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Self-assess before you claim

Last updated 20 November 2022

The R&D tax incentive operates on a self-assessment basis: that is, if you are an R&D entity, assess for yourself whether or not the R&D activities you are conducting – and the amounts that you wish to claim – are eligible for the R&D tax incentive. This includes ensuring that you have firstly registered your R&D activities with the Department of Industry, Innovation and Science.

You must show all your assessable income and claim only R&D tax offsets to which you are entitled on your annual tax return. The essence of self-assessment is that the details put on your tax return are usually accepted without query before an assessment issuing. However, even though we may initially accept the claims in your tax return, we can later ask you to provide the records and information you used to complete your tax return.

You are responsible for proving the claims you have made in your company tax return and R&D tax incentive schedule. Your company records will be crucial in substantiating your claims. When you sign your tax return you are taking responsibility for the claims you are making. We assume that you have completed your tax return in good faith. If you are aware that your return is incorrect, you must contact us as soon as possible to correct the error.

For information about eligibility of R&D activities and registration for the R&D tax incentive, refer to the Department of Industry, Innovation and Science websiteExternal Link.

Remember that you must keep accurate records. Not only does this make good business sense, it's also the law. If you plan on using a tax agent or R&D consultant to help you lodge your returns or complete your forms, you need to make sure they are registered.

Step 1 – Check that you meet the four initial eligibility requirements

There are four questions you must answer in order to work out if you meet the initial eligibility requirements and therefore qualify for an R&D tax incentive tax offset.

Before claiming the R&D tax offset you must ensure you can answer 'yes' to all of the following questions.

Question 1: Are you an eligible R&D entity?

Only R&D entities (eligible entities) can claim an R&D tax offset.

Question 2: Have you carried out eligible activities?

You can only claim an R&D tax offset if you have carried out eligible R&D activities in an income year.

Question 3: Have you registered your activities?

You must register with the Department of Industry, Innovation and Science before you lodge your claim.

Question 4: Do your notional deductions qualify?

You need to work out whether your eligible notional R&D deductions are more than or less than $20,000.

Answers to all questions

If you can answer yes to all of these questions, then steps 2, 3 and 4 will help you work out which offset you can claim.

If you can't answer yes to all of these questions, you can't claim the R&D tax offset.

Step 2 – Work out if you are controlled by any exempt entities

Once you've worked out that you meet the initial eligibility requirements, you will also need to work out if you are controlled by one or more exempt entities because this too will affect which tax offset you can claim.

An exempt entity is an entity whose ordinary and statutory income is exempt from income tax; or is a Commonwealth entity that does not pay tax.

If you are controlled by one or more exempt entities, you can't claim the 43.5% refundable offset but you can claim the 38.5% non-refundable tax offset instead. If this is the case, you don't need to take your aggregated turnover into account to work out which offset you can claim, and you can go to Step 4 - Work out which tax offset you can claim.

If you aren't controlled by one or more exempt entities you may be entitled to claim the refundable 43.5% tax offset if your aggregated turnover is less than $20 million.

To work out if your company is controlled by one or more exempt entities, you will need to consider if one or more exempt entities, their affiliates or both have either:

  • shares and other equity interests in your company that give them and/or their affiliates at least 50% of the voting power in your company
  • the right to receive at least 50% of any income or capital your company distributes.

Step 3 – Calculate your aggregated turnover

Who does this step

If you aren't controlled by an exempt entity, you must work out your aggregated turnover to identify which tax offset you can claim.

Aggregated turnover

The rules for calculating aggregated turnover are the same as those for the small business entity concessions.

Aggregated turnover is the sum of:

  • your annual turnover for the income year
  • the annual turnover of any entity connected with you, for that part of the income year that the entity is connected with you
  • the annual turnover of any entity that is an affiliate of yours, for that part of the income year that the entity is affiliated with you.

Both Australian entities and foreign entities can be connected or affiliated with you. This means your aggregated turnover must include the annual turnover of both Australian and foreign entities for the period they are connected or affiliated with you.

When you calculate aggregated turnover for an income year:

  • don't include the annual turnover of other entities for any period of time that the entities are either not connected with you or aren't your affiliate
  • don't include amounts resulting from any dealings between you and your connected entities or affiliates for that part of the income year that they are connected or affiliated with you
  • don't include amounts resulting from any dealings between your connected entities or affiliates for that part of the income year that each entity is connected or affiliated with you.

Annual turnover

Your annual turnover is the total ordinary income you derive in the income year in the ordinary course of carrying on a business. This includes income on a worldwide basis. If you aren't carrying on a business at any time during the income year, your annual turnover is nil.

If you are a partner in an R&D partnership at some time during an income year, then your aggregated turnover includes your proportion of the R&D partnership's annual turnover for that year.

Once you have calculated your annual turnover, you will need to calculate the annual turnover for each entity connected or affiliated with you.

Connected entities

To work out your aggregated turnover for the income year you also need to check if there are any entities 'connected with you'.

You are connected with another entity if any of the following apply:

  • You control the other entity.
  • You are controlled by the other entity.
  • You and the other entity are controlled by the same third entity.

Both Australian and foreign entities can be connected entities.

You control a company if you, your affiliates, or you together with your affiliates have either:

  • shares and other equity interests in the company that give you and/or your affiliates at least 40% of the voting power in the company
  • the right to receive at least 40% of any income or capital the company distributes.

You control a partnership if you, your affiliates, or you together with your affiliates have the right to 40% or more of the partnership's net income or capital.

Different rules apply for a discretionary trust.

You may also be connected with another entity as a result of the indirect control test.

Your affiliates

You need to check if there are any entities that are affiliates of yours in order to work out your aggregated turnover.

An individual or company is your affiliate if, in relation to the affairs of their business, they act, or could reasonably be expected to act, in either of the following ways:

  • in accord with your directions or wishes
  • in concert with you.

Your affiliates can be Australian or foreign, and either individuals or companies.

An individual or company is not your affiliate merely because of the nature of the business relationship you or the individual or company share.

Grouping for aggregated turnover purposes

You use the grouping rules to work out whether your entity is:

  • an R&D entity that meets the aggregated turnover threshold to qualify for the refundable tax offset, as this is calculated on a 'group' basis
  • controlled by one or more exempt entities, again to see if it qualifies for the refundable tax offset.

Step 4 – Work out which tax offset you can claim

You can claim the 43.5% refundable tax offset if both of the following apply:

  • You aren't controlled by one or more exempt entities.
  • Your aggregated turnover is less than $20 million.

You can claim the 38.5% non- refundable tax offset if either or both of the following apply:

  • You are controlled by one or more exempt entities.
  • Your aggregated turnover is $20 million or more.

The rate of the R&D tax offset is reduced to the company tax rate for that portion of an entity’s eligible notional R&D deductions that exceed $100 million for an income year. This is applicable to income years starting on or after 1 July 2014 and before 1 July 2024.

Step 5 – Calculate your tax offset

Once you have worked out which offset you can claim, you can calculate the amount of your tax offset. To calculate your claim for the:

  • 43.5% refundable R&D tax offset, multiply the total of the notional deductions by 43.5%
  • 38.5% non-refundable R&D tax offset, multiply the total of the notional deductions by 38.5%.

If your notional deductions exceed $100 million for an income year, your claim for the R&D tax offset is equal to the sum of notional deductions:

  • for the first $100 million multiplied by the rate worked out above
  • in excess of $100 million multiplied by the company tax rate.

This applies to income years starting on or after 1 July 2014 and before 1 July 2024.

The following 3 examples will help you work out which calculation might apply to you.

Example 1: refundable tax offset

Company X is an R&D entity entitled to notional deductions of $1.5 million for R&D expenditure. Company X's aggregated R&D turnover for the income year is $16 million. Company X is not controlled by any exempt entities. Therefore, Company X is entitled to the 43.5% refundable R&D tax offset, which is calculated as follows:

43.5% × $1,500,000 = $652,500

End of example

 

Example 2: non-refundable tax offset

Company Y is an R&D entity entitled to notional deductions of $9 million for R&D expenditure. Company Y's aggregated R&D turnover for the income year is $40 million. Company Y's turnover is greater than $20 million so the company can claim the 38.5% non-refundable R&D tax offset, which is calculated as follows:

38.5% × $9,000,000 = $3,465,000

End of example

 

Example 3: refundable tax offset

Company Z is an R&D entity entitled to notional deductions for monetary CRC contributions made, which total $18,000 in the relevant income year. Company Z's aggregated R&D turnover for the income year is $4 million. Company Z is not controlled by any exempt entities. The company can claim the 43.5% refundable R&D tax offset, which is calculated as follows:

43.5% × $18,000 = $7,830

End of example

 

Example 4: non-refundable tax offset

Company XYZ is an R&D entity entitled to notional deductions of $120 million for R&D expenditure. Company XYZ's aggregated R&D turnover for the income year is $400 million. Company XYZ's turnover is greater than $20 million so the company can claim the 38.5% non-refundable R&D tax offset on notional deductions up to $100 million, and the balance of $20 million can be claimed at the company tax rate of 30%. This is calculated as follows:

 

38.5% × $100,000,000

=

$38,500,000

30% × $20,000,000

=

$6,000,000

Total R&D claim

=

$44,500,000

 

End of example

Step 6 – Lodge your claim

Once you have determined you can claim the R&D tax incentive tax offset, the final step is to lodge your claim for the income year.

Completing your labels

You claim the R&D tax incentive tax offset by completing a Research and development tax incentive schedule and the relevant labels of the company tax return and lodging them with us. The Research and development tax incentive schedule instructions and Company tax return instructions will help you to complete the forms.

Calculator

The R&D tax incentive calculator will help you complete the R&D tax incentive schedule.

Unique registration number

Make sure you have included your unique Department of Industry, Innovation and Science registration number on your R&D tax incentive schedule before you lodge the form with your company tax return.

Lodging

You can print a PDF version of the R&D tax incentive schedule when you have finished your calculations. We accept this schedule for lodgment with your company tax return.

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