What is RDTI?

The Research and Development Tax Incentive (RDTI) in Australia is a government program that provides tax incentives to businesses to encourage innovation and research and development (R&D) activities.

Basic Information

• Administering Bodies: The Department of Industry, Innovation, Science, Research and Tertiary Education, on behalf of Industry Innovation and Science Australia (IISA), administers the RDTI with the Australian Taxation Office (ATO). Ausindustry is the Australian government's specialist business program delivery division in the department.
• Purpose: It aims to stimulate investment in R&D, which is critical to Australia's economic growth and job creation. By offsetting some of the costs of eligible R&D, it helps companies innovate and grow.

Eligibility Criteria

• Entity Incorporation: The applicant entity must be incorporated under Australian or a foreign law.
• R&D Activities: It must conduct or plan to conduct one or more eligible core research and development activities. Core R&D activities are experimental activities whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that is based on principles of established science and proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions, and that are conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes or services). Supporting R&D activities are those directly related to core R&D activities or, for certain activities, have been undertaken for the dominant purpose of supporting core R&D activities.
• Expenditure Requirement: Eligible R&D expenditure must be greater than $20,000. However, if the expenditure is less than $20,000, the entity can still claim the tax offset by using a registered research service provider (RSP) to conduct its R&D.

Tax Offset Details

• For Small Entities: Entities with an annual turnover under $20 million are eligible for a refundable tax offset. The offset can be up to 43.5% of the eligible R&D expenditure.
• For Large Entities: Entities with an annual turnover of more than $20 million are eligible for a non-refundable tax offset.

Eligible Expenditures

• Personnel Costs: Salaries and wages (including super, payroll tax, workers compensation) of the employees involved in R&D activities
• Contractor and Sub-contracted Work: Payments to contractors and for sub-contracted work related to R&D.
• Research Service Providers: Payments to registered research service providers.
• Consumables: Consumables used during the R&D activities.
• Asset Depreciation: Portion of the depreciation of assets used during the R&D activities.
• CRC Contributions: Contributions to Cooperative Research Centres (CRCs) related to the R&D activities.
• General Business Overheads: A portion of general business overheads (internet, electricity, rent, etc.) that can be attributed to the R&D activities.

Application and Compliance

• Self-assessment: The RDTI is a self-assessment program. Before applying, entities need to self-assess their eligibility.
• Documentation: Complete and well-organized documentation is essential. It should evidence the core and supporting activities being undertaken and demonstrate the nexus between the activities and the expenditures being claimed. This may include R&D templates, web searches, expert opinion, experimental method/plan, data gathered, reports, spreadsheets, photos, emails, meeting minutes, contracts, drawings, simulations/modeling, etc..
• ATO and Ausindustry Review: The ATO and Ausindustry may review the applications and compliance of the RDTI. They check if the R&D is being undertaken by the claimant company and if the expenditures incurred have a clear nexus with the R&D activities being claimed.

Recent Amendments

• As part of the Mid-Year Economic and Fiscal Outlook 2024-25, the government has announced an amendment to the RDTI program to exclude activities related to gambling and tobacco for income years starting on or after 1 July 2025. Legislative change is required to implement this amendment. Until that change is made, the Department of Industry, Science and Resources and the Australian Taxation Office will continue to administer the RDTI program as currently legislated.