Home » R&D Tax Incentive Claim Preparation Services » U.S. businesses are now eligible to claim a 43.5% cash rebate for R&D costs incurred in Australia

U.S. businesses are now eligible to claim a 43.5% cash rebate for R&D costs incurred in Australia

The 43.5 cent ‘cash back’ benefit is now available to some companies incorporated in the United States and Canada and who undertake R&D in Australia.

Who is eligible?
U.S and Canadian 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.

Under the new R&D tax incentive, the Refundable limb of the Incentive operates as a 43.5%
Offset for companies with turnover < $20M (or a 38.5% non-refundable offset if turnover exceeds
$20M). The mechanics of the offset apply whereby a company forfeits their Income Tax deduction
for eligible R&D Costs and claims the 43.5/38.5% credit in exchange. This allows companies to bring
forward any tax losses and “cash out” the losses to the extent of eligible R&D in a claim year.
The following calculator may assist a potential R&D tax claimant to derive their draft benefit.

What’s it worth?
The following table provides a more specific overview:

Example 1:

An Australian subsidiary company,  may be eligible for the R&D tax incentive, where:

• the Australian company is wholly owned by its U.S parent company and qualifies as an R&D entity;
• The U.S Company controls the Australian Resident Company;
• The U.S Company, the Australian Company, and any other companies that the two companies are associated with, have a collective aggregated turnover of less that AU$20 million;
• Under an agreement, the U.S Company agrees to undertake R&D activities in its Australian office solely for the benefit of the Australian Company;
• In the agreement, the Australian Company does not own any Intellectual Property (I.P.) generated out of the U.S Company, but is legally entitled to all I.P. arising from the R&D activities;
• The Australian Company incurs $100,000 in R&D expenditure for the 2017 Financial Year;
• The consideration between the Australian and U.S companies is at arm’s length and will be paid even if the R&D is not successful.

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$1,500 (plus GST) to incorporate an eligible Australian entity in order to claim the R&D Tax incentive.
• Company incorporation within Australia can take between 2-3 days.
• 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 not later than 10 months after the Australian company’s 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 have a U.S entity and are interested in claiming the R&D Tax Incentive in Australia, contact us to determine your eligibility and discuss your options.

Click here for the downloadable PDF version of this page.

Click here to view a Biotechnology Case Study. 

Click here to compare Australian R&D ‘cash out’ R&D tax incentives to other countries around the world.