As a trusted advisor, your role extends far beyond compliance — it includes identifying strategic opportunities that deliver real value for your clients. One such opportunity is the Research and Development (R&D) Tax Incentive, which rewards innovation by reducing the cost of eligible R&D work.
With the registration deadline for 2023–24 R&D activities fast approaching on 30 April 2025, now is the time for proactive action. This is your window to review your client base and ensure eligible companies don’t miss out on this valuable incentive.
Understanding the R&D Tax Incentive: Concept & Legislative Framework
The R&D Tax Incentive is a federal government program designed to encourage companies to engage in research and development activities that generate new knowledge, improve processes, or develop new products and services.
Legislative Reference:
The program operates under Division 355 of the Income Tax Assessment Act 1997 and is jointly administered by:
- Department of Industry, Science and Resources (DISR) — registration of R&D activities
- Australian Taxation Office (ATO) — assessment of claims and application of tax offsets
What Activities Qualify?
Under the incentive, two core types of activities are eligible:
- Core R&D Activities
Experimental activities where the outcome is unknown and can only be determined by applying a scientific or systematic approach. - Supporting R&D Activities
Activities directly related to core R&D or those undertaken for the dominant purpose of supporting core activities.
Examples include:
- Designing and testing prototypes
- Conducting lab trials or field experiments
- Developing or improving manufacturing processes
- Creating new or improved software systems
What Are the Tax Benefits? (With Examples)
The Research and Development (R&D) Tax Incentive offers significant tax offsets to encourage companies to invest in R&D activities. The benefits vary based on the company’s aggregated turnover and R&D intensity.
For Companies with Turnover Less Than $20 Million
Eligible companies with an aggregated turnover of less than $20 million per annum, not controlled by tax-exempt entities, can access a refundable tax offset equal to their corporate tax rate plus an 18.5% premium.
Example:
- Company A has an aggregated turnover of $15 million.
- Corporate tax rate: 25%
- Eligible R&D expenditure: $500,000
Calculation:
- Total tax offset = 25% (corporate tax rate) + 18.5% = 43.5%
- Tax offset amount = 43.5% of $500,000 = $217,500
Company A can receive a refundable tax offset of $217,500, which can be paid as a cash refund if the company is in a tax loss position.
For Companies with Turnover of $20 Million or More
Companies with an aggregated turnover of $20 million or more are eligible for a non-refundable tax offset. The offset rate is determined by the company’s R&D intensity, calculated as eligible R&D expenditure divided by total expenditure for the income year.
- For R&D intensity up to 2%: Corporate tax rate + 8.5%
- For R&D intensity above 2%: Corporate tax rate + 16.5%
Example:
- Company B has an aggregated turnover of $50 million.
- Corporate tax rate: 30%
- Total expenditure: $50 million
- Eligible R&D expenditure: $2 million
- R&D intensity = $2 million / $50 million = 4%
Calculation:
- For the first 2% R&D intensity ($1 million): 30% + 8.5% = 38.5%
- For the remaining 2% R&D intensity ($1 million): 30% + 16.5% = 46.5%
- Tax offset amount = (38.5% of $1 million) + (46.5% of $1 million) = $385,000 + $465,000 = $850,000
Company B can claim a non-refundable tax offset of $850,000, which can be used to reduce tax liability and any unused offset may be carried forward to future income years.
Cap on Notional R&D Deductions
It’s important to note that for any notional R&D deductions exceeding $150 million in an income year, the tax offset rate is reduced to the company’s corporate tax rate for the excess amount.
Upcoming Deadline – 30 April 2025
If your client’s income year ended 30 June 2024, they must register their R&D activities with DISR by 30 April 2025 to be eligible for the tax offset.
Late registrations are not guaranteed approval. Extensions can be requested via the DISR portal but are subject to strict criteria.
Key Actions for CAs, CPAs & Tax Agents
As a financial gatekeeper and strategic advisor, this is your chance to add value by taking mindful steps:
- Audit Your Client Base
Identify businesses engaged in innovation — tech firms, manufacturers, medical device companies, software developers, agricultural innovators — and assess potential R&D eligibility.
- Educate & Engage Early
Many clients are unaware they may qualify. Initiate the conversation and share relevant guidance, including the DISR video walkthrough.
- Guide Record-Keeping
The ATO expects robust, contemporaneous documentation:
- Project plans, experiment logs, design iterations
- Employee timesheets
- Invoices and expense reports
- Technical reports and outcomes
- Assist with Registration & Claims
Support clients through the online registration via the DISR Customer Portal. Registration must occur before lodging the company’s tax return with the claim.
Immediate Next Steps
✔️ Review client portfolios
✔️ Flag potential R&D engagements
✔️ Guide documentation practices
✔️ Complete registration by 30 April 2025
Don’t let your clients miss out on the benefits they’ve earned through innovation.