Life Sciences R&D Tax Checklist
The local life sciences sector is rapidly growing with Australia’s high-quality research, established clinical trial infrastructure and attractive R&D Tax Incentive all promoting home-grown biotechs and attracting international pharma.
While the R&D Tax Incentive is a long-term supporter of the sector, and the life sciences sector is in an R&D-intensive industry, navigating the program in a way that both maximises R&D tax benefit and minimises eligibility risk requires a well-considered strategy.
Intellect Labs works with life sciences companies and organisations to ensure a measured and strategic approach to the R&D Tax Incentive. In our experience working in the industry, we have developed a high level of familiarity with specific areas of the program that should be considered by life sciences businesses. Below, we have outlined 10 things to consider when planning for and preparing your R&D tax claim.
Ownership of university spin-outs - A start-up spun out of university research will need to consider the percentage ownership by the university (typically an exempt entity under the tax law) and the implications on a the benefit that the R&D tax program will provide. In particular, this requires a thorough review and consideration of both the exempt entity ownership rules and the aggregated turnover rules.
Impacts of capital raising - Companies that raise capital investment in return for equity will need to review the implications of any proposed investment structure and business ownership on eligibility for the R&D Tax Incentive. This is particularly important where exempt entity ownership changes, or where a large organisation takes a stake in the business which might affect grouping for aggregated turnover purposes.
Receipt of competitive grant funding - Mechanisms exist to limit ability to ‘double-dip’ where projects are partially or wholly funded by government grants. Required adjustments can vary depending on the nature of the project and funding so it is important to consider the relevant grant documentation, timing of payments, milestones and other factors.
Accessing R&D Loans - R&D financing provides eligible companies with early access to their expected R&D Tax Incentive refund through bridging loans from providers such as Radium Capital. This non-dilutive funding option helps businesses manage cash flow and continue investing in innovation without waiting for their tax return to be processed.
Reviewing the dominant purpose of intellectual property registrations - Commercial, legal and administrative aspects of patenting, licensing or other IP are excluded from being core R&D activities. However, there are avenues to claim these costs via supporting activities if they have been undertaken for the dominant purpose of supporting the core R&D.
Record keeping for R&D salary costs - Highly-intensive R&D activities lead to high proportions of time spent on R&D. Regardless of the nature of the R&D activities, companies are still expected to capture records to substantiate time spent on R&D activities.
Reviewing the dominant purpose of activities associated with meeting regulatory standards – Work performed to meet regulatory standards can be excluded from being a core R&D activity. As with intellectual property costs, these activities and associated costs should be reviewed to assess avenues for including them in a claim.
Making use of streamlined applications for clinical trials - The Australian Government has put in place a determination to facilitate easier R&D tax registration for clinical trials that have been registered with the TGA.
Considering Overseas Findings - Life sciences companies may plan to undertake some of their R&D activities overseas, where a particular population, expertise or facility is not available in Australia. There is a specific application process to determine whether such activities may be eligible for the R&D Tax Incentive that companies should consider in these circumstances.
Acquisition or ownership by a foreign company - The ATO released taxpayer alert 2023/5 to address scenarios where Australian entities are claiming the R&D Tax Incentive on behalf of a foreign parent. To ensure eligibility when a foreign parent company is involved, R&D claimants need to ensure that the R&D activities are conducted ‘for’ the Australian entity or, where conducted for a foreign parent, that the appropriate agreements are in place to ensure eligibility.
We’re here to help:
Whilst the benefits available are generous, the R&D Tax Incentive eligibility requirements can be challenging to navigate. Claimants need to ensure they correctly identify R&D activities and costs that can be claimed and compile the necessary evidence and supporting documentation.
We provide comprehensive and transparent assistance with all aspects of the R&D Tax Incentive claim process. Our team will be happy to help you assess whether you meet all eligibility requirements and guide you through the application process.