Welcome to R&DTI Insights, a podcast dedicated to bringing you news and
information about the Research and Development Tax Incentive program and
what this means for Australian businesses.
Brought to you by the Department of Industry, Science, Energy and Resources.
Kaylene: Hi, I'm Kaylene Flanagan, your host from AusIndustry.
Welcome to the next episode of R&DTI Insights.
If you're about to register for the R&D Tax Incentive program, you
need to know about the key things companies should have in place before
they hit that apply now button.
To walk us through a pre-registration checklist of sorts, I'd like to
welcome two guests from AusIndustry and the Australian Tax Office,
who co-administer the R&DTI.
To discuss the importance of checking the eligibility of entities,
R&D activities and expenditure.
We'll also discuss the registration process, keeping records, and common
mistakes to avoid when registering.
With me today is Kelley Wiggins from AusIndustry, the Department of
Industry, Science, Energy and Resources, and Brett Challans from the ATO.
Thank you for joining me, Kelley and Brett.
Kelley: Thank you for having me, Kaylene.
Brett: Thank you.
Kaylene: Let's start with the check on eligibility requirements for the R&DTI.
Kelley, what are the areas of eligibility applicants need to
self-assess before registering.
Kelley: Thanks Kaylene.
Applicants must first check if they're an eligible R&D entity before they apply.
They should then assess whether their R&D activities are eligible under the program
and finally they should ensure they are only claiming eligible R&D expenditure
for these activities under the R&DTI.
All of these requirements outlined in the Guide to Interpretation, as well
as the legislation that underpins the R&DTI, and they are the Income Tax
Assessment Act 1997 and the Industry Research and Development Act 1986.
Kaylene: But can you tell us more about who or what is an eligible R&D entity?
Kelley: Of course.
Eligible R&D entities can be a body corporate incorporated under an
Australian law, or a body corporate incorporated under foreign law
that is an Australian resident.
Other body corporates incorporated under a foreign law may also be
an eligible entity, but there are further criteria these must meet, and
you can find more information about these in the Guide to Interpretation.
Brett: It's also worth noting that we receive a number of applications from
Trusts, although in most instances these aren't eligible R&D entities,
so it's important to self-assess your eligibility as an R&D entity carefully
before proceeding with your registration.
Kaylene: Thanks Brett, that's a good point and we'll talk more about common
registration mistakes later in the podcast, but considering eligible
R&D activities, how and when should companies assess the eligibility of
their R&D activities for the program?
Kelley: You should self-assess the eligibility of your activities
for the R&DTI as you plan and then as you conduct your R&D.
There are two types of eligible R&D activities - core R&D activities
and supporting R&D activities.
To register for the program, each year you must conduct, or plan to conduct,
at least one core R&D activity.
So check that the activities you want to claim as part of the
program meet the definition of core or supporting R&D activities.
There's also a range of activities that are excluded from being core R&D
activities according to the legislation.
These are outlined in the Guide to Interpretation, so review and make sure
your core R&D activities aren't listed as excluded activities before you register.
Kaylene: Okay.
And is there anything else companies need to check regarding
eligibility before registering?
Kelley: One more thing.
If you're planning to conduct R&D activities overseas, you must
first apply and receive an Advance Overseas Finding before you can
claim for expenditure on these R&D activities as part of the program.
Kaylene: Wonderful, thanks Kelley.
Brett, can you remind us what the eligible expenditure levels are under the program?
Brett: Yes.
To be eligible for the program you need to have an annual eligible
R&D expenditure above $20,000.
However, if your expenditure is below $20,000, you may be eligible to claim if
you used a registered Research Service Provider, or RSP, to conduct your R&D.
You should also be aware of the restrictions on the amounts you
can claim for transactions with related or non-arms length entities.
Further details of these can be found on ato.gov.au.
There are also certain types of expenditure that can't be claimed,
such as costs of purchasing equipment or other tangible depreciating assets;
interest costs, building expenditure; and expenditure on core technology.
Kaylene: Great advice, thank you Brett.
And although the R&DTI is a self-assessment program, applications
and registrations received may be reviewed by AusIndustry.
Claims of R&D expenditure may also be audited by the ATO.
What type of records and evidence should companies keep of their
R&D activities and expenditure.?
Kelley: AusIndustry expects you to be able to provide records and evidence which
demonstrates that your R&D activities are eligible, including how you conduct or
plan to conduct your core R&D activities.
You should keep records of activities that you register or plan to register
for the R&DTI, as well as at each stage of your systematic progression of work.
That is, from your hypothesis through to your conclusions.
Types of evidence and records can vary - from emails to project
plans, annual reports, laboratory notebooks and even meeting minutes.
You can find a list of these evidence examples on page 38
of the Guide to Interpretation.
Brett: Because only expenditure incurred on your registered R&D
activities is eligible for the tax offset, it's important that you keep
records to distinguish the costs of registered R&D activities from
other ordinary business costs that are not part of these activities.
These records should be sufficient to verify your R&D claim if
it's reviewed by the Tax Office.
We expect this would include records like tax invoices, supplier contracts, and
work reports from staff or contractors.
Kaylene: All right.
Now that I think we've covered the eligibility criteria, let's talk now
about how the registration process works.
Kelley: Sure, thanks Kaylene.
As I mentioned, you should first assess your eligibility as an R&D entity.
Then, as you start business planning, self-assess the
eligibility of your R&D activities.
Keep records before, during and following your R&D activities, then register for
the program within 10 months after the end of your company's income year that your
company conducted your R&D activities.
You can also apply for an extension of time to register for the program.
However, from 1 January 2021, this extension of time is capped at three
months, unless the extension is granted to allow an applicant to wait for the
outcome of a separate pending decision.
Applying to register for the R&DTI is easily done by completing the online
registration form at business.gov.au/rdti.
The online form provides step by step guidance about what you need to do to
complete the application, with support available from AusIndustry if you need it.
AusIndustry will then process your application and issue you with an
R&DTI registration number to use when lodging your income tax return and
claiming eligible R&DTI expenditure.
It's important to note that registration of activities does not mean AusIndustry
has assessed these activities as eligible R&D activities under the program.
Brett: Just repeating an important point - you must register your R&D activities
before claiming the R&D Tax Offset.
The R&DTI registration number from AusIndustry is entered into
the R&D schedule that you lodge with your company tax return.
Kaylene: Thank you, Kelley and Brett.
Now, are there common mistakes people make during the application process
that you can tell us how to avoid?
Brett: Yes, there are some mistakes that we see.
We see a lack of attention to distinguishing costs of registered
R&D activities from other business or non R&D costs, or lack of records
to explain how that was done.
Claiming for amounts companies are not fully committed to - for example,
claiming unpaid amounts only required to be paid when the R&D is successful, or
when the company is commercially viable, or when the R&D Tax Refund is received.
Claiming costs for any overseas activities, without an Overseas
Finding having been obtained.
Claiming for a related party or non-arms length transactions without applying
the 'paid to associates' rule, the group mark-up, or the market value
rule for non-arms length transactions.
Kelley: The AusIndustry team also sees a number of common mistakes companies should
be aware of, and it's important to read the guidance carefully before applying.
In particular, some companies register an entire project, rather than
R&D activities within the project.
As Brett mentioned, some companies wishing to claim on R&D activities
conducted overseas don't apply for and receive an Overseas Finding in advance.
Also, it's important to double check you're registering the activities
under the Head Entity when you assess your entity type prior to
registration and not any subsidiaries.
Other companies don't provide enough detail when describing their R&D
activities and why they are eligible R&D activities against the definitions.
This needs to be clear in your registration, as do the reasons why
the outcome of your core R&D activities couldn't have been known in advance.
And just note, that just because something hasn't been done before doesn't mean
its outcome is unknowable or unknown.
Also, companies who apply for an extension of time to apply to
register the R&DTI are not always guaranteed to be granted an extension.
And lastly, a company shouldn't assume they're an eligible entity
under the program and that their activities are eligible just because
they've engaged an R&D consultant.
Kaylene: Wonderful.
Thank you so much, Kelley and Brett for joining us today.
If you would like to know more about the R&DTI registration process you
can find further details and our new pre-registration checklist to help you
prepare at business.gov.au/rdti#applying.
Also, find further information ato.gov.au/rdti.
Thank you for listening, we look forward to sharing more information
with you in future episodes.
Goodbye until next time.