The research and development (R&D) tax incentive provides targeted tax offsets designed to encourage more companies to engage in R&D. The incentive has 2 core components.
Entities engaged in R&D may be entitled to:
- a refundable tax offset. This is equal to the entity’s company tax rate plus an 18.5% premium for eligible entities. Eligible entities are those who:
- have an aggregated turnover of less than $20 million per annum
- are not controlled by income tax-exempt entities.
- a non-refundable tax offset for all other eligible entities. This is equal to the entity’s company tax rate plus a two-tiered premium, determined on the notional R&D expenditure as a proportion of total expenditure for the income year. The new rates will be the company tax rate plus
- 8.5% for R&D expenditure up to 2% of total expenditure
- 16.5% for R&D expenditure above 2% of total expenditure.
The offset rate is reduced to the company tax rate for the portion of an entity's notional deductions that exceeds $150 million for an income year.
Entities may be able to carry forward unused offset amounts to future income years (see Refundable and non–refundable offsets).