Jargon Buster

Want to know what it all means?

Advance Findings

A little like a tax ruling, Advance Findings can provide companies with certainty about whether their R&D is eligible before they incur the costs of conducting the activities, or if they have already conducted the activities before they register them and include the expenditure in their company returns. Advance Findings will bind Innovation Australia and the ATO for the year in which the R&D is conducted, and for up to two subsequent years if the activities are being conducted over multiple years.


ATO

The Australian Tax Office determines whether or not the claimed expenditure is eligible.


AusIndustry

Administers the R&D Tax Incentive program jointly with the Australian Tax Office. You can contact us on 13 28 46 if you have questions about the program, or ask to speak to a Customer Service Manager. 


Clawback

If you are eligible for the R&D Tax Incentive and you receive a government recoupment (such as a government grant or reimbursement) that relates to expenditure that is eligible for the R&D Tax Incentive, clawback applies.

Clawback does not decrease the grant or offset you receive; rather it increases the income tax you are liable to pay.


Core R&D Activities

Core R&D activities are experimental activities that you can claim against the R&D Tax Incentive. Core R&D activities are conducted for the purpose of generating new knowledge, and must require experiments to resolve.


Compliance Continuum

The compliance continuum is an AusIndustry process involving the progressive evaluation of registered R&D activities. AusIndustry may select a company who has registered under the R&D Tax Incentive for a rule review under the compliance continuum.

The stages in this process of escalation include:

  • registration profile review;
  • compliance desk review;
  • R&D activity review;
  • R&D eligibility statutory assessment; and,
  • finding by Innovation Australia.

Compliance Readiness

Companies must keep adequate records to demonstrate to AusIndustry and the Australian Taxation Office that you did carry out eligible R&D activities and that you did incur eligible expenditure.

Your records must be sufficient to verify:

  • the nature of the R&D activities;
  • the amount of expenditure incurred on R&D activities; and,
  • the relationship of the expenditure to the activities.

Cooperative Research Centre  (CRC)

The Cooperative Research Centre Program supports industry led research partnerships between publicly funded researchers, business and the community to address major long term challenges. The program supports research collaborations across all disciplines and industry sectors. It has a long history, developing real world solutions improving the competitiveness, productivity and sustainability of Australian industries across all sectors.


Customer Service Managers (CSM)

AusIndustry has customer service managers in 23 offices across Australia to help customers with information about R&D Tax Incentive assistance and eligibility. CSMs will undertake education guidance as well as compliance reviews of registrations. We also have an extensive Regional Managers’ network, based from 15 regional offices.  Call 13 28 46 and ask to speak with a CSM if you need assistance.


Directly Related

In order to be eligible as supporting R&D activities, activities must be directly related to core R&D activities. Directly related means that a supporting activity has a direct, close and relatively immediate relationship with the core R&D activities.


Dominant Purpose

To be supporting R&D activities, activities that produce goods and services, or are excluded from being core, have to be for the dominant purpose of supporting core R&D activities as well as being directly related to them.  Activities may be conducted for more than one purpose, for example, for producing products for commercial sale or for R&D. Dominant purpose means the prevailing or most influential purpose for which the activity was undertaken.

To identify the dominant purpose, you need to consider factors such as:

  • the extent to which the activities also achieve other outcomes in addition to assisting the conduct of the core R&D activities; and
  • the importance of those non-R&D outcomes.

Eligible Entities

Businesses that are eligible for the R&D Tax Incentive are known as ‘R&D Entities’ for the purpose of the program. Only certain businesses can be eligible entities. Only R&D Entities (or a registered tax agent with written authorisation to act on behalf of a R&D Entity) can claim the tax offset.


Entitlement Program

R&D Tax Incentive is an entitlement program. This means that if you are an eligible entity and you carry out and register eligible activities, you are entitled to claim an offset for the expenditure on those activities provided you have satisfactory records to substantiate your claim.  You don’t have to ‘compete’ with other applicants.


Experiment

An experiment is what you do to test a hypothesis.  An experiment is set up so that the relationship between relevant variables specified in the hypothesis can be tested and proven either right or wrong.

Experiments can take place in virtually any environment – from laboratories to manufacturing plants, to offices, farms and greenhouses.


Feedstock

A feedstock adjustment is an amount you include in your assessable income. It applies when you obtain an R&D Tax Incentive offset for your feedstock expenditure incurred on R&D activities, where those activities produce a marketable product that is either:

  • supplied to someone else, or
  • applied for your own use.

The feedstock adjustment applies to any of the following:

  • expenditure on goods or materials (feedstock inputs) that are transformed or processed during R&D activities in producing one or more tangible products (feedstock outputs)
  • expenditure on energy that is input directly into that transformation or processing
  • the decline in value of assets used in acquiring or producing the feedstock inputs.

Findings

See Advance Findings and Overseas Findings


Guidance and Education Agenda

AusIndustry works closely with participants and others to develop simple, clear and relevant guidance. Meaningful guidance ensures that participants are given the support they need to easily and effectively access the program, minimise costs of complying with the program and to receive the benefits to which they are entitled.


Hypothesis

A concept, theory or idea that is tested by experimentation leading to new knowledge.

A hypothesis must be targeted to that specific technical or scientific proposition that is the cause of the uncertainty of outcome.


Innovation Australia

Innovation Australia is an independent statutory body that assists the administration of the Australian Government's innovation and venture capital programs.  Innovation Australia and its delegates determines whether activities are eligible R&D activities.


Integrity Assurance Framework

The R&D Tax Incentive Integrity Assurance Framework seeks to assure program integrity while encouraging ongoing consultation and engagement with participants. The approach is:

  • Ongoing consultation and engagement with participants;
  • A focus on guidance to allow easy access to the program;
  • Promoting good governance and record-keeping;
  • Delivering robust compliance assurance activities;
  • Minimising compliance costs for participants over the longer term; and
  • Delivering services in a timely and consistent manner.

New Knowledge

New knowledge is the intended outcome of a company’s experimental activities. New knowledge can be in the form of new or improved materials, products, devices, processes or services.


On Own Behalf

Claims received from a company for expenditure incurred in carrying out R&D activities on behalf of another company (e.g. where it has been contracted to carry out experiments) will not be eligible.


Overseas Findings

Companies must obtain an Overseas Finding if they wish to claim expenditure associated with overseas activities under the R&D Tax Incentive.


R&D Tax Concession

R&D Tax Concession was the fore-runner of the R&D Tax Incentive program. The R&D Tax Concession program closed for income years commencing after 30 June 2011.


Refundable tax offset

A refundable tax offset is the same as a tax offset – but with one important difference. Having determined your tax liability for a particular year, then if you are entitled to a refundable tax offset, and the amount of the refundable tax offset exceeds your tax liability, any remaining balance will be refunded to you. For further information visit What is a tax offset refund? on www.ato.gov.au.


Registration

To claim expenditure for R&D activities, the activities must be registered. Registrations must be done on-line via the business.gov.au  website, within 10 months of the end of the company’s financial year. 


Risk Review

To maintain the integrity of the program we need to effectively identify and mitigate program risks. We do this by:

  • Evaluating the risks through a series of risk review processes;
  • Engaging with you to understand more about your claimed R&D activities;
  • Advising you of the outcome of the review; and
  • Working with you to agree to a resolution.

Research Service Provider  (RSP)

An RSP is an organisation that is registered under section 29A of the Industry Research and Development Act 1986 as a RSP by Innovation Australia and has appropriate scientific or technical expertise and resources to perform research and development on behalf of other companies. RSPs help small to medium-sized companies identify and gain access to expert R&D resources in particular fields. Collaborating with RSPs enables companies to conduct R&D activities without having to invest in the specialist staff or infrastructure needed to support such activities. If a company engages a RSP to perform R&D activities, they can claim a R&D tax offset for eligible expenditure on registered R&D activities, even where their total claim is less than the usual threshold of $20 000 in an income year.


Self-assessment

The program is a self-assessment program. This means that the obligation to correctly register eligible activities lies with the company. It is important to note that registration of activities does not indicate that Innovation Australia has accepted the activities are eligible R&D activities, and risk reviews and other compliance activities may be carried out.


Supporting Activities

Supporting R&D activities are activities that are directly related to core R&D activities. These might be activities that are not experimental themselves, or which are excluded by the legislation from being core R&D activities.  Activities that produce goods and services, or are excluded from being core, would also have to be for the dominant purpose of supporting core R&D activities.


Tax Agent

AusIndustry neither encourages nor discourages the use of a tax agent. Companies should ensure that the service providers they deal with are registered tax agents if they provide tax agent services (such as preparing a registration form) for a fee.


Tax offset

A tax offset differs from a tax deduction. A tax deduction reduces your taxable income and this amount is used to calculate the amount of tax you have to pay (your tax liability). Once your tax liability is determined it can be reduced by the tax offset amount, if you are entitled to it (it may reduce down to zero). The tax offset amount is calculated as 45% of your deduction.


Variations

To correct a mistake in your company’s registration you must request a ‘variation’. A variation of registration could include removing particular activities, reclassifying activities as core or supporting activities, or amending the times during which activities were conducted.