There are a few factors to consider: Does the R&D entity have > $20M in revenue If Yes then the R&D benefit is not refundable If No, continue reading Does the R&D entity have enough losses to drawdown the refundable cash back benefit Yes: Your R&D eligible activities would be refundable in cash No: You would be eligible for the tax saving benefit but not the cash back benefit

R&D Tax Incentive.

What is the R&D Tax Incentive?

Q: Is Overseas Development Claimable?

No, overseas development is not claimable unless an overseas and advanced finding is obtained from the ATO prior to the completion of the financial year looking to be claimed.

Q: Are marketing expenses claimable?

It’s important not to get lost in claiming expenses if they aren't connected to R&D activities. The first step should always be to identify the R&D activity and after that to try and find a methodology to apply value to that activity. The short answer to the question is, No, marketing expenses are not claimable. If marketing expenses were incurred in order to acquire test users to perform R&D testing then that question needs to be looked at more deeply by an expert.

Q: Can patent costs be claimed under the R&D Grant?

The question needs to be broken down into the different sections of a patent. By nature a patent should be done very early on in the R&D process in order to file the patent before the R&D that needs patenting actually occurs. The new knowledge search of the patent is the section that could be looked at when making a R&D tax incentive claim. By virtue of the patent looking to see if the same thing exists in the world, the new knowledge section of the R&D definition may possibly be utilised. Each claim needs to be looked at in its own merit when it comes to claiming patent expenses.

The Research and Development Tax Incentive is Australia’s #1 Government incentive for homegrown Australian innovation. Over $2 Billion annually is used to support Aussie innovation and through the R&D Tax Offset.

Australian R&D Tax Incentive: How it all works:

Cashflow is one of the biggest barriers for companies considering taking on Research and Development and the R&D Tax Grant is Australia’s answer. The R&D Tax Incentive Australia was created to support all types of innovation across all vectors and sectors.

Benefits of the R&D Tax Incentive Program summarised:

R&D Tax Incentive benefit

Turnover	Benefit	Loss Making	Profit making
< $20 million turnover	43.50%	cash-refundable	non-refundable
> $20 million turnover	38.50%	non-refundable	non-refundable

All firms, big and small, are entitled to consider eligibility for claiming the R&D Tax Incentive.

The incentive is not industry specific at all. What does need to be met is the definition of R&D.

An entity considering using the Government R&D Tax Incentive needs to be an incorporated non tax-exempt Australian entity.

Some examples of eligible sectors and industries are:

Manufacturing
Food & Beverage
Mining
IT & Software
Health & Medical
Tourism
Fashion

How does submission work?

Step 01
Eligibility assessment

To ensure the company meets the eligibility criteria and that the possible benefit of a claim outweighs the required effort.

Step 04
Receive Tax Offset

The net benefit will vary depending on the size of the claim and on the company's profit/loss.

Step 02
Registration form

A submission is made to Ausindustry to formally register the claim.

There is an R&D Tax Incentive Deadline that needs to be met.

The deadline is 10 months after the company’s financial year end.

Step 03
income tax return

Tax schedule is prepared. The company's accountant needs to include the schedule in the company's annual tax return.

R&D Tax Incentive Regulators

There are 2 regulators that regulate the R&D Tax Grant.

AusIndustry - Australian Government Business

Australian Government Business, also known as AusIndustry

Governing the actual technical R&D that is being put forward
The underlying R&D activities that occurred

The Australian Tax Office (ATO)

The financial side of things - ensuring compliance over the R&D expenditure being claimed and that it meets the R&D regulations

Check Eligibility

Often a person will be making something innovative but simply assume that their R&D is not eligible for the incentive. More often than not the innovation could be eligible.There are 3 main pillars to understand if the Research and Development is eligible.

Here is a summary.

New Knowledge
- The first step to new knowledge is identifying a gap in the market
- An area that you feel is lacking and that you believe you can capture or change
- It’s important to note here that you don't have to be sending rockets to the moon
- In fact the final outcome of what you are doing may not be distinguishable from something else in the market however the opportunity you have identified adds a different benefit to getting to the outcome e.g. faster, smoother, healthier, more efficient or longer lasting … just as some ideas
Experimentation
- Now that you have identified your gap in the market you decide to go ahead and have something made
- This would be the embarking of a process of trial and error. There will be setbacks along the way as you are attempting something new
- The setbacks are very important as they prove that it wasn't an easy process but rather a true process of R&D
Uncertainty
- As with anything new, the outcome shouldn't be known in advance
- Inherent in something new being created should be a level of not knowing what the final outcome will be
- This is a regular process of real R&D. The product or innovation will likely take many different forms along the way as it is something new that is being created

At the end of these 3 steps, if the R&D was successful, it will close the new knowledge gap identified in pillar 1. In other words that gap that was identified is no longer a gap as the new product that was created has filled that gap.

Team of Technical and Financial Experts showing solidarity

The Rimon Difference

At Rimon we are a team of both technical and financial experts.

We are able to truly understand any R&D and then attribute the right value to your R&D Activities resulting in a claim that you can be proud of.

Our business has been built on excellence - the excellence that our clients deserve when choosing their service providers.

We have clients spanning all sizes, from large listed corporations, to tech companies and start-ups, to farming and all the way through to automated manufacturing clients.

Rimon Advisory are R&D Tax Incentive Specialists.

This is what we do for every minute of every day.

We are able to manage your R&D Tax Credit Application to the highest quality while you can have the comfort to continue to run your business knowing that your R&D Tax Incentive claim is getting the highest care.

Common R&D Tax Incentive Questions

When are the submission deadlines?

The deadline for the R&D tax incentive is typically 10 months after the year end of your R&D entity.

The deadline is regarding the submission to AusIndustry which comprises the registration of your R&D activities.

Year end	deadline
30-Jun	30-Apr
31-Dec	31-Oct

Which expenses may be eligible?

With many years of experience we have found that these expenses are regularly found in company’s submitting R&D tax incentive claims.

If you have expenses such as these or similar then you should consider if you are eligible for the incentive

R&D staff salaries and wages
R&D contractor fees
Industrial design
Software development
Formula formulation
Prototype creation
Product testing
Manufacturing line automation
Engineering costs
Lab costs and testing
Patent new knowledge costs
R&D machinery
R&D rent
R&D overheads
R&D utilities

How is the R&D Tax Credit Calculated?

The benefit varies depending on a company’s profit or loss situation.

Have a look at the 3 scenarios below:

01.

A loss making entity
refundable cash back benefit

02.

A profit making entity
non refundable tax saving benefit

03.

Small profit making entity - a mixture of tax saving and cash back benefit

1. Loss Making Entity

Unicorn To Be Pty Ltd embarks on building their product. They have incurred $400,000 in total expenses of which $250,000 were eligible R&D expenses.

In our example Unicorn To Be will receive $108,750 back in cash via using the R&D
Tax Incentive.

Unicorn to be Pty Ltd - R&D benefit example

	Rate	Amount
Revenue		-
Expenses		400,000
(Loss)		(400,000)

Tax	27.50%	(82,500)

Add Back R&D Expenses		250,000
Loss after R&D expenses addback		(150,000)
Tax after R&D expenses addback	27.50%	-
R&D Offset	43.50%	108,750
R&D Refundable cash back benefit		108,750

R&D Refundable cash back benefit		108,750

Summary

The refund not using the R&D Tax Incentive		-
The refund using the R&D Tax Incentive		108,750

R&D Refundable cash back benefit		108,750

In this example Unicorn To Be Pty Ltd doesn't have any revenue. However the main point to look out for is the fact that the entity is in a loss. If Unicorn To Be had revenue but still had losses the calculation would look very similar.

2. Profit Making Entity

Go-Kart Mechanics Pty Ltd makes aerodynamic innovative go-kart parts. They have $1,000,000 in revenue and $700,000 in expenses. Of the $700,000 expenses, $500,000 are eligible R&D expenses.

In our example Go-Kart Mechanics will be saving $80,000 in tax through using the R&D Tax Incentive.

Go-Kart Mechanics Pty Ltd - R&D benefit example

	Rate	Amount
Revenue		1,000,000
Expenses		700,000
Profit		300,000

Tax	27.50%

Add Back R&D Expenses		500,000
Profit after R&D expenses addback		800,000
Tax after R&D expenses addback	27.50%	(220,000)
R&D Offset	43.50%	217,500
Tax Payable after R&D offset		(2,500)

R&D tax saving benefit		80,000

Summary

Tax payable not using R&D Tax Incentive		(82,500)
Tax payable using R&D Tax Incentive		(2,500)

R&D tax saving benefit		80,000

3. Small Profit Making Entity

Eye Shade Pty Ltd makes longer lasting eye shadow makeup. They have $400,000 in revenue and $350,000 in expenses. Of the $350,000 expenses, $200,000 are eligible R&D expenses.

Eye Shade will make $32,000 in R&D benefit split between a tax saving benefit of $13,750 and a cash back benefit of $18,250.

Eye Shade Pty Ltd - R&D benefit example

	Rate	Amount
Revenue		400,000
Expenses		350,000
Profit		50,000

Tax	27.50%	(13,750)

Add Back R&D Expenses		200,000
Profit after R&D expenses addback		250,000
Tax after R&D expenses addback	27.50%	(69,750)
R&D Offset	43.50%	87,000
R&D refundable cash back benefit		18,250

Total R&D benefit		32,000

Summary

Tax payable not using R&D Tax Incentive		(13,750)
Tax payable using R&D Tax Incentive		-
R&D Tax Saving Benefit		13,750

Tax refund not using the R&D Tax Incentive		-
Tax refund using the R&D Tax Incentive		18,250
R&D Refundable cash back benefit		18,250

Total R&D benefit		32,000

Entities with Aggregate Turnover of > $20M

Should the R&D entity have an aggregate turnover of above $20 Million then the following would apply:

Only a non refundable benefit is available (not the refundable cash back benefit)
The R&D rate reduces to 38.5% from the regular 43.5%

Is the R&D Tax Offset Taxable?

The R&D tax Incentive does NOT form part of assessable income.

Essentially the incentive is a tax offset. The mechanism of the cashback portion is done via offsetting the incentive against the company’s losses.

Thereby unlocking the company’s losses today rather than holding onto the losses for the future. The incentive also allows a company to unlock their losses at a higher rate than their tax rate.

Companies using the R&D tax incentive should consider that the refundable offset is a debit to a company’s franking account.

What is the R&D Tax Incentive?

Benefits of the R&D Tax Incentive Program summarised:

R&D Tax Incentive benefit

How does submission work?

Eligibility assessment

Receive Tax Offset

Registration form

income tax return

R&D Tax Incentive Regulators

Australian Government Business, also known as AusIndustry

The Australian Tax Office (ATO)

Check Eligibility

Here is a summary.

New Knowledge

Experimentation

Uncertainty

The Rimon Difference

Common R&D Tax Incentive Questions

When are the submission deadlines?

Which expenses may be eligible?

How is the R&D Tax Credit Calculated?

1. Loss Making Entity

Unicorn to be Pty Ltd - R&D benefit example

2. Profit Making Entity

Go-Kart Mechanics Pty Ltd - R&D benefit example

3. Small Profit Making Entity

Eye Shade Pty Ltd - R&D benefit example

Entities with Aggregate Turnover of > $20M

Is the R&D Tax Offset Taxable?

FAQs

Can a claim be done without a consultant?

Is the R&D Credit

Is Overseas Development Claimable?

Are marketing expenses claimable?

Can patent costs be claimed under the R&D Grant?

Reach out to us