R&D tax incentive
The R&D (research and development) tax incentive is a federal government scheme designed to encourage innovation and entrepreneurial spirit within Australian businesses. The incentive works by either allowing businesses to access a tax refund or pay less tax based on their investment in eligible R&D projects throughout the financial year.
It is very generous for early stage businesses and can result in a cash back amount of more than 40% of expenditure for businesses in a tax loss position. This means that a small business that has spent $100,000 on R&D during a year, could receive over $40,000 in cash back after it has registered and claimed its eligible R&D. The overall policy design is intended to help shift Australian business away from simply working harder toward working smarter and being able to compete internationally.
Some examples include:
Improvements in product quality, raw materials used, different physical or performance attributes, improved safety standards
New or improved production processes, improved throughput efficiencies, considerations for unique site or environmental characteristics
Increase asset life and reducing wear
Reduction in emissions, energy or raw material use or waste production
Testing unknowns related to new products or processes or overcoming technical uncertainty
In addition, it is designed to create jobs by giving an extra financial boost to fast growing businesses as they commercialise their newly developed products and services. It has been estimated by treasury that for every $1 spent by the federal government on the R&D tax incentive, around $6 of tangible direct and indirect benefits will flow to the Australian economy as a result.