R&D Tax Incentive - overseas R&D activities update

AusIndustry’s release of guidance material on the meaning of “not available in Australia” in the context of seeking an Advance Finding for overseas R&D activities is a timely reminder of the opportunity to claim related costs and conditions that need to be met.

David Wilson, general manager, R&D Tax Incentive at AusIndustry, is keen to remind companies that: “In the absence of an Overseas Certificate, costs associated with overseas activities cannot be included in R&D Tax Incentive claims.”

Claiming costs

Since its introduction in July 2011, the R&D Tax Incentive has provided companies with an opportunity to claim costs on overseas activities as long as the activities:

• are eligible as ‘core’ or ‘supporting’ R&D activities;
• are part of an R&D project that is mostly conducted in Australia (or its territories);
• have a significant scientific link with an Australian core R&D activity; and,
• are not conducted solely in Australia.

Since July 2011, 389 Advance or Overseas Finding requests have been approved by AusIndustry.

“Companies are making good use of Overseas Findings to address the needs they can’t resolve in Australia. Biotechs, pharmas and medical research are very well represented amongst those applying for and gaining Overseas Certificates,” Wilson said.

Level of expertise

The relevant legislation provides a list of allowable reasons why an overseas activity cannot be conducted solely in Australia, with two of these reasons - the ability to access (i) a facility, expertise or equipment and (ii) a population of living things - being particularly relevant to life sciences and health technology businesses.

Alun Needham, executive director, R&D and Technology Incentives at Ernst & Young, notes the newly released guidance details the efforts companies are expected to make to determine the level of expertise available. This includes conducting a reasonable Australia-wide search or advertising campaign or through seeking advice from independent experts.

“Of note is the recognition that a lack of proven experience in a field may be sufficient to show that the expertise is unavailable. In all cases, the provision of solid evidence will assist in AusIndustry’s assessment of a company’s claims,” said Needham.

Research and commercial realities

The guidance recognises that being unable to gain access to facilities or equipment in a reasonable time frame may constitute sufficient grounds for conducting research overseas, when this is considered in the context of the project’s overall size and time frame and the relative urgency of the activity.

The guidance also records that gaining access to facilities only at significantly above Australian market rates may also support a case of unavailability in Australia. Finally, in respect of accessing a population, the guidance notes that, in some non-contentious cases, companies can explain in their applications that there isn’t a sufficient population in Australia to meet the requirements of the relevant activity. In other scenarios, AusIndustry would expect companies to conduct a reasonable investigation within Australia to locate a suitable population and provide evidence of how the search was conducted.

Overall, Needham believes the guidance material is a welcome addition and will assist companies present their cases for the inclusion of overseas activities in future R&D claims. “The willingness of AusIndustry to recognise the research and commercial realities in which businesses operate is welcome,” he stated.