Deadline – R&D Tax Planning in the Final Days Before 30 June

With the financial year quickly coming to a close, we wanted to highlight some last minute things you’ll want to confirm before the clock strikes 11:59pm on 30 June 2021.

Key Points

  • Rate of return for years ending on or before 30 June 2021 are consistent with prior year (43.5% refundable for companies with aggregated turnover of less than $20M / 38.5% non-refundable for companies with aggregated turnover of $20M+)
  • R&D activity costs will only be claimable in FY21 R&DTI submissions if they are incurred by 30 June 2021.
  • Any costs related to associates and associated entities can only be claimed if they are paid by 30 June 2021.
  • To claim overseas R&D related expenses, an Overseas Finding Application must be lodged before 30 June 2021 (unless you have a Substituted Accounting Period).
  • FY21 R&D Applications cannot be lodged before 5 July 2021 due to the launch of the new R&D Tax Incentive Customer Portal.
  • FY21 R&D rates are now tied to companies’ tax rate and, in certain instances, R&D intensity.

Changes to FY22 R&D Tax Incentive

From July, R&DTI Applications will be lodged through the R&D Tax Incentive Customer Portal.  There are new questions within the application to more clearly address overall eligibility.  The portal will:

  • Provide real-time status updates for applications.
  • Indicate approaching deadlines.
  • Increase the security of the application process.

The 2020-21 Budget impacted the R&D Tax Incentive with the largest change being an adjustment to the rate of return for companies.  The below rates of return will go into effect for tax years that start on or after 1 July 2021.

  • The rate of return for companies with aggregate turnover of less than A$20M is 18.5% above the company tax rate. Companies with an effective tax rate of 25% will continue to have a 43.5% rate of return.
  • For companies with aggregate turnover of more than A$20m, they can expect to see a rate of return ranging from 33.5% to 46.5% based upon individual circumstances.
    • The rate of return is tied to company tax rate and R&D intensity.
    • The rate of return for companies with an R&D intensity under 2% is 8.5% above the company tax rate, and 16.5% above the company tax rate for companies with an R&D intensity of 2% or more.

Important Deadlines

For companies planning to apply for the R&D Tax Incentive for FY21, please note:

  • All R&D-related activity costs must have been incurred by 30 June 2021 in order to be claimable.
  • It is important to check with your accounts team to ensure that all invoices from associates or associated entities that you expect to claim have actually been paid before the end of the financial year.
  • All R&D-activity related costs that are intended to be claimed under the R&DTI cannot be claimed as income tax deductions.
  • All supporting documentation associated with substantiating the R&D-related activities and the time frames in which they occurred must be on file per AusIndustry and the ATO’s compliance requirements.

For companies that are planning to include R&D expenses incurred offshore (i.e. outside of Australia) in their FY21 submission, please note:

  • An Overseas Finding Application must be lodged by 30 June 2021 in order to claim overseas expenses.
  • Estimated overseas expenditure needs to be pre-approved by AusIndustry through the Overseas Finding Application, where the eligibility of a company’s activities under the R&D Tax Incentive are assessed in advance, as well as the projected quantum of expenditure in Australia v Overseas.
  • If the company does not receive an Advanced Overseas Finding, it cannot claim any offshore R&D expenditure.

The deadline extensions provided in the prior year as a response to COVID-19 are no longer in place and the standard deadlines are applicable to FY21 R&DTI lodgements.

Documentation, Documentation, Documentation

As you will know by now, here at CharterNet we are documentation-focused and ensure that a well-implemented system for capturing the right evidence at the right time in the right format is set up for each of our clients.

AusIndustry has been paying particular attention to the following compliance areas:

  1. Records substantiating R&D expenditures, including:
    • R&D time spend for employees, particularly the process by which this has been determined.
    • Establishing the nexus between the registered R&D activities and the R&D expenditure being claimed.
    • Evidence and justification for how expenditure is apportioned to specific R&D activities.
  2. Records substantiating how the R&D activities undertaken are within the scope of the R&DTI criteria.
  3. Records substantiating how the R&D activities are valuable and necessary to the seeking of new knowledge, which wasn’t able to be known in advance of conducting the R&D activity.

If there is anything we can help clarify or assist you with in the lead up to the financial year end and beyond, please reach out to one of your CharterNet engagement team or here.