For a business to thrive and grow, expenses have been allocated for research and development. As an essential expense, the ATO research and development tax incentive is necessary for businesses to receive tax deductions. This program encourages companies to invest in eligible R&D activities by providing significant tax benefits.
However, calculating the estimates for research and development tax incentives can be complicated. Here is a guide to help ease the complicated process of calculating your R&D tax incentive.
The Calculation Steps
The calculation process goes like this:
Step 1: Identify and Quantify Eligible R&D Expenditure
- Go through your financial records and identify all expenses directly linked to your eligible R&D activities.
- Ensure you have proper documentation to support each claimed expense (e.g., invoices, timesheets, contracts).
- Calculate the total amount of your eligible R&D tax expenses for the income year.
Step 2: Determine Your Aggregated Turnover
- Calculate the annual turnover for your company and any connected or affiliated entities.
- Sum these turnovers to arrive at your aggregated turnover for the income year.
Step 3: Apply the Relevant Tax Offset Rate
- Based on your aggregated turnover (calculated in Step 2), determine the applicable tax offset rate:
- Less than $20 million: 43.5%
- $20 million or more: 38.5%
Step 4: Calculate the Tax Offset Amount
Multiply your total eligible R&D expenditure (from Step 1) by the applicable tax offset rate (from Step 3).
- Formula: Tax Offset Amount = Total Eligible R&D Expenditure × Applicable Tax Offset Rate
Understanding how to calculate the ATO research and development tax incentive is the first step towards leveraging this valuable program.
Need Help with Your R&D Taxes? Contact R&D Assist!
R&D Assist specialises in research and development taxes and provides consultation services to help you. Contact us for calculation and refund estimation.