R&D Tax Incentive for Startups in Australia: How It Works and How to Plan the Cash
The Research and Development Tax Incentive (R&DTI) gives eligible Australian companies a tax offset for R&D spend. For a startup with aggregated turnover under $20 million, the offset is refundable: if the company makes a loss, the ATO can pay the offset out as cash. That makes it one of the largest sources of non-dilutive funding for Australian tech startups, if it is planned and documented properly.
The refundable offset in one line
For eligible entities with aggregated turnover under $20 million a year that are not controlled by income-tax-exempt entities, the refundable R&D tax offset equals the company tax rate plus an 18.5% premium (source: ATO, Rates of R&D tax incentive offset; business.gov.au, Overview of the R&D Tax Incentive).
The refundable offset generally needs eligible R&D spend (notional deductions) of $20,000 or more in the year.
Two steps: register, then claim
- Register your R&D activities with the Department of Industry, Science and Resources (AusIndustry) through the R&DTI customer portal, within 10 months after the end of your income year. For a 30 June year-end, that is 30 April of the following year. Late applications are not normally accepted.
- Claim the offset in your company tax return with the R&D tax incentive schedule.
- R&D done overseas needs an Overseas Finding before you can claim it.
Why it is a cash-flow question, not only a tax question
The refund arrives after the year ends, after registration and after the tax return. A startup that spends on R&D in July may not see the cash until well into the next financial year. Put the expected refund into your 13-week and 12-month cash forecast with a realistic date, and do not count it as runway until it is approved and received.
Records the claim depends on
- A clear description of each R&D activity: the hypothesis, the experiment and the result
- Time records for staff working on R&D
- Invoices and contracts linked to each activity
- A cost split between R&D and non-R&D work
Keep these during the year. Rebuilding them at year-end is slow and weakens the claim.
How a fractional CFO helps
We set up cost tracking by activity in Xero, build the refund into the cash forecast, and prepare the numbers for your registered R&D adviser and tax agent, who prepare and lodge the registration and claim. Book a free first call to talk it through.
Frequently asked questions
Eligible companies with aggregated turnover under $20 million that are not controlled by income-tax-exempt entities. Check the ATO and business.gov.au for the full rules.
When is the R&D registration deadline?Within 10 months after the end of your income year: 30 April for a 30 June year-end. If the date falls on a non-business day, it moves to the next business day.
Can I count the R&D refund as runway?Only once it is approved and received. Forecast it with a realistic date, but plan your runway without it.
Where do these figures come from?ATO, Rates of R&D tax incentive offset: https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/incentives-and-concessions/research-and-development-tax-incentive-and-concessions/research-and-development-tax-incentive/rates-of-r-d-tax-incentive-offset ; business.gov.au, Overview of the R&D Tax Incentive: https://business.gov.au/grants-and-programs/research-and-development-tax-incentive/overview-of-rd-tax-incentive
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Written by Akram El-Karrar, CPA, from the work we do for startups every week.