How to claim the 45% 'foreign' R&D tax offset

July 26th, 2014

 The Australian 45% 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 45 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:

Condition Requirement
Group Turnover Less than $20 Million
Tax Position Australian Company is in Tax Loss
Benefit 45 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 click here for more info;
  • 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 2013 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 $45,000 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.

Quick Contact

Phone 1800 792 676
or have Swanson Reed call you.
  • ( * ) Indicates required fields

Categories

Archives

Email this job