The Australian Government offers Research and Development (R&D) Tax Incentives to encourage manufacturing businesses to invest in innovation and technological development. These incentives can provide significant financial benefits, but it's important to know how to maximise them. Here are some tips on how manufacturing businesses can make the most of R&D Tax Incentives in Australia.
What is the R&D Tax Incentive?
The R&D Tax Incentive program is the Federal Government’s flagship program to encourage and incentivise businesses to invest in innovation and technological advancement. The program provides significant financial incentives whether in the form of a refundable cash rebate or a tax credit.
What is the Benefit of Claiming R&D?
- Companies with an aggregated turnover of less than $20 million can claim a refundable tax offset of 43.5%.
- For companies with an aggregated turnover of more than $20 million, a non-refundable tax offset applies, which can be used to reduce immediate company income tax payable or carried forward for future periods.
Your business has just invested $200,000 undertaking eligible R&D activities...
Smaller businesses can get back a whopping 43.5% of that investment. If you're in a tax loss position, you'll receive $87,000 in cash, boosting your budget to reinvest into your business. And if you are tax paying, the R&D tax incentive helps reduce your tax liability. It's a win-win for your business and innovation!
R&D in the Manufacturing Sector
In the manufacturing sector it's important to know how to identify eligible R&D and to maximise the available incentives. The program rewards investment on developing new or improved products, processes, materials, devices or services.
Undertaking R&D is pivotal to manufacturing companies whether in response to a customer request of motivated internally in the quest to obtain strategic advantage, in the form of reducing costs and streamlining manufacturing processing, and competitive advantage, in the form of market differentiation.
To be eligible, R&D activities are experimental activities. The activities must be undertaken for the purpose of generating new knowledge, require a systematic progression of work, and address technological uncertainties where the outcomes of the activities are unknown or cannot be determined in advance.
Examples of Product R&D in the Manufacturing Sector
Whether it's in the field of food and beverage, fast moving consumer goods, chemical industrial products, automotive and pharmaceuticals (just to name a few) product R&D extends to activities including:
- Product formulation
- Ingredient selection
- Use of additives and active ingredients
- Nutrition and health value
- Flavour, texture, taste and organoleptic qualities
- Prototype batching
- Shelf life, stability and storage trialling
- Raw material selection
- Anti-microbial infestation
Examples of Process R&D in the Manufacturing Sector
Process R&D is also broad in practice and includes the following:
- Batch trialling
- Blending trials
- New material handleability and processing
- Machine settings, automation, control system integration
- Process changes related to time, temperature and mixing
- Assembly method and technique
- Clean room technology
- Dust control
- Environmental initiatives such as waste reduction, recycling, reduction in water and utilities
- Integration of advanced manufacturing equipment into existing process lines
Documentation Required to Substantiate the R&D Activities
Across manufacturing there exists a lot of different documents that can be used to assist in the compilation and substantiation of an R&D claim. Examples include the following:
- New product development specifications
- CAD/CAM drawings
- Trial reports
- Project planning documents eg. project brief
- Quality control records
- Production run reports
- Process technical drawings and footprint/layouts
- Project Gantt charts and timelines
- CAPEX requests
- R&D reports
- Contractor and external testing reports
- Literature reviews and records of web searches
Documentation Used as Evidence of R&D Expenditure
- Spreadsheets logging employee time on R&D (hours or percentage)
- Invoices from suppliers and contractors
- Raw material cost reports
- Plant/equipment depreciation
- Financial statements (overheads and indirect expenditure)
Can Manufacturers Claim for R&D Conducted Overseas
Yes! Subject to applying for and receiving an Overseas Finding. To apply for an Overseas Finding , manufacturing businesses must demonstrate that the R&D activities are necessary due to the unavailability of required facilities, expertise, equipment, or resources in Australia and that they are directly related to eligible core R&D activities.
An application for an Overseas Finding must be submitted to AusIndustry before the end of the income year in which the overseas activities are conducted.
Learn More About R&D in Manufacturing
Our consultants specialise in R&D (and other grants and incentives ) applicable to the manufacturing sector and we can provide independent advice and full support with your applications. We’ve helped clients secure the R&D Tax Incentive when they’re developing new products, improving manufacturing processes, or purchasing advanced manufacturing equipment to drive innovation and technological advancements in their respective industries.
Our approach is based on a track record of successful submissions and 60+ years of combined knowledge of the R&D landscape. Submit the form below and we’ll be in touch to help you grow your business.
