R&D Tax Incentive in Melbourne

Who Is Eligible for the R&D Tax Incentive in Australia?

To be eligible for the RDTI, a company must be an incorporated entity resident in Australia (or a foreign company with a permanent establishment in Australia), be conducting eligible R&D activities during the income year, and incur eligible R&D expenditure on those activities. The RDTI is available to companies across all industries — technology, biotechnology, manufacturing, food and beverage, construction technology, and professional services — provided the activities meet the legislative definitions. Trusts, partnerships, and sole traders cannot access the RDTI directly; incorporating a company to house R&D activity is often warranted.

What Are Eligible Core R&D Activities?

Core R&D activities are experimental activities conducted for the purpose of generating new knowledge, including knowledge about the creation of new or improved materials, products, devices, processes, or services. The activities must involve a hypothesis, experimentation, observation, evaluation, and a logical conclusion — the ATO refers to this as the scientific method test. Crucially, the outcome must be genuinely uncertain at the time the activity commences; activities with predetermined outcomes do not qualify. Eligible activities span software development (where the technical outcome is uncertain), new manufacturing process development, product formulation trials, and clinical research.

What Are Supporting R&D Activities?

Supporting R&D activities are activities that are directly related to and necessary for the conduct of core R&D activities — for example, project management directly connected to the experimental program, procurement of specialist materials, and documentation of experimental results. Supporting activities must be registered and can include a broader range of costs than core activities, but they must be subordinate to an eligible core activity and cannot constitute the majority of R&D expenditure. The ATO has tightened its interpretation of supporting activities in recent years, and claims that rely heavily on supporting activity classifications face greater scrutiny.

What Is the AusIndustry Registration Process?

Before claiming the RDTI offset in an income tax return, companies must register their R&D activities with AusIndustry (part of the Department of Industry, Science and Resources) within 10 months of the end of the income year — for a 30 June year-end, this means by 30 April of the following year. The registration describes the core and supporting activities, the hypothesis being tested, and the experimental methodology. AusIndustry reviews registrations and can amend or reject activities that do not meet the legislative definitions. Registration is not a rubber stamp — companies that do not adequately document their activities before registration face challenges at review.

What Expenditure Qualifies for the RDTI?

Eligible R&D expenditure includes salaries and wages for employees working on R&D, contractor and consultant costs for activities conducted in Australia, materials consumed in experiments, and expenditure on R&D conducted by research service providers including universities and CSIRO. Expenditure on activities conducted wholly overseas is not eligible (subject to limited exceptions for activities that cannot be conducted in Australia). Expenditure must be at arm's length and cannot include amounts incurred to associates unless those amounts have been paid. The ATO requires detailed contemporaneous records — timesheets, project documentation, and experimental records — to substantiate claims.