What a tax credit is
The research and development tax incentive (RDTI) offers a tax credit at the rate of 15% of eligible R&D eligible expenditure or loss up to $120 million. It operates by offsetting tax to pay and in some circumstances it is refundable.
To claim the tax incentive, you must spend at least $50,000 a year on eligible R&D. You might be eligible if you spend less than $50,000 and use an approved research provider.
Receiving your R&D tax credit
When applying tax credits against your income tax liability, your R&D tax credits apply after imputation credits but before refundable tax credits. Your tax credits are used in the following order:
- Non-refundable tax credits
- Tax credits for supplementary dividends
- Imputation credits
- R&D tax credits from a previous tax year
- R&D tax credits from the current tax year
- Refundable tax credits
Any R&D tax credits that are leftover can be carried into your next income year.
If you are a company, you may only carry your R&D tax credits forward if you meet the shareholder continuity requirements.
Can you get a refund
If you're a company doing eligible R&D, you may be able to get an R&D tax credit refund of up to $255,000. This equals $1.7 million of eligible R&D expenditure if you:
- are in a tax loss position
- are in a tax paying position but have surplus tax credits
- satisfy the R&D tax loss cash-out corporate eligibility and wage intensity criteria
- do not derive exempt income and are not associated with anyone who derives exempt income.
The Government is proposing to broaden the criteria for refundability in the 2020/21 income year so that more businesses can qualify.
Wage intensity criteria
You must also satisfy the wage intensity criteria In order to satisfy this criteria, 20% or more of your labour costs must relate to R&D. If you are part of a group of companies, the wage intensity amount calculated for your group must be at least 20%.