Research and development tax incentive

What are the eligibility criteria?

To be eligible for the R&D Tax Incentive you must:

1. be a company that is liable to pay income tax in Australia
2. conduct at least one activity that meets the definition of a core R&D activity
3. have eligible R&D expenditure greater than $20,000

Eligible R&D activities are ‘core R&D activities’ and ‘supporting R&D activities’.

To register, you must have at least one core R&D activity. Supporting R&D activities are optional.

The below definitions are
extracts from section 355 of the Income Tax Assessment Act 1997.

“What are core R&D activities
Under section 355-25 of the Income Tax Assessment Act 1997:”

Core R&D activities are experimental activities:

1. whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that: is based on principles of established science; and

2. proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and

3. that are conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes or services) .

4. Some types of activities are excluded under section 355-25(2) of the legislation from being core R&D activities. Some of these excluded activities may be eligible for the R&D Tax Incentive as supporting R&D activities if they meet all of the requirements.”

Supporting R&D activities are activities directly related to *core R&D activities.
However, if an activity:

1. is an activity referred to in subsection 355-25(2); or
2. produces goods or services; or
3. is directly related to producing goods or services;

the activity is a supporting R&D activity only if it is undertaken for the dominant purpose of supporting *core R&D activities.

Excluded activities

Under section 355-25 of the Income Tax Assessment Act 1997 none of the following activities are core R&D activities :

1. market research, market testing or market development, or sales promotion (including consumer surveys);

2. prospecting, exploring or drilling for minerals or * petroleum for the purposes of one or more of the following:

– discovering deposits.
– determining more precisely the location of deposits;
– determining the size or quality of deposits;

3. management studies or efficiency surveys;

4. research in social sciences, arts or humanities;

5. commercial, legal and administrative aspects of patenting, licensing or other activities;

6. activities associated with complying with statutory requirements or standards, including one or
more of the following:

–  maintaining national standards.
– calibrating secondary standards.

7.. routine testing and analysis of materials, components, products, processes, soils, atmospheres and other things;

8. any activity related to the reproduction of a commercial product or process:

– . by a physical examination of an existing system; or

–  from plans, blueprints, detailed specifications or publicly available information.

9. developing, modifying or customising computer software for the dominant purpose of use by any
of the following entities for their internal administration (including the internal administration of their business functions):

–  the entity (the developer) for which the software is developed, modified or customised.

–  an entity * connected with the developer.
– an * affiliate of the developer, or an entity of which the developer is an affiliate.