What is the R&D Tax Incentive?
The Research and Development (R&D) Tax Incentive (also known as the R&D Tax Credit) is Australia’s leading government initiative designed to fuel homegrown innovation.
For many companies, cash flow remains one of the biggest obstacles to undertaking pioneering research and development projects. The R&D Tax Grant was created as a solution to this challenge, making innovation more accessible to businesses across a wide range of industries.
The program provides ~ $3 Billion in funding annually to help businesses overcome the significant costs associated with R&D activities, offering them a competitive edge while contributing to national advancements.
How does the R&D Tax Incentive work?
The initiative supports companies that seek to bring new ideas to life through breakthrough technologies, mechanical or engineering process improvements, or novel products. Reducing financial strain enables innovators to focus on what they do best: developing cutting-edge solutions.
Interested in learning more about how the R&D Tax Incentive works?
Check out this quick explainer video to discover how your business can benefit from one of Australia’s most impactful innovation support programs.
How much funding can the R&D Tax Incentive provide?
The benefits of making an AusIndustry R&D Application come in two forms: a cash-refundable benefit and a tax-saving non-refundable benefit.
< $20 million Turnover | > $20 Million Turnover | |
|---|---|---|
Benefit | 43.50% | 33.5% – 41.5% |
Loss Making | cashback | tax saving |
Profit Making | tax saving | tax saving |
A cash-back benefit
Most innovative companies face losses during their early years. This is because developing a groundbreaking product takes time before reaching the stage of steady revenue generation.
Under the standard tax system, companies carry these losses forward (a process known as a “rollover”) and can offset them against future profits. This means they pay little to no tax when they finally become profitable.
However, the Australian Government recognises that cash flow is one of the biggest challenges for R&D-focused companies. Bringing new product ideas to life requires significant investment, and a lack of cash often becomes a roadblock. The R&D Tax Incentive is designed to help.
Through this incentive, innovative companies can effectively convert their tax losses into cash today rather than waiting for future profits. Explained simply, if a business spends $100,000 on eligible R&D activities while operating at a loss, it could receive up to $43,500 in cash back through the R&D Tax Incentive. This provides a vital boost to keep companies innovating and moving forward.
R&D Expenditure
Cash Back with R&D Tax Incentive
Cash Back without R&D Tax Incentive
A tax-saving benefit
The Australian government is committed to fostering innovation even after R&D-focused companies begin to turn a profit. To this end, the government has introduced a generous tax incentive for eligible R&D expenses.
Here’s how it works in simple terms: If a company spends $100,000 on qualifying R&D activities, it can save $43,500 in taxes—compared to the $25,000 it would save under the standard 25% tax rate.
This enhanced benefit serves as a vital lifeline, allowing innovative companies to reinvest in cutting-edge developments and continue driving progress.
Company Expenditure
Savings with R&D Tax Incentive
Savings without R&D Tax Incentive
Who is the R&D Tax Incentive for?
The R&D Tax Incentive is a broad-based entitlement program, so all businesses, big and small, and all industries are entitled to consider eligibility for claiming the R&D Tax Incentive.
You do, however, need to be:
An Incorporated Australian Entity
Non-Tax-Exempt Corporation
Industries we work with
Manufacturing
Food & Beverage
Mining
IT & Software
Health & Medical
Tourism
Fashion
How is eligibility assessed when applying for the R&D Tax Incentive?
The key to assessing an R&D Tax Incentive claim is to first identify any activities that meet the definition of a core activity (Core R&D activities are defined in section 355.25 of the ITAA 1997). To register for the R&D Tax Incentive, you must conduct or plan to perform at least one eligible core R&D activity. For an activity to be eligible, it needs to meet three criteria. The same three criteria apply regardless of the area of research.
Prove that the purpose is to generate new knowledge
To be an eligible core R&D activity, one of your substantial purposes for conducting that activity needs to be to generate new knowledge. This includes new knowledge in the form of a new or improved material, product, device, process or service
Show that the outcome could not have been known in advance
You must then show how outcomes of your core R&D activity couldn’t have been known or determined in advance on the basis of current knowledge, information or experience but could only be determined and obtained through the R&D activity.
Undertake experimentation to try to resolve the unknown outcome
Next, you need to conduct or plan to conduct a systematic progression of the work, which proceeds from hypothesis to experiments, observation and evaluation and leads to logical conclusions. Your work must be based on principles of established science.
Our eligibility calculator can help you determine if your business is eligible to apply for the R&D Tax Incentive.
How long does it take to receive the R&D Tax Incentive benefit?
While processing time can vary, companies often receive their benefits within 6 to 8 weeks after their submission.
From start of work | From returns submission | |||
|---|---|---|---|---|
Refundable cash back benefit | 2.5 months | 4 – 6 weeks | ||
Non-refundable Tax Saving Benefit | 2 months | Upon submission | ||
What our clients say
FAQs
What is the difference between an R&D tax rebate and an R&D tax refund?
An R&D tax rebate generally refers to the overall benefit businesses receive from lodging an R&D claim, while an R&D tax refund specifically applies when eligible companies receive cash back for their R&D expenditure. Both sit under the umbrella of R&D tax incentives. Companies with under $20 million turnover can usually access the research and development tax incentive as a refundable cash benefit, meaning the R&D tax refund can be claimed in the same year the activities occur.
Are R&D tax concessions still available in Australia?
The former R&D tax concessions were replaced by the R&D Tax Incentive program. Today, businesses apply through AusIndustry and the ATO to access R&D credits or an R&D deduction. While the name changed, the purpose remains: to encourage investment in innovation through research and development grants in Australia. If eligible, your business can still achieve significant financial benefits, often more generous than the old R&D tax concessions.
How do R&D credits work for profitable companies?
For businesses making a profit, R&D credits come in the form of an R&D deduction against taxable income. Instead of an R&D tax refund, the benefit reduces the amount of tax payable. By making an R&D claim, a company can lower its overall tax liability, freeing up resources to reinvest in innovation. Many profitable businesses still find R&D tax incentives highly valuable, as the deduction improves cash flow and competitiveness.
What industries benefit most from R&D tax incentives?
R&D tax incentives are not limited to one sector. Manufacturing, health and medical, food and beverage, mining, software, and clean technology are some of the leading industries making R&D claims. Whether you are creating new materials, developing unique software, or improving agricultural processes, research and development grants Australia ensure that a wide range of industries can access R&D credits, an R&D tax rebate, or an R&D tax refund depending on eligibility.
Can failed projects still be included in an R&D claim?
Yes, even if an R&D project does not succeed, it can still qualify for R&D tax incentives. The eligibility test focuses on whether the activity involved systematic experimentation and sought to generate new knowledge. Businesses may still receive an R&D tax rebate or R&D tax refund for failed experiments. In fact, many companies use the research and development grants Australia incentive to offset costs of high-risk projects where outcomes are uncertain.
How do R&D deductions differ from standard business deductions?
An R&D deduction is an enhanced benefit available under the R&D tax incentives program. Unlike standard business deductions, which apply at the regular tax rate, an R&D claim allows companies to access higher offsets. This often leads to either an R&D tax refund for smaller entities or reduced tax liability for larger ones. The enhanced nature of R&D deductions ensures research and development grants Australia remain one of the most effective tools to support innovation.
How do cash flow benefits work under the R&D tax rebate?
For many businesses, the most attractive feature of the R&D tax rebate is improved cash flow. If eligible, companies under $20 million turnover can turn tax losses into immediate cash through an R&D tax refund. This allows innovators to reinvest directly back into projects without waiting until profitability. By making a timely R&D claim, companies can transform the cost of research into working capital, supported by research and development grants Australia.
What documentation is required for an R&D claim?
To successfully access R&D tax incentives, businesses must keep detailed records of activities, experiments, costs, and outcomes. Supporting evidence is key to securing an R&D tax rebate or R&D tax refund. The ATO and AusIndustry expect applicants to show how their activities fit the R&D meaning under legislation. Good record-keeping helps companies maximise their R&D credits and ensures they meet compliance requirements for research and development grants in Australia.
How long does an R&D claim take from preparation to refund?
Preparing an R&D claim typically takes several weeks, depending on the complexity of activities and documentation. Once lodged, refundable R&D credits may be received as an R&D tax refund within 4-8 weeks. Timing varies between the cash rebate process and non-refundable R&D deduction claims. To avoid delays, businesses should gather records early and work with advisors familiar with research and development grants in Australia.
Why choose a consultant to manage your R&D tax incentives?
While companies can prepare an R&D claim themselves, many prefer using a consultant to maximise their eligibility. Experts understand how to structure activities, apply for research and development grants in Australia. A consultant also reduces the risk of errors, ensuring businesses claim the full R&D tax rebate available under R&D tax incentives.
Could you be missing out on getting up to 43.5% of your R&D spend back?
Ready to see if you are eligible and how much you could receive?
Contact us today at Rimon Advisory, and let’s fuel your growth together.