The R&D Tax Incentive (RDTI) is a broad-based program designed to support experimental activities across a wide range of industries. It allows businesses to claim a tax offset on eligible expenditure incurred in registered R&D activities each year. However, not all costs are claimable, and certain categories of expenditure are explicitly excluded. Understanding what can and cannot be included is essential for ensuring compliance and maximising the financial benefits available under the program.
Salaries and Wages
Businesses can claim salary-related expenses for employees who are directly engaged in registered R&D activities. This typically includes wages, bonuses, overtime, leave entitlements, superannuation, and other associated employment costs.
To qualify, employees must be involved in technical work that contributes to knowledge generation, such as conducting experiments, recording results, or preparing technical documentation.
A key requirement is the accurate apportionment of time between R&D and non-R&D activities. The Australian Taxation Office (ATO) has placed increasing emphasis on contemporaneous and well-maintained time records to substantiate claims.
Support staff, including supervisory or administrative personnel, may also be included where their work can be clearly linked to R&D activities and supported by appropriate evidence.
Contractor and Consultant Costs
Operational and administrative costs associated with R&D activities may also be claimable. These can include expenses such as office rent, utilities, cleaning, certain insurance costs, office consumables, software subscriptions, and relevant recruitment or training costs.
That said, not all indirect costs qualify. Expenses such as accounting and legal fees, advertising, bank charges, employee benefits, facility maintenance, director fees, donations, and entertainment are generally excluded.
In some cases, patent-related legal costs may be claimable, provided they are directly connected to eligible R&D activities and properly documented within the broader R&D expenditure framework.
Explicitly Excluded Expenditure
Even where costs are associated with an R&D project, certain categories are specifically excluded under the RDTI rules. These include interest expenses, non-risk expenditure where the business does not bear financial exposure, and expenditure on further R&D activities undertaken for the purpose of acquiring technology or intellectual property.
Capital expenditure—such as the purchase of depreciating assets—as well as costs related to buildings, including construction, acquisition, or structural modifications, are also excluded.
In addition, overseas R&D activities are generally not eligible unless prior overseas funding approval has been obtained under the relevant provisions.
Other Key Considerations
When assessing eligible R&D expenditure, businesses should also consider:
Depreciation of Assets
Decline in value of assets used in R&D may be claimable under relevant tax provisions, provided there is no double counting.
Grant-Related Expenditure
R&D expenditure funded by grants may still be claimable. However, the grant amount must generally be treated as assessable income to avoid double benefits.
Cooperative Research Centre (CRC) Contributions
Payments to CRC programs may be fully claimable and are typically not subject to clawback adjustments.
Related Party Transactions
Payments to related entities must be physically paid within the financial year. Otherwise, adjustments may be required to defer the claim.
Conclusion
A clear understanding of eligible and excluded expenditure is fundamental to a compliant and effective RDTI claim.
By properly identifying and documenting R&D costs, businesses can improve claim accuracy, reduce compliance risk, and maximise the financial return generated through the program.
If you would like to assess whether specific costs qualify as eligible R&D expenditure, or optimise your claim approach, the team at Ignition Research can provide tailored guidance to help ensure your R&D investment delivers maximum policy value.