Activity eligibility is decided by AusIndustry. The money is the ATO's side of Division 355, and in most companies it lands on the finance lead. This page covers the figures; the calculator prices them.
What the offset is worth
Below $20 million of aggregated turnover, the offset is the company tax rate plus 18.5 points and is refundable: 43.5% for a base rate entity taxed at 25%. A company controlled by income tax exempt entities gets the non-refundable offset whatever its turnover. At or above $20 million it is non-refundable, at the tax rate plus a two-tier intensity premium: 8.5 points on notional R&D up to 2% of total expenditure and 16.5 points on the slice above. Notional deductions above $150 million in a year attract only the tax rate. Below $20,000 there is no offset, except on amounts paid to a registered research service provider that is not an associate and on Cooperative Research Centre contributions.
Building the expenditure base
An illustrative company with a 30 June year end:
| Line | Basis | Amount |
|---|---|---|
| Engineering salaries and on-costs | Confirmed R&D hours per person | $940,000 |
| Contractor invoices | Share of each contractor's work on registered activities | $160,000 |
| Cloud for experiments | Share tagged to experiment environments | $60,000 |
| Rent, utilities, workspace tools | Floor space and seats used for R&D, documented | $40,000 |
| Total notional deductions | $1,200,000 |
At 43.5% that is a refundable offset of $522,000. Every line in that table is an apportionment, and each needs its basis recorded when it was adopted, with the inputs kept.
The ledger traps
Overheads. The ATO says the salary ratio may suit personnel costs but not utilities. Each shared cost should follow what actually drives it: rent and cleaning the floor space used for R&D, power the metered or estimated use of R&D equipment, a software seat the people who use it for R&D. In an open-plan office where the space is shared, headcount weighted by R&D hours can be a reasonable proxy for floor space; in a lab or workshop it usually is not. Whatever the basis, write down why it fits that cost.
Assets. The R&D figure is the Division 40 decline in value for each asset, for the period and extent of R&D use, worked out as if the small business simplified depreciation rules did not exist (s 355-310(4)). The P&L depreciation charge and an instant write-off amount are not it. The ATO also says no notional deduction is available once an asset has been pooled for working out tax deductions for depreciating assets, or allocated to a low value or small business pool after the R&D rules have applied to it. That is a tax election, not how assets are grouped in the books, so settle the treatment of R&D assets with the accountant before any tax pooling or write-off.
Capitalised development. If engineering salaries are capitalised in the accounts, they are already claimed through time. Claiming the amortisation as well counts them twice.
Grants and sales from experiments. A government grant or other recoupment for the same R&D usually triggers a clawback adjustment. Funding received whatever the results, such as a customer paying for the work, can instead make the expenditure not at risk under s 355-405, which removes it from the base. If experimental runs produce something the company sells or uses commercially, a feedstock adjustment reduces the benefit on the inputs. Flag both early; they are easier to model in October than to discover in April.
Outside the base. Interest, building fit-out, core technology acquisition, audit and company secretarial fees, and the fees for claiming the incentive itself.
Timing the cash
Registration opens only after the income year ends and closes 10 months later. AusIndustry's program charter targets 95% of registrations processed within 20 business days when made within 6 months of year end, and 80 business days for those made 6 to 10 months after. A first-time applicant's target is 40 business days whenever it applies. These are targets: an application that is examined takes longer, so do not build a cash plan on the target date. The offset then flows through the company's tax return, which needs the registration number. If the gap is a funding problem, compare an R&D advance loan with waiting. How the figures reach the accountant is covered on the accountants page.
Two guides cover the numbers in more detail: what R&D expenditure you can claim and how to calculate the offset.