Learn more about R&D Tax Incentive Benefit Calculation
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Refundable vs. Non-Refundable
Entities with aggregated turnover under $20 million are entitled to a refundable offset of 18.5% above the entity’s tax rate.
Entities with aggregated turnover of $20 million or more are entitled to a non-refundable offset, the rate of which is based on a R&D intensity calculation.
For R&D expenditures up to 2% of total company expenditures, entities are entitled to a non-refundable R&D tax offset equal to their corporate tax rate plus 8.5%. R&D expenditures that exceed the 2% total company expenditures are entitled to a non-refundable R&D tax offset equal to an entity’s corporate tax rate plus 16.5%.
For example, let’s assume the following facts about an entity:
| Total Expenditure | 15,000,000 |
| R&D Eligible Expenditure | 500,000 |
| R&D Intensity | 3.33% |
| Corporate Tax Rate | 25% |
Its non-refundable benefit would be calculated on a tiered basis. The first $300,000 of R&D expenditures would be entitled to a non-refundable benefit of 33.5% (25% tax rate + 8.5%), which would total $100,500. The remaining $200,000 would be entitled to a non-refundable benefit of 41.5% (25% tax rate + 16.5%), which would total $83,000. The total non-refundable benefit would be $183,500 ($100,500 + $83,000).
Agregated Turnover
Aggregated turnover directly impacts your R&D benefit and as such, it is important to get it right.
- Your annual turnover
- Annual turnover of any connected domestic or international entities
- Annual turnover of any affiliate domestic or international entities
You are connected to an entity if you either:
- Control another entity
- Are controlled by another entity
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- You and another entity are controlled by the same third party
CALCULATE YOUR AGGREGATED TURNOVER
To learn what is included in your aggregated turnover calculation, visit the ATO.
VISIT ATOR&D Intensity
For entities with an aggregated turnover of $20 million or more, an R&D intensity calculation is required to determine the benefit rate.
The R&D intensity calculation is the ratio of R&D spend to total spend over the course of the financial year.
For example, an entity has identified their eligible R&D expenditures for the financial year to be $150,000, and their total expenditures for the year are $1,000,000. Their R&D intensity calculation would be 15% ($150,000 / $1,000,000), and they would be entitled to a tiered benefit. The first $20,000 of R&D expenditure would be entitled to a non-refundable benefit rate of 8.5% above its corporate tax rate. The remaining $130,000 of eligible R&D expenditure would be entitled to a non-refundable benefit rate of 16.5% above its corporate tax rate.
Overhead Calculation
You most likely have incurred administrative and overhead expenditures as a result of the R&D activities performed and staff employed.
Common overhead expenditure costs include rent, electricity, cleaning, and certain types of insurance.
- R&D Full Time Equivalent Employees (FTE) to total FTE: calculate the ratio of R&D FTEs to total FTEs for the financial year. For example, say you have 10 full time employees. 5 of the employees spent 50% of their time working on R&D activities and 50% of their time non-R&D activities. You would have 2.5 R&D FTEs (5 employees x 50%). Your overhead rate would be 25% (2.5 R&D FTEs / 10 total FTEs).
- R&D floorspace to total floorspace: calculate the ratio of R&D floorspace to total floorspace. For example, say you rent an office that is 300 square metres. Of the floorspace, 100 square metres are allocated to an R&D lab, 30 square metres are dedicated to R&D personnel’s desks and the remaining 170 square metres are allocated to non-R&D use. Your R&D floorspace would be 130 square metres and your overhead rate would be 43.33% (130 / 300).
Feedstock Adjustment
A feedstock adjustment is triggered if your R&D activities produced a tangible product that was either supplied to others or applied to your own use.
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Expenditures on goods or materials that are transformed or processed during R&D activities that produce one or more tangible products or feedstock outputs
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Expenditures on energy that is input directly into that transformation or processing of the feedstock input
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Decline in value of assets used in acquiring or producing the feedstock inputs
- Market value of the marketable product x (Cost of producing feedstock output / cost of producing marketable product)
- Once you have calculated your feedstock revenue, you compare it to the costs incurred in acquiring or producing feedstock inputs and energy inputs. The clawback amount is the lesser of those amounts.
- Once the clawback amount has been identified, you use the following formula to calculate your clawback adjustment:
- (Starting Offset – Adjusted Offset – Deduction Amount) / Corporate tax rate for the present year
- (Starting Offset – Adjusted Offset – Deduction Amount) / Corporate tax rate for the present year
EXAMPLE CALCULATION
To see an example calculation of a feedstock adjustment check the ATO website.
VISIT ATOClawback
If you received a reimbursement or grant during the financial year, it may impact your R&D tax offset.
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You receive or are entitled to receive, a government recoupment (grant or reimbursement) for eligible R&D expenditures
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You have claimed the R&D tax offset for those eligible R&D expenditure
- (Starting Offset – Adjusted Offset – Deduction Amount) / Corporate tax rate for the present year
Just something to remember...
Outstanding ATO Balance
If your aggregated turnover is under $20 million, you will receive a refundable R&D offset.
Downloadable R&D resources
The R&D Tax Incentive downloadable resources contain information on a range of R&D topics to help you understand the R&D program.
Industry Specific Papers
We can assess your R&D Eligibility
Get the latest R&D insights and guidance
The R&D Tax Incentive articles contain information on a range of topics to help you understand the R&D program.
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