July 26th, 2014
The Australian 43.5% R&D tax offset is available to some foreign companies who undertake R&D in Australia.
Who is eligible?
Foreign entities may be eligible where they have setup:
- an Australian resident company;
- a corporation that is an Australian resident for taxation purposes; or
- a permanent establishment in Australia.
What’s it worth?
The amount that a foreign entity can claim through the R&D Tax Incentive depends on the turnover of the company and whether it has recorded a profit or loss in the financial year in which it claims. The benefits range 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 following table provides a more specific overview:
||Less than $20 Million
||Australian Company is in Tax Loss
||43.5 cents in the dollar refund
- 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 an 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.
|Company J’s R&D expenditure
|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.
If you are a foreign entity interested in claiming the R&D Tax Incentive in Australia and applying for Research and Development grants, contact us to determine your eligibility and discuss your options.