Tax incentive encourages research and development

The Research and Development, or R & D, tax incentive provides targeted offsets designed to encourage more Australian companies to engage in R & D. The incentive has two core components – a 43.5% refundable tax offset for eligible entities with an aggregated turnover of less than $20 million per annum, and a 38.5% non-refundable tax offset for all other eligible entities. Organisations may be able to carry forward unused offset amounts to future income years. Refundable incentives are only available in cash when the current income tax liability is insufficient to utilise the R & D incentive. For example, if the current income tax liability for a company is $50,000 and the refundable incentive is $70,000, $50,000 of the R & D incentive will reduce the current income tax liability to zero, and cash of $20,000 will be received for the remainder of the refundable incentive. Refundable offsets are more akin to government grants than investment tax credits, because the entity has spent money on R & D, and is given the assistance in the form of cash, in return for past compliance.