News and Research

Australia, aside from beautiful sweeping planes and a romanticised title as a ‘sunburnt country’, the nation is also shaping up to be an ideal environment for conducting research.  In fact, according to The Sustainable Tourism Cooperative Research Centre, Australia’s R&D spending has increased about fourfold over the past three decades. This detail, coupled with the government’s mission to increase innovation in Australia, is creating a positive outlook for the future of research in Australia.  Thus, with this in mind, foreign companies who want to undertake research in Australia may be wondering what incentives are available to them.

As we’ve mentioned previously, the R&D Tax Incentive offers companies a heavy cash refund of up to 43.5 cents in the dollar for eligible activities for Australian firms. However, in 2011 when the Australian government changed the R&D Tax Concession to the R&D Tax Incentive, the legislation expanded and the 43.5 cent ‘cash back’ benefit became available to some foreign companies who undertake R&D in Australia.  Hence, prompting the question, could your foreign firm claim the R&D tax offset in Australia? We’ve looked at three common questions you may have.

What’s its value?

The quantity that a foreign entity can claim through the R&D Tax Incentive is governed by the turnover of the company and if it has documented a profit or loss in the financial year in which it claims. The benefits array from a tax reduction of 10 cents for every dollar spent on R&D for profitable companies who turn over more than $20 million, to a cash refund of 43.5 cents in every dollar spent on R&D for companies in loss who turnover less than $20 million. The subsequent information offers a more precise summary:

Condition	Requirement
Group Turnover	Less than $20 Million
Tax Position	Australian Company is in Tax Loss
Benefit	43.5 cents in the dollar refund

 

Example 1:

• An Australian subsidiary company, (Company K) may be eligible for the R&D tax incentive, where:
• Company K, is an Australian company wholly owned by Company J and qualifies as an R&D entity;
• its parent company (Company J) is a foreign resident incorporated under foreign law and is a incorporated in a country that has a double tax agreement with Australia;
• Company J controls Company K;
• Company K and J and any other companies that two companies are associated with, have a collective aggregated turnover of less that AU$20 million;
• Under an agreement, Company K agrees to undertake R&D activities in its Australian office solely for the benefit of Company J;
• In the agreement, Company J does not own any Intellectual Property (IP) generated out of Company K but is legally entitled to all IP arising from the R&D activities;
• Company K incurs $100,000 in R&D expenditure for the 2017 Financial Year;
• The R&D activities are being conducted solely for Company J;
• The consideration between the two companies is at arm’s length and will be paid even if the R&D is not successful.

Example:	Expenditure
Company J’s R&D expenditure	$100,000
Company J’s R&D Tax Incentive Benefit	$43,500 Cash Refunded to Company J

Requirements for setting up an Australian Company?

Foreign companies will need to set up an Australian company, and expect the following:

• Costs to setup the company to not exceed AU$2,000 to incorporate an eligible Australian entity in order to claim the R&D Tax incentive.
• Company incorporation within Australia can take between  2-3 weeks.
• Foreign entities will require the availability of an Australian resident director
• The Australian Financial year runs from 1 July to the 30 June, however foreign entities can submit an application to the ATO for a substitute financial year to align with their parent company’s timeframes.

How do I claim my expenditure?

• Eligible Australian subsidiaries will need to register their activities with AusIndustry no later than 10 months after the Australian companies year end.
• R&D expenditure is claimed through the lodgement of an R&D Tax Incentive claim as part of their annual income tax return.

 

AusGrant works closely with Swanson Reed on this specialist field. Both organisation work together to  assist foreign organisations to determine eligibility and assist in making a claim for R&D tax incentives in Australia. Contact us today to find out more information or if you are eligible.