With the Research and Development Tax Incentive Program (R&D Tax Incentive) there are two special findings available. In this article, we’ll explain the two, why you might want them, and help determine if you’re eligible.
R&D Advance Finding
These are available for entities that want certainty about their activities eligibility for the incentive BEFORE spending all of the money on R&D.
An Advanced Finding determines the eligibility of an R&D activity and is binding on the taxation commissioner for up to 3 income years. It does not bind the commissioner in respect to any particular spending. Only that the activities are R&D activities.
You must still claim for the incentive within 10 months of the income year and lodge a tax return and completed R&D application to claim the incurred expenses.
You need an R&D advance finding before you can apply for an overseas finding.
N.B. a registration is not a finding and a finding is not a registration.
An Advanced Finding can be sought for:
- activities conducted in the current income year, whether completed or commenced in that year;
- and proposed activities to be conducted in the subsequent two income years.
R&D Overseas Finding
Again, you must meet the criteria of an advance finding before you can apply for an overseas finding.
An R&D overseas finding determines if activities outside of Australia are eligible as part of an Australian R&D project. For instance, if part of your development team on a software project is offshore are their activities and potentially their wages considered eligible activities?
Claiming expenditure on an overseas activity requires two things:
- a finding that the activity is eligible
- and the activity is registered.
The remaining eligibility requirements are:
- one or more specified, eligible core R&D activities undertaken solely in Australia or the External Territories cannot be completed without the overseas activity;
- the overseas activity cannot be undertaken solely in Australia or the External Territories for one of the four reasons specified under section 28D (4) of the IR&D Act;
- and expenditure on the overseas activity must be less than the expenditure on specified, eligible Australian core R&D activities and their related Australian supporting R&D activities.
Applicants should consider the following prior to lodgement of an Overseas Finding:
A lack of local, proven experience in a field may be sufficient to show that the expertise is unavailable. But newly released guidance details the efforts companies are expected to make to determine that availability. This includes conducting a reasonable Australia-wide search via an advertising campaign or through seeking advice from independent experts.
In regard to accessing a population, the guidance notes state that companies can explain in their applications that there isn’t a sufficient population in Australia to meet the requirements of the relevant activity. In other scenarios, AusIndustry would expect companies to conduct a reasonable investigation within Australia to locate a suitable population and provide evidence of how the search was conducted.
The guidance recognises that being unable to gain access to facilities or equipment in a reasonable time frame may constitute sufficient grounds for conducting research overseas. Also, facilities that can be accessed only at significantly above Australian market rates may also support a case of unavailability in Australia.
This is a pretty complicated area! If you want some help navigating your eligibility and claim, please contact us for a no-obligation conversation.
