Are You Missing Out on R&D Tax Incentives?

Sunnie Doan
May 6
2 min read

Many businesses leave money on the table by not checking their eligibility. Take a quick look at this list — your company might qualify for valuable tax savings.

1. Eligible R&D Entity

To qualify for the R&D Tax Incentive, your company must be:

Incorporated under Australian law, or
Incorporated under foreign law but:
- An Australian tax resident, or
- A resident of a country with a Double Tax Agreement (DTA) with Australia and has a permanent establishment (PE) in Australia through which R&D is conducted.

Key Consideration: Foreign entities without a PE in Australia or not from a DTA country cannot access the incentive. For multinational groups, ensuring the R&D is linked to the Australian PE is essential for eligibility.

2. Conducted Eligible R&D Activities

You must undertake at least one core R&D activity, as defined in Section 355-25 of the ITAA 1997. The two types of activities are:

Core R&D activities: Experimental activities whose outcome cannot be known in advance, based on scientific principles.
Supporting R&D activities: Activities directly related to core R&D activities, or for certain production-related activities, if undertaken for the dominant purpose of supporting core R&D.

Example of core activities: Developing new software algorithms, chemical compounds, or prototypes where the outcome is uncertain.

Audit risk: Aus Industry and the ATO may audit claims and reject non-qualifying activities (e.g., business-as-usual or market research).

3. Registered R&D Activities

You must register your R&D activities each year with Aus Industry.
Deadline: Within 10 months of the end of your company’s income year (e.g., for 30 June year-end, the deadline is 30 April the following year).

Important: Registration is mandatory to access the tax offset. Even if your activities qualify, failure to register disqualifies the claim.

4. Minimum R&D Expenditure

Your eligible R&D spend must be more than $20,000 per income year unless:
- You use a Registered Research Service Provider (RSP), or
- The work is conducted under the Cooperative Research Centres (CRC) program.

Why it matters: Small start-ups or companies with limited R&D often outsource to RSPs to bypass the minimum threshold and still qualify for the tax offset.

5. Expenditure 'At Risk'

The R&D spend must be financially at risk for the company. This means:

The company bears the cost and
The outcome is uncertain, with no guaranteed commercial return or reimbursement.

Examples of ineligible expenditure:

Costs reimbursed by another entity
R&D conducted for a fixed fee where payment is guaranteed regardless of success

6. Not Controlled by Exempt Entities

If your company is controlled by one or more exempt entities (e.g., government bodies, universities, charities):

You are not eligible for the refundable tax offset.
You may still access the non-refundable tax offset (up to a cap).

Control definition: Based on control of board appointments or voting power (per tax law tests under ITAA 1936).

Implication: Government-backed entities (e.g., government-owned corporations or NFPs) may still claim, but only receive a non-refundable benefit (i.e., used to offset tax, not refunded in cash if in loss).