Thinking of doing R&D in Australia?
Here’s what you need to know.
With your startup growing you’ll naturally start to consider doing business overseas. There’s a lot to think about around this (we can help with all of it!), but in particular there is one area that we think is a massive drawcard for doing business in Australia – the R&D Tax Incentive.
Fortunately, we have an actual expert in this field working here at Standard Ledger – John Nixon. John has guided hundreds of tech startups (such as Smart Paddock and Gaia Project Australia) through the R&D tax claim process with over $20m in tax offsets realised for our clients (and counting!).
With an attractive R&D tax offset rate and environment here in Australia, now is a great time to make the decision to do some of your R&D here.
Here’s how you can get started.
What is R&D
You’ve likely looked into the R&D incentives in the country you are already based in, so let’s have a quick review of how it looks in Australia.
The R&D Tax Incentive (RDTI) is a major source of funding for startups and SMEs. It’s an Australian Government program that in the last full financial year provided nearly $5 billion of support to over 12,000 companies for their R&D activities. Each year, startups and scale-ups across Australia use the RDTI to build and grow, without giving up equity.
Why do R&D in Australia?
Great question. You might have briefly considered this, then thought it would be simpler to have your R&D close to home. So let’s have a look at why it would be worth bringing some of your R&D down under.
- The RDTI program allows companies to receive a tax rebate of up to 43.5% on eligible R&D costs
- The program offers companies the opportunity to significantly reduce costs, lower risk and accelerate time to market
“R&D tax is an annual critical source of funding for us and we’ve used Standard Ledger since the beginning. It’s also been crucial to have the R&D finance option to get us through until we could get some more funding.”
– Darren Wolchyn, CEO and Founder, Smart Paddock.
With the world better connected than ever, the expansion of startups to other countries is more and more tempting, and as a startup we know the global appeal of expansion (we’ve done it ourselves!). We can make it simple for you to set up and operate a subsidiary company in AU thanks to our handy guide recently produced on how to do business in Australia.
We’ve already supported startups expanding globally between Australia, UK, US, Canada and NZ, and understand the complexities in doing so. So let’s help you keep it simple, and also affordable with our unique set pricing, so you’ll know the cost upfront with no unwanted surprises!
What are the main considerations?
The key points to consider:
- In order to claim the RDTI you need to do your R&D through an AU entity, and can only claim R&D that is performed “in country” in AU
- The program is run by the Australian Taxation Office (ATO) and AusIndustry. It’s based on self-assessment, which means you need to decide if you’re eligible before applying
- Generally, you must claim at least $20,000 of eligible annual expenses, and there is currently a $150 million cap on claims
- It’s important that the problem you’re trying to solve through R&D is technical, not commercial, in nature (usually, R&D is required for testing if something is even possible, rather than simply testing if your customers would use it)
Consider applying for the RDTI if you:
- Are a company developing (or planning to develop) a unique, non-trivial software, hardware, engineered or manufactured product, process or service
- Can describe these developments as a series of experiments with unknown outcomes from which you have learned along the way
- Have spent at least $20,000 on eligible R&D expenses in the last financial year, or have: made a monetary contribution to a CRC under the Cooperative Research Centres (CRC) Program; or engaged a registered Research Service Provider (RSP) to do R&D on your behalf
How does it work
It can be complex and time sapping. Eek. That’s why we handle it for you with a simple process and uniquely simple fees where you’ll know what it’ll cost, from the outset. Hurray!
Basically, your company needs to be eligible (detailed below) and so do your project activities and their costs.
As for the logistics of it all, we’ll craft the narrative that supports your claim. If you need us to prepare this technical description, we might need to charge extra but we’ll discuss it first. We’ll also calculate the expenses you can claim (up to a 43.5% tax offset on eligible expenditure in the prior financial year).
We’ll then bring it all together in your AusIndustry application. AusIndustry will register your application – registration deadline is 30 April for the previous financial year ending 30 June. We’ll also prepare the tax schedule that needs to be lodged alongside your company tax return with the ATO. Remember, this is an annual opportunity!
What you receive as a tax benefit depends on turnover and profitability. If you’re profitable, your company tax will be reduced by 18.5% of eligible expenses. If you have enough tax losses, you’ll receive 43.5% of your eligible expenses back as cash.
“John and the team have really understood our R&D story from day one, and have always had a plan for it, Were in the third year of working together now, and it’s been really great”
– Nadun Hennayaka, CEO and Founder, Gaia Project Australia
Am I eligible
There are two sides to this question, and to put it very simply, to be eligible:
- Must be a company that is developing (or planning) a unique, non-trivial software, hardware, engineered or manufactured product, process or service
- Need to be able to describe these developments as a series of experiments with unknown outcomes from which you’ve learned along the way
Generally must total at least $20,000 on eligible R&D expenses in the last financial year
- Can include remuneration of employees and Australian contractors
- Can also include equipment, rent and other R&D related overheads
Help is available
We love to help and we know exactly what you are going through! We are in a unique place as an actual startup to really understand what you need and want. With hundreds of tech and startup clients, R&D complexity is our bread and butter, so we’re not afraid of complex claims, in fact we enjoy it!
It’s always good to talk too, so please reach out if you’re looking into this. We’re here to chat – just choose a time that works for you. We’re looking forward to learning about your business and helping you with R&D in Australia.