au-rd-incentive

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# Australia R&D Tax Incentive Skill v1.2

## Australia R&D Tax Incentive Skill v1.2

## Australia R&D Tax Incentive Skill v1.2

> **General reference only.** This skill is general tax/accounting reference material for AI-assisted workflows. It has not been reviewed for any specific person's facts, documents, elections, deadlines, residency, filing status, or local procedures. Do not rely on it to file, pay, amend, or take a tax position without review by a qualified professional in the relevant jurisdiction.

> **Law-change context.** The R&DTI was reformed for income years starting on or after 1 July 2021 (Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Act 2020): the old flat 43.5% refundable and 38.5% non-refundable rates were replaced with company-tax-rate-plus-premium rates and a two-tier R&D intensity test; the expenditure cap rose from $100m to $150m; a uniform clawback rule and Part IVA were extended to the offset. From income years starting on or after 1 July 2025, R&D activities relating to tobacco or gambling are ineligible unless conducted for the sole purpose of harm minimisation. The statutory four-year amendment period applies to R&D claims. Verify all rates before relying.

> **AUDIT FLASH POINT** The R&DTI is one of the ATO's most actively audited concession areas. Whether an activity is a "core R&D activity" is a technical/engineering judgement about scientific uncertainty and the knowledge threshold, NOT an accounting judgement. Registration is with AusIndustry/DISR; the offset is claimed with the ATO. Both agencies run compliance programs, and expenditure claimed is published in an annual transparency report.

## Section 1 -- Quick reference

**Read this whole section before computing or classifying anything.**

**Quick reference**

| Field | Value |
| --- | --- |
| Country | Australia |
| Primary Legislation | ITAA 1997 Division 355; Industry Research and Development Act 1986 (IR&D Act) |
| Administrators | Australian Taxation Office (offset/expenditure) + AusIndustry/DISR (registration, activity eligibility, findings) on behalf of Industry Innovation and Science Australia |
| Income Year | 2026-27 (1 July 2026 -- 30 June 2027) |
| What it is | A tax OFFSET for eligible R&D, claimed in the company tax return. NOT a grant. |
| Eligible entity | Corporation only (R&D entity, s 355-35): incorporated under Australian law; OR foreign-incorporated but Australian tax resident; OR foreign-incorporated, DTA-country resident, carrying on business through a permanent establishment |
| Not eligible | Individuals/sole traders, partnerships (except R&D partnerships claiming at partner level), trusts (except a body corporate as trustee of a public trading trust), corporate limited partnerships, exempt entities (wholly income-tax exempt) |
| Refundable offset | Aggregated turnover < $20m AND not controlled by exempt entities: company tax rate + 18.5% premium (= 43.5% for a 25% base-rate entity) |
| Non-refundable offset | Aggregated turnover >= $20m OR exempt-controlled: company tax rate + 8.5% premium (R&D up to 2% intensity); company tax rate + 16.5% premium (R&D above 2% intensity) |
| Expenditure cap | $150m notional deductions per year; offset rate drops to the bare company tax rate above it |
| Minimum spend | $20,000 notional deductions, UNLESS via a registered Research Service Provider (RSP) or CRC contribution |
| Registration deadline | With DISR each income year, normally within 10 months of year end; extensions under Rule 7. Valid registration required before claiming |
| Amendment window | 4 years (generally), tied to DISR findings |
| Contributor | Open Accountants |

**Conservative defaults**

| Ambiguity | Default |
| --- | --- |
| Unknown whether an activity is core R&D | Do NOT self-classify. This is a technical/engineering judgement about scientific uncertainty -- escalate (R-AU-RD-1) |
| Unknown registration status | Assume NOT registered; confirm the DISR registration (IISA) number and that it matches the income year before computing any offset |
| Unknown aggregated turnover | Compute the group figure (entity + connected + affiliated, net of intra-group dealings) before choosing refundable vs non-refundable; do not guess |
| Software development claimed | Assume the internal-administration exclusion may apply; test dominant purpose before treating as core R&D |
| Business-as-usual / routine activity claimed | Treat as ineligible ordinary business activity until shown to involve scientific uncertainty and the scientific method (TA 2017/3) |
| Feedstock output sold or used | Assume a feedstock adjustment is triggered; quantify |
| Overseas R&D activity | Assume NOT claimable unless a positive DISR overseas finding (s 28D IR&D Act) is in place |
| Expenditure incurred to an associate | Notionally deductible only when PAID, not merely incurred |

## Section 2 -- What it is and who can claim

The R&DTI is a tax offset claimed through the company tax return. It is **not a grant**: there is no application for funding, no competitive round, and no payment independent of the tax system. The benefit is delivered as an offset against tax, and for small companies the excess over tax liability is **paid out in cash**. Eligible expenditure MUST be claimed under the R&DTI -- if you choose not to claim it under the R&DTI, you cannot deduct it elsewhere in the return (unlike the former R&D tax concession).

**The offset rate and refundability depend primarily on aggregated turnover and exempt-entity control, NOT on the size of the R&D spend.**

- **Refundable offset** -- aggregated turnover < $20m AND not controlled by one or more exempt entities. Rate = company tax rate + 18.5%. For a base-rate entity (25%) this is **43.5%**. Where the offset exceeds tax liability the balance is refunded in cash (subject to franking-debit deferral rules).
- **Non-refundable offset** -- aggregated turnover >= $20m OR controlled by exempt entities. Rate = company tax rate + a premium set by R&D intensity (see Rule 5). It reduces tax; any unused amount may be carried forward under the tax offset carry-forward rules. It is never refunded.

## Section 3 -- GL sweep library

R&DTI work starts with the general ledger and the project/time records, not the offset claim the client hopes to make.

**GL sweep library**

| GL pattern | Likely issue | Action |
| --- | --- | --- |
| R&D expense / "R&D project" cost centres | Candidate notional deduction | Map each account to a registered DISR activity; confirm it is core or supporting, not BAU |
| Project codes / job codes linked to a DISR registration number | Expenditure linked to registered activities | Trace to the registration (IISA number) for the correct income year; confirm the statutory or approved extended deadline was met |
| Payroll allocations / timesheet-coded wages to R&D projects | Salary notional deduction | Substantiate time via timesheets/job cards; apportion between R&D and non-R&D on a reasonable, documented basis |
| Contractor / RSP invoices for R&D | External R&D expenditure | Confirm the RSP is registered with DISR; if under $20k total, the RSP pathway is what preserves eligibility |
| Depreciation on assets used in R&D | Asset cost is NOT notionally deductible | Use decline-in-value notional deductions instead; do not claim the asset's acquisition cost |
| Government grant income (recoupment) for R&D | Clawback adjustment | A recoupment for claimed R&D triggers a clawback (assessable income), not a reduction of the grant |
| "R&D" account holding rent, marketing, admin overhead | Ineligible / apportionment risk | Remove general operations and marketing; apply a reasonable, documented apportionment methodology only where there is a direct link |
| Software development capitalised/expensed | Internal-administration exclusion risk | Test dominant purpose; internal admin software for the entity/connected/affiliate is excluded from core |
| Intercompany charges to associates for R&D | Notional deduction only when PAID | Claim in the year paid, not incurred; check TA 2023/4 (R&D delivered by associates) |
| Materials/feedstock consumed in trials | Feedstock adjustment on sale/own use of output | Track feedstock inputs and outputs; quantify the adjustment in the trigger year |

## Section 4 -- Worked examples

### Example 1 -- Small company refundable offset (43.5%)

Innovate Pty Ltd (2026-27): aggregated turnover $4.2m, not exempt-controlled, base-rate entity (company tax rate 25%). Notional R&D deductions $300,000 on registered activities. Taxable income before offset $150,000.

```
Offset rate = 25% + 18.5% = 43.5%
R&D offset = $300,000 x 43.5% = $130,500
Gross tax = $150,000 x 25% = $37,500
Tax after offset = $37,500 - $130,500 = -$93,000
Refund (cash) = $93,000   (excess offset refunded; franking-debit deferral applies)
```

The $93,000 is paid out in cash. This is the refundable offset's core feature: it funds loss-making R&D companies.

### Example 2 -- Loss-making small company (full refund)

StartUp Co (2026-27): aggregated turnover $1.8m, notional R&D deductions $250,000, tax loss for the year (no tax payable).

```
R&D offset = $250,000 x 43.5% = $108,750
Tax liability = $0
Refund = $108,750 (entire offset refunded in cash)
```

A small R&D company with no tax liability still receives the offset as cash. The notional deduction itself is not also claimed as a deduction -- the offset replaces it.

### Example 3 -- Larger company non-refundable offset with intensity tiers

BigCo Ltd (2026-27): aggregated turnover $80m, standard company tax rate 30%, not exempt-controlled. Total expenditure $200m; notional R&D deductions $8m.

```
R&D intensity = $8m / $200m = 4%
First 2% of total expenditure = 2% x $200m = $4m  -> CTR + 8.5% = 38.5%
Above 2% (remaining $4m)                             -> CTR + 16.5% = 46.5%

Offset = ($4,000,000 x 38.5%) + ($4,000,000 x 46.5%)
       = $1,540,000 + $1,860,000
       = $3,400,000  (non-refundable; reduces tax, excess carried forward)
```

### Example 4 -- Expenditure cap ($150m)

From openaccountants/openaccountants, AGPL-3.0.

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