Work out which tax offset you may be entitled to under the research and development (R&D) tax incentive.
The rate of the research and development (R&D) tax offset and whether it is refundable or not depends primarily on the R&D entity's aggregated turnover:
- If your aggregated turnover is less than $20 million and you are not controlled by any exempt entities, then you can claim the refundable tax offset.
- If your aggregated turnover is $20 million or more, or you are controlled by exempt entities, then you can claim the non-refundable tax offset.
The R&D tax offset provides a premium component over the company tax rate for notional R&D deductions up to $150 million for an income year. The rate of the R&D tax offset is reduced to the company tax rate for that portion of an entity’s notional R&D deductions that exceed $150 million for an income year.
For years commencing on or after 1 July 2014 and before 1 July 2021, the threshold was $100 million.
Aggregated turnover is the sum of all of the following:
- the annual turnover of the R&D entity for the income year
- the annual turnover of any entity connected with the R&D entity, for that part of the income year that the entity is connected with the R&D entity
- the annual turnover of any entity affiliated with the R&D entity, for that part of the income year that the entity is affiliated with the R&D entity.
Any dealings between these entities while they are connected or affiliated with the R&D entity are excluded.
Australian entities and foreign entities can be connected or affiliated with you. This means your aggregated turnover includes both Australian and foreign entities for the period they are connected or affiliated with you.
To calculate your aggregated turnover, see Steps to claiming the tax offset.
Your entity's annual turnover is the total ordinary income your entity derived in the income year in the ordinary course of carrying on its business activities. This includes income on a worldwide basis but does not include GST.
If an R&D entity is not carrying on a business at any time during the income year, its annual turnover is nil. If your entity carries on business for part of the income year, the annual turnover for that year must be worked out using a reasonable estimate of what your annual turnover would be if you carried on a business for the whole income year.
Example: calculating annual turnover
Company A does all of the following:
- carries on a business
- undertakes R&D activities
- incurs expenditure on its R&D activities and meets all eligibility requirements for the R&D tax incentive
- has an annual turnover of $15.5 million.
In the same income year, Company A is connected with Company B and no other entity for the full income year. Company A has no affiliates. Company B is not an exempt entity and has both of the following:
- an annual turnover of $6.7 million
- $2.7 million of ordinary income related to dealings with Company A.
To work out whether it is entitled to a refundable or non-refundable tax offset, Company A first adds the following:
Company A's annual turnover
Company B's annual turnover
Company A then subtracts the dealings between it and Company B:
- $22.2 million − $2.7 million = $19.5 million.
This means Company A's aggregated turnover is $19.5 million.
As Company A's aggregated turnover is less than $20 million and as it has met all the other eligibility criteria, it is entitled to a refundable R&D tax offset.End of example
If we retain your R&D tax offset refund
R&D tax offset refunds can be retained while they are checked. We may retain your income tax refund if we need to verify:
- information relating to your research and development tax incentive claim
- that your income tax refund has been correctly calculated and claimed.
We'll inform you within 30 days of lodgment of your tax return if we've retained your refund for verification purposes. If we don't inform you within 30 days, we'll issue your refund and may conduct verification later.
We may seek information that explains the basis for your claim or ask to see records used to prepare it. Responding promptly to requests for information or documents helps us process your claim quicker.
If we continue to retain your refund 60 days after the initial 30-day period, you may object to our decision to retain your refund. If we request information from you during this 60-day period, the period before which you may object is extended by the number of days it takes you to provide all information we request from you.
Normal income tax rules apply for refundable tax offsets
The normal income tax rules for refundable tax offsets apply, including the priority rules about how tax offsets must be applied against the basic income tax your entity is liable to pay.
A refundable tax offset is applied after all other tax offsets, except tax offsets that arise from paying franking deficit tax.
If there is an excess of tax offsets, your entity may be entitled to a refund – subject to the rules on how we must apply credits, including refunds, to running balance accounts or against a particular tax debt.
R&D refundable tax offsets and franking debits
Generally, a franking debit arises in your entity's franking account when it receives a refund of income tax which includes a refunded amount from a tax offset.
However, special rules ensure that the amount of R&D tax offset refunded is not immediately reduced as a result of the entity becoming liable to franking deficit tax. The franking debit that usually arises when a refund of income tax is received is effectively deferred in relation to refundable tax offset amounts.
Where a debit has been deferred for this reason, a franking credit will not arise as a result of income tax or PAYG instalments your entity pays until it recovers these deferred franking debits.
For more information see:
- Franking account tax return about franking debits and instructions for lodging the return
- Franking account about when franking debits will arise.
If the offset is a non-refundable tax offset, it is applied before refundable tax offsets and tax offsets that arise from paying franking deficit tax, but after all other tax offsets, such as a foreign income tax offset. An R&D entity can carry forward a non-refundable tax offset to a later year if it satisfies the tax offset carry-forward rules.
For information on eligible entities and how to claim the incentive:
- phone us on 13 28 66 between 8:00 am and 6:00 pm Monday to Friday.
For information on registration, eligibility of R&D activities and findings, you can contact AusIndustry by:
- phone on 13 28 46
- submitting an email enquiryExternal Link
Refer to Contact us on the business.gov.auExternal Link website for the full list of contact details.Work out which tax offset you may be entitled to under the research and development (R&D) tax incentive.