therefore, if the principal aim of the project is to develop a new software product, the resultant software must be intended for multiple sale. Directly related activities This provision of the definition allows for activities which are integral to, and undertaken in direct support of, an activity that meets the requirements of SIE activities. For the purposes of claiming Australian-owned R&D activities, directly related activities are activities carried on for a purpose directly related to the carrying on of one or more of the SIE activities in the project. This means that the activity need not be solely for the directly related purpose, but rather need be only one of several purposes for undertaking the activity. Note: This is a key distinction from the definition of foreign-owned R&D activities (see Australian-centred research and development activities below). Australian-centred research and development activities For the purposes of claiming the 175% International Premium, eligible activities are defined also in subsection 73B(1), ITAA 1936 as Australian-centred research and development activities (referred to also as foreign-owned R&D activities). The definition of (Australian-owned) research and development activities (outlined above) forms the basis of the separate definition of Australian-centred research and development activities, which however differs in the following specific detail: only activities conducted in Australia are eligible, that is activities conducted overseas are ineligible for the 175% International Premium; if, however, part of the R&D project is being undertaken overseas, the SIE activities of the project must be undertaken in Australia; and the directly related activities requirement is stronger, namely the directly related relationship to the SIE activities must be the sole or dominant purpose of the activities. This means that the activity Tax Concession for Research and Development Overview, May 2009 Page 5

8 must in effect be solely for the directly related purpose, and not one of several purposes for undertaking the activity. Note: The 'sole or dominant' relationship between directly related and SIE activities in the definition of foreign-owned R&D activities is a key distinction from the definition of Australian-owned R&D activities (see above). For further information, please see the Guide to the R&D Tax Concession. R&D records and plans Companies intending to claim the R&D Tax Concession should maintain adequate records to show that they carried out the research and development activities. The following types of records need to be maintained: records that monitor the technical progress of the R&D; records that support expenditure claims; and for foreign-owned R&D specifically, a written agreement between the Australian company and its grouped foreign affiliate regarding the undertaking of the R&D must be in place. In addition, subsection 73B(2BA), ITAA 1936 requires that (since 1 July 2002) activities to be claimed under the R&D Tax Concession must be the subject of an R&D Plan: Activities are not covered by the definition of research and development activities in subsection (1) unless they are carried on in accordance with a plan that complies with any guidelines formulated by the Board under section 39KA of the Industry Research and Development Act 1986 that are in force at the time. This requirement emphasises that companies should think strategically about their R&D as a critical and ongoing part of their businesses, that is eligible R&D activities need to be planned by companies before money is spent on these activities. Note: As mentioned above, for the purposes of claiming the 175% International Premium Concession, a company and each group member of that company in Australia must register all their foreign-owned R&D activities, whether or not they are covered by an R&D Plan. For more information, see Innovation Australia's Guidelines for Research and Development Plans 2001 at Summary of R&D eligibility In light of the statutory requirements for the eligibility of R&D activities, Innovation Australia considers the following factors to be essential for a company s project activities to be claimable under the R&D Tax Concession. The company must have: an R&D Plan that complies with the Board s Guidelines; identified a problem with significant technical uncertainty that cannot be resolved on the basis of publicly available knowledge in that particular field of technology; demonstrated originality by generating new or different ideas or concepts leading to possible solutions to the problem; undertaken a program of experimentation, including testing or trials, for the purpose of discovering something unknown or testing a principle or proposed solution to the technical uncertainty; and in the case of the development of computer software as a research activity, demonstrated the intention of multiple sale. Other eligibility requirements In addition to meeting the requirements of the R&D activities definitions, companies must also be able to demonstrate that they satisfy the following statutory requirements. Tax Concession for Research and Development Overview, May 2009 Page 6

9 Minimum expenditure An annual minimum R&D expenditure threshold of $20,000 applies to companies claiming the concession, except where Australian-owned R&D is contracted to an approved Registered Research Agency. [See Collaborative arrangements below.] On own behalf The R&D activities must be carried out by, or on behalf of, the company making the claim (or, in the case of foreign-owned R&D, on behalf of a foreign company that is grouped with the company undertaking the R&D at the time the R&D is carried out), and not on behalf of any other person or as a nominee or trustee of another entity. This does not mean that the claimant must actually undertake the R&D itself, but the claimant (or the relevant foreign company where foreign-owned R&D is concerned) must bear the financial risk associated with undertaking the R&D activities, effectively control the development activities and be the beneficial owner of the results of the R&D activities. See Part C of the Guide to the R&D Tax Concession for further information. Exploitation of results The R&D activities must be to the benefit of the Australian economy and the results exploited on normal commercial terms. Carried out in Australia R&D activities must generally be carried out in Australia. Some overseas R&D activities may be eligible as Australian-owned R&D if these activities cannot be carried out in Australia. However, no more than 10% of the total R&D project expenditure may be claimed for related Australian-owned R&D activities carried out overseas. To claim the concession for (Australian-owned) R&D undertaken overseas, a company must apply in advance in writing to Innovation Australia for a provisional certificate. If the Board grants the certificate, it is deemed to take effect from the day the application was received. See Innovation Australia's Guideline for Overseas Research and Development Activities at for further information. Note: For the purposes of claiming the 175% International Premium, only activities conducted in Australia are eligible. Adequate Australian content R&D activities conducted in Australia must contain adequate Australian content. The following points should help companies to determine whether their R&D activities contain adequate Australian content: any key person engaged to undertake the R&D activity must be an Australian citizen or permanent resident of Australia, unless such expertise is not available to the company as required, on competitive commercial terms; and any major items of plant, technology or know-how used in the R&D activity must be of Australian origin, unless they are not available to the company as required, on competitive commercial terms. See Innovation Australia's Guideline for Adequate Australian Content at for further information. Qualifying expenditure The Tax Office administers the statutory provisions related to qualifying expenditure for the R&D Tax Concession. A company registered for the concession may claim a deduction against assessable income for qualifying R&D expenditure directly incurred in undertaking R&D activities in the year of income. Estimates and projections of expenditure are not acceptable. Expenditure definitions Broadly speaking, qualifying expenditure includes the following categories of expenditure. Note: Some of the following categories of expenditure are not applicable to claims for the R&D Incremental (175% Premium) Tax Concession and the 175% International Premium. All questions Tax Concession for Research and Development Overview, May 2009 Page 7

10 regarding qualifying expenditure should be directed to the Tax Office through its Innovation Segment. [See contact details at the end of this document.] Salaries expenditure, including wages, salaries, bonuses, overtime and penalty rates, annual leave, sick and long service leave, superannuation fund contributions, payroll tax, workers compensation premiums and other labour costs directly associated with the R&D activities. Other expenditure incurred directly in respect of R&D activities carried on by, or on behalf of, the company, such as overheads and administrative costs (or part of these costs), including rent, lighting and power, property rates and taxes, and insurance and leasing costs. Contracted expenditure, which covers payments to other companies or Registered Research Agencies (RRAs) that have the expertise and facilities to do specified types of R&D activities on behalf of others. Where R&D activities are contracted to an approved RRA, qualifying expenditure is not subject to the $20,000 annual threshold limit. Assets that were acquired, or whose construction began, after 29 January 2001 may attract a 125% deduction on the effective life depreciation of the plant, for the period of R&D use. Companies that use an item of plant only partly for R&D are able to claim the concession for that portion of use. Feedstock expenditure. The net cost of feedstock attracts a deduction of 125%, with the balance of this expenditure deductible at 100%. The net cost is calculated by subtracting the value or sales proceeds of any products derived from processing or transforming feedstock as part of R&D activities from the cost of the feedstock used in the process. Core technology expenditure. A deduction for this is allowable at a rate of 100%, to a maximum of one-third of the amount of R&D expenditure in the relevant year, on R&D activities that are based on the core technology. Interest expenditure, or an amount in the nature of interest, incurred in financing R&D activities is deductible at 100%, unless incurred under a fixed-term contract entered into before 23 July Payments to a Cooperative Research Centre (CRC) for the purpose of eligible R&D activities may also constitute eligible research and development expenditure. However, such expenditure is subject to the general expenditure threshold and other eligibility requirements. For further guidance on qualifying expenditure, see Part C of the Guide to the R&D Tax Concession. Grants received (if applicable) If a grant or similar recoupment has been received from the Government in respect of any of the R&D activities, the related qualifying expenditure claim may have to be adjusted to conform with the clawback provisions of section 73C, ITAA Grant receipts also impact on the calculation of 175% Incremental concession deductions. Consult the Tax Office for details of the clawback provisions. Goods and Services Tax (GST) Companies registered for GST are entitled to claim an input tax credit for the GST included in their R&D expenditure. Therefore, for the purposes of the R&D Tax Concession, the stated expenditure costs of these companies should be net of GST, that is, they should not include an amount for GST. Companies not registered for GST are not entitled to claim input tax credits for the GST included in their R&D expenditure. Therefore, for the purposes of the R&D Tax Concession, the stated expenditure costs of these companies may be inclusive of GST, that is, they may include an amount for GST. Collaborative arrangements Registered Research Agencies Companies that do not have relevant expert staff and/or facilities to undertake their R&D activities may still take advantage of the R&D Tax Concession by working with a Registered Research Agency (RRA). An RRA is an organisation approved by Innovation Australia that has appropriate scientific or technical expertise and resources to perform R&D on behalf of eligible companies or groups of companies. Registration of research agencies was introduced to help small to medium-sized firms identify and gain access to expert R&D resources in particular fields. Collaborating with RRAs enables these firms to conduct R&D activities without having to invest in the infrastructure needed to support such activities. Tax Concession for Research and Development Overview, May 2009 Page 8

11 Companies contracting with RRAs must, however, retain ownership of the results of the R&D and comply with the other on own behalf eligibility requirements discussed above. The advantages of contracting R&D activities to an RRA are: all contracted expenditure for Australian-owned R&D is eligible, that is the expenditure threshold of $20,000 does not apply to Australian-owned R&D contracted to an RRA; and contracted expenditure may be claimed up to 12 months before the R&D is undertaken. For further information, see Innovation Australia's Guideline for Registered Research Agencies at Contracting to others A company can contract R&D to an organisation or person other than an RRA for the performance of R&D activities on behalf of the company. If R&D is contracted to others, unlike the case with contracting Australian-owned R&D activities to RRAs, the qualifying expenditure is subject to the $20,000 annual threshold. The company contracting the R&D (or the relevant foreign company in the case of foreign-owned R&D) must retain effective ownership of the results of the R&D and comply with the other on own behalf eligibility requirements discussed above to be eligible to claim the concession. Eligibility checklist If you are able to answer YES to all the following questions, you are likely to be eligible to apply for and claim the R&D Tax Concession. If you answer NO to any of the questions, expenditure relating to the activities may NOT be eligible. (i) (ii) Are you a company incorporated in Australia, and not acting as a trustee for a trust (other than for a public trading trust)? Have you prepared and maintained an R&D Plan in accordance with the Board's Guidelines? (iii) Do the R&D activities you have undertaken involve the following: a technical problem that could not be resolved on the basis of publicly available information an original idea to solve the technical problem systematic experimentation in the form of testing or trials to resolve the technical uncertainty? (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) Have you maintained up-to-date records that substantiate the carrying on of these activities? If you have undertaken foreign-owned R&D, is a written agreement in place between your company and your grouped foreign affiliate regarding the undertaking of the R&D? Will your company (or the relevant foreign company in the case of foreign-owned R&D) bear both the technical and financial risk associated with its R&D? Does your company (or the relevant foreign company in the case of foreign-owned R&D) have control over its R&D project and effectively own the R&D results? Will the R&D activities be to the benefit of the Australian economy and the results exploited on normal commercial terms? If the systematic, investigative and experimental activities of the project are for the development of computer software, is the resultant software intended for multiple sale? Has your company incurred eligible annual expenditure of $20,000 or more on R&D activities; if not, has the company contracted (Australian-owned) R&D activities to a Registered Research Agency? Is this application for registration being lodged within 10 months after the end of your company s income year? Tax Concession for Research and Development Overview, May 2009 Page 9

12 TWO FINAL POINTS TO REMEMBER You may not claim the R&D Tax Concession, whether as the 125% concession, the R&D Tax Offset, the R&D Incremental (175% Premium) Tax Concession or the 175% International Premium on your company tax return unless your R&D activities have been registered for the relevant income year. Applications for registration must be lodged within 10 months after the end of the year of income in which the qualifying expenditure on R&D activities was incurred. Tax Concession for Research and Development Overview, May 2009 Page 10

13 More information? Contacting AusIndustry Further information on AusIndustry and its programs can be obtained by calling the AusIndustry Hotline on or the AusIndustry State Offices below or by to Australian Capital Territory New South Wales (02) Victoria (03) Queensland (07) South Australia / Northern Territory (08) Western Australia (08) Tasmania (03) Our internet site has detailed information on all aspects of the R&D Tax Concession, including the Guide to the R&D Tax Concession, at Contacting the Australian Taxation Office If you have a research and development expenditure query, please call the Tax Office s Small Business Contact Centre on For quicker progress through the menu, please select 4, 3, 2 (income tax including capital gains tax) at each prompt. DISCLAIMER The material in this document is provided as a general introduction to the R&D Tax Concession. It is for information only, and is not intended as legal or business advice. Before claiming the concession, companies should consult the relevant legislative provisions or seek professional advice. Tax Concession for Research and Development Overview, May 2009 Page 11

14 Definitions Concessionthe R&D Tax Concession, under the provisions of sections 73B 73Z of the Income Tax Assessment Act 1936 and Part IIIA of the Industry Research and Development Act GST Act A New Tax System (Goods and Services Tax) Act IR&D Act the Industry Research and Development Act ITAA 1936 the Income Tax Assessment Act R&D activities research and development activities as defined in subsection 73B(1) of the Income Tax Assessment Act RRA Registered Research Agency Tax Office the Australian Taxation Office The Board Innovation Australia Commonwealth of Australia 2008 This work is copyright. You may download, display, print and reproduce this material in unaltered form only (retaining this notice) for your personal, non-commercial use or use within your organisation. Apart from any use as permitted under the Copyright Act 1968, all other rights are reserved. Requests and inquiries concerning reproduction and rights should be addressed to Commonwealth Copyright Administration, Attorney General s Department, Robert Garran Offices, National Circuit, Barton ACT 2600 or posted at Tax Concession for Research and Development Overview, May 2009 Page 12