You can only claim an R&D tax offset if you are an R&D entity. You are 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'; and
- carrying on business in Australia through a permanent establishment as defined in the double tax agreement.
You are not eligible for an R&D tax offset if you are:
- an individual
- a corporate limited partnership
- an exempt entity (where your entire income is exempt from income tax)
- a trust (with the exception of a public trading trust with a corporate trustee).
- If you are an R&D entity, you may also need to consider the special rules applied to consolidated groups and R&D partnerships. Other conditions may also apply, depending on whom the R&D activities are being conducted for.
There are special rules to consider if you are a member of a consolidated group or a multiple entry consolidated (MEC) group.
If you are 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. Therefore, 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. This means only the head company of the group should register for, and claim, the tax incentive for these R&D activities.
Special rules also apply if you are a partner 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. However, the partners may be able to claim for R&D activities the partnership has undertaken.
If you are a partner in an R&D partnership, you should register your R&D activities with AusIndustry prior to making a claim.
Who R&D activities are conducted for
In most cases, you can only claim an R&D tax offset for expenditure on R&D activities conducted for you rather than for another entity.
Working out for whom the R&D activities are conducted involves determining who receives the major benefit from carrying out the activities (for example, who owns the results of the activities).
Usually, you won't be able to claim for expenditure on R&D activities you conducted to a significant extent for another entity. However, provided all other eligibility requirements are met, the entity receiving the major benefit from the R&D activities may be able to claim these amounts.
If you meet certain conditions, you may also qualify for an R&D tax offset if:
- your R&D activities are conducted for an associated foreign corporation that is a resident of a country with which Australia has a comprehensive double tax agreement; or
- you are a foreign corporation carrying on your business through a permanent establishment in Australia and the R&D activities are conducted for you and not for the permanent establishment.
Only R&D entities can claim R&D tax offsets. An R&D entity is either a corporation that is incorporated under an Australian law or, in some circumstances, a foreign corporation. Special rules apply to consolidated groups and R&D partnerships. Other conditions may also apply, depending on who the R&D activities are being conducted for.