R&D investment rises to $17bn: ATO

The Tax Office has published its annual research and development tax incentive (R&DTI) transparency report, which contains data on 13,490 companies that claimed the tax incentive for R&D expenditure for the 2023-24 income year.

This comprised 51 per cent of small businesses, 31 per cent of privately owned and wealthy groups, and 18 per cent of public and multinational groups reporting R&D expenditure.

In 2023-24, public and multinational companies accounted for the largest share of R&D investment, investing $9 billion in R&D (54 per cent of total R&D expenditure), followed by privately owned and wealthy groups at 28 per cent of total expenditure.

Small businesses recorded the largest growth, with their expenditure growing by 28 per cent to $3.1 billion.

According to the ATO’s findings, professional, scientific, and technical services was the top industry for which R&D expenditure was claimed for the 2023-24 income year at $6.5 billion (up from $6.2 billion in 2022-23).

This industry covers a broad range of businesses within those fields. The report includes scientific research, computer system design, and accounting services within this industry.

This was followed by manufacturing ($3.6 billion), mining ($1.4 billion), wholesale trade ($946.3 million), and information, media, and telecommunications ($890.5 million). R&D expenditure in mining dipped slightly from $1.5 billion in 2022-23.

The professional, scientific, and technical services industry had the highest number of claimants (5,955 claimants) in 2023-24, up from 5,663 in 2022-23. This was followed by manufacturing (2,648), wholesale trade (749), information, media, and telecommunications (662), and financial and insurance services (494).

All other industries had 2,982 claimants during the 2023-24 income years, up from 2,770 in 2022-23.

In 2023-24, public and multinational companies accounted for the largest share of R&D investment, investing $9 billion in R&D (54 per cent of total R&D expenditure), followed by privately owned and wealthy groups at 28 per cent of total R&D expenditure.

Small businesses recorded the largest growth, increasing their R&D expenditure by 28 per cent to $3.1 billion.

Among the public and multinational businesses, professional, scientific and technical services had the highest number of claimants, with 1,115 companies claiming a total of $2.9 billion in R&D expenditure.

This was followed by manufacturing (433 companies claiming $2.1 billion), mining (280 companies claiming $1.3 billion), wholesale trade (141 companies claiming $606 million), and financial and insurance services (102 companies claiming $516 million).

The professional, scientific and technical services industry was also the highest claimant among privately owned and wealthy groups with 1,497 companies claiming almost $2.0 billion.

This was followed by manufacturing (994 companies claiming $986 million), wholesale trade (321 companies claiming $235 million), financial and insurance services (194 companies claiming $270 million), and information media and telecommunications (182 companies claiming $199 million).

Similarly, the professional, scientific, and technical services industry had the highest number of claimants among small businesses (3,341 companies claiming a total of $1.7 billion), followed by manufacturing (1,220 companies claiming $432 million), information media and telecommunications (379 companies claiming $148 million), wholesale trade (287 companies claiming $105 million), and retail trade (279 companies claiming $91 million).

ATO deputy commissioner Louise Clarke said the report is not only a legislative requirement by the government, it also improves public accountability for R&D claimants and encourages voluntary compliance with the program.

She said the ATO has sophisticated systems in place to identify risks of non-compliance with the R&DTI program and undertakes reviews and audits to verify claims.

“The ATO is committed to upholding the integrity of the program so that businesses can continue to access the multitude of benefits that comes with undertaking innovative research,” Clarke said.

“In line with our general compliance approach for the tax and superannuation systems, we protect the integrity of the program by making it easy for those who comply and harder for those who seek to cheat the system.”

An ATO spokesperson told Accounting Times that the R&DTI plays a pivotal role in shaping the nation's economic future and bolstering Australia's global competitiveness by encouraging companies of all sizes to invest in R&D activities they might not otherwise undertake.

“The R&DTI is a legislated program which supports businesses to invest in eligible R&D by offsetting some of the associated costs and is co-administered by the Department of Industry, Science and Resources, and the ATO,” the spokesperson said.

“The ATO is committed to upholding the integrity of the program so that businesses can continue to access the multitude of benefits that come with undertaking innovative research.”

The ATO’s R&D report covers 6,920 small businesses with an annual turnover of less than $10 million, and 4,116 privately owned and wealthy group entities with an annual turnover of more than $10 million that are not publicly listed or foreign owned. It also covers 2,449 public and multinational entities that are publicly listed and multinational companies, and five not-for-profit entities.

The government recently released draft laws on its proposed changes to the R&D tax incentives, where the proposed amendments would remove support for R&D activities from the tax incentive, increase the minimum and maximum expenditure thresholds, and increase the turnover threshold for the refundable offset.