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What is the Australian R&D tax incentive?

Organisation for Economic Co-operation and Development figures show Australia is one of the most generous countries in the world when it comes to supporting research and development (R&D), with government investment growing by 9% over the past decade.

Australian R&D tax incentive

Of the estimated $9 billion Australian taxpayers invest either directly or indirectly in supporting innovation each year, about two-thirds comes from the R&D tax refund.

The refund encourages companies (and other eligible entities) to invest in R&D activities by reducing their overall income tax liability.

It’s a great scheme, with companies able to offset either 38.5 per cent or 43.5 per cent of the cost of eligible research against the tax paid on that company’s annual aggregated turnover.

The idea of the refund is that it boosts the competitiveness and productivity of the Australian economy by encouraging innovation that might not have happened otherwise, including incentivising smaller firms to do research.

For the companies it supports, it’s also designed to provide easy-to-access and predictable support. For those that make an operating loss, the refund is provided in cash.

Eligibility for the R&D tax refund

To be eligible for the refund, companies must:

  • be incorporated
  • be conducting R&D activities that meet the criteria outlined in the relevant legislation
  • have incurred eligible deductions of at least $20,000
  • have registered their R&D activities with the Department of Industry, Innovation and Science before making a claim

Learn more about the eligibility criteria here.

There are two core components to the refund. The first is a 43.5 per cent refundable tax offset for eligible companies

with an aggregated turnover of less than $20 million,and the second is a non-refundable tax offset of 38.5 per cent for all other eligible entities. Some of these entities may also be able to carry forward their unused offset amounts to future income years.

If this tax refund has a shortcoming, it’s that the funds can only be accessed once a year. Quite simply, it takes too long for eligible companies to receive the funds they need. The Federal Government has on a report which makes several recommendations to improve the R&D refund, including paying out quarterly. However, there has been no sign the government is going to adopt these recommendations.

The financial sector has responded to these cash flow problems by providing R&D funding solutions. Radium Capital’s Radium Advance is an R&D refund advance that bridges this gap and solves the cash flow issue. You can read more about Radium Advances here.

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