The Australian Government's Innovation Report

Enhancing industrial R&D
R&D Tax Concession
The R&D Tax Concession is the Australian Government’s principal mechanism to stimulate private sector
expenditure on R&D. It has three elements:
• 125% R&D Tax Concession – deductions of 125% of eligible expenditure incurred on eligible R&D
activities from assessable income.
• 175% Premium R&D Tax Concession – a higher level deduction for companies that have additional
R&D expenditure for eligible labour-related expenditure above the previous three-year average.
• R&D Tax Offset – assists small companies, especially those in tax loss, by providing an immediate
benefit from the 125% R&D Tax Concession and the 175% Premium R&D Tax Concession by
allowing them to cash out their benefit.
At 30 June 2006, a total of 5830 companies were registered for the 2004-05 income year, with reported R&D
expenditure totalling $7.79 billion, an increase in expenditure of 12.5% over 2003-04. The number of registrations
was a record, increasing by 3.5% over the previous year and an average of 12% a year over the previous five years.
A total of 67% of companies reported R&D expenditure of less than $500 000, comprising 10% of the total
reported R&D expenditure. Reported R&D activities valued greater than $10 million were undertaken by 2%
of registrants and represented 49% of total reported R&D expenditure.
Companies with a turnover of less than $5 million represented the largest single group of registrants (66%) for
the R&D Tax Concession, while companies with a turnover of more than $50 million represented 14% of
registrants.
Take up of the R&D Tax Offset and 175% Premium Tax Concession elements
At 30 June 2006, a total of 2465 companies had indicated the intention to claim the R&D Tax Offset for the 2004-05
income year (made up of 2165 companies intending to claim the offset at the 125% rate and 300 companies
intending to claim at the 175% premium rate).
At 30 June 2006, a total of 1152 companies had indicated the intention to claim the 175% Incremental (Premium)
R&D Tax Concession for 2004-05 (made up of 852 companies intending to claim the premium and 300
companies intending to claim the offset at the 175% premium rate).
Table 6: Number of firms using the R&D Tax Offset and 175% Premium Concession, 2001-02 to 2004-05
Income years R&D Tax Offset Numbers 175% Premium Numbers
2001-02 1637 595
2002-03 1983 770
2003-04 2371 923
2004-05 2465 1152
Note: the R&D Tax Offset data includes the R&D Tax Offset claimed at the 175% premium rate.
Data was collected from the R&D Tax Concession database as at 30 June 2006.
R&D Tax Offset claims with the Australian Taxation Office
In the year ended 30 June 2006, the Australian Taxation Office processed 2157 R&D Tax Offset claims, with
deductions totalling $883 million, giving rise to offset credits of $265 million.
More information about the R&D Tax Concession can be found at: www.industry.gov.au
44 Backing Australia’s Ability