Overseas funding application deadline for RDTI fast approaching, RSM warns

There are less than two months left for companies to lodge Advance and Overseas Finding (AOF) applications for overseas RDTI claims in the 2024–25 financial year, RSM says.

“With less than two months to go, this is relevant for companies conducting or planning eligible R&D activities in Australia which ‘would be incomplete’ without overseas activities such as manufacturing, trials, or contract work,” RSM wrote in a release.

The Australian government introduced the R&D tax incentive to boost the commercialisation of innovation in Australia and facilitate more research and development amongst Australian companies.

In a discussion paper, the government noted that Australia had lower R&D intensity than other OECD countries. Australia’s gross R&D expenditure was 1.66 per cent of GDP in 2021–22, compared to the OECD average of 2.9 per cent. The report noted that this impeded Australia’s productivity growth.

AOFs provide taxpayers with a three-year guarantee that their overseas activities are eligible for claims under the RDTI, starting from the income year that the application was lodged. As such, firms that wanted to claim overseas R&D activities in the 2024–25 income year would have to lodge their AOF applications by June 30, RSM said.

The guarantee is designed to support Australian-based firms that have needed to conduct R&D abroad due to a lack of appropriate facilities, expertise or geographical features in Australia.

For example, if a firm wanted to manufacture a specialist drug delivery device required for a clinical trial in Australia, but the necessary manufacturing capability did not exist in Australia, they could manufacture it overseas and be eligible for RDTI claims.

To be eligible, the overseas activities themselves must meet the ATO’s criteria for a core or supporting R&D activity, RSM said. Furthermore, the overseas activities must all be Australian-owned, and at least one core R&D activity in Australia must not be able to be completed in the absence of the overseas activity.

RSM added that commercial drivers for undertaking activities offshore, such as lower labour or manufacturing costs, would not make a firm eligible for an AOF.

There are a number of steps that firms would have to undertake in order to successfully lodge an AOF application, including understanding its key requirements and collating documentation, including background research, financial statements and licensing agreements.

“Given increased documentation requirements and written responses of the current AOF application form, it may also be worth early planning to obtain an AOF for Australian core R&D activities where associated overseas activities may be planned in the coming income years,” RSM said.