Australia has a global reputation for industry-leading biotechnology research and development. In order to maintain this edge, it’s important that our biotech companies are supported in their pursuit of R&D Tax activities. The government’s Research and Development Tax Incentive (RDTI) is a generous support but, in order for claims to be effective, biotech companies must understand what the incentive requires.
What is biotechnology?
The field of biotechnology delivers some of the most cutting edge and innovative solutions for modern society. Broadly, biotechnology encompasses processes that utilise biological systems and derivations of living organisms to develop new products. It’s the synthesis of biological sciences and engineering.
Biotechnology is commonly associated with medicine and the creation of new pharmaceuticals and medical procedures. However, its application stretches to a variety of fields. For example, agriculture uses biotechnology to develop genetically modified crops and crop treatments. There are also industrial uses including manufacturing chemicals and food (including bread, beer, and yoghurt, among a plethora of foodstuffs).
Unsurprisingly, biotechnology is driven strongly by R&D, which requires a significant financial investment. So, how can biotech companies pursue an R&D program in a cost-effective manner? Accessing the Australian government’s R&D Tax Incentive (RDTI) scheme is the key.
How can the RDTI assist your research and development?
The RDTI provides a way for companies conducting R&D Tax activities to claim a percentage of their eligible expenditure as a tax offset. The offset is calculated as follows:
- Companies with annual revenue below $20 million will receive a tax offset equal to their company tax rate up to a maximum of 43.5%. If the R&D Tax offsets exceed any tax debt, the difference is refunded in cash.
- Companies with annual revenue of $20 million or more will receive a non-refundable tax offset based on a two-tiered system that ties the rate of the offset to the company’s R&D intensity. The rates are calculated as the company’s tax rate plus:
- 8.5% for R&D expenditure up to 2% R&D intensity
- 16.5% for any R&D expenditure above 2% R&D intensity.
Given that biotech companies operate by applying cutting edge scientific knowledge to real world applications, their R&D Tax activities are precisely what the RDTI was created to support. With appropriate documentation and data collection procedures in place, biotech companies can gain a significant tax benefit from the RDTI.
What are eligible R&D Tax activities?
You must ensure the activities you intend to make a claim for are admissible under the criteria set out by the government. The set of eligible R&D Tax activities are divided into two categories: core and supporting activities.
There are three primary requirements that must be met for an R&D Tax activity to qualify as a core activity:
- it is experimental in nature and produces outcomes that could not have been predetermined through existing knowledge;
- requiring a systematic process that, according to the Department of Industry Innovation and Science, must be:
- based on principles of established science; and
- proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions;
- the activity is conducted in order to develop new knowledge, which may take forms including new or improved materials, products, devices, processes or services.
Activities that are excluded from being considered core activities include:
- prospecting or drilling for minerals or petroleum;
- commercial, legal and administrative aspects of patenting or licensing;
- compliance measures related to statutory requirements or standards;
- the reproduction of a commercial product or process;
- software development associated primarily with the business’s administration.
Supporting activities are defined by a direct relationship with at least one core activity and, if they include the development of products or services, do not directly produce an appreciable commercial benefit.
Examples of supporting activities may include:
- Conducting research to inform an experiment’s design
- Constructing prototypes for use in an experiment
- Maintenance of hardware used in an experiment
- Disposing of waste after the experiment has concluded.
Claims are carefully scrutinised to ensure they satisfy all eligibility criteria. This makes it very important to have detailed record keeping procedures in place and preserve relevant documentation.
Missteps biotech companies could make when preparing an RDTI claim include:
- claiming activities not tied to the generation of new knowledge;
- not demonstrating the use of the scientific method;
- including normal business activities in the claim;
- not documenting the research process rigorously enough.
With the correct specialist advice, though, your company can be fully confident it will prepare a robust R&D Tax claim..
Clearpoint Ventures are here to maximise your R&D Tax claim, simply. Our R&D Tax advisors work with you and your accountant to help record your activities and monitor budgets, weekly progress reminders and monthly check-ins. We help your company stay compliant, ensuring you’re meeting ATO & AusIndustry compliance standards throughout the entire year.