When claiming the R&D Tax Incentive, your entitlement to a refund can be affected by your “aggregated turnover.” A refundable offset is only available to entities with an aggregated turnover of less than $20 million. It’s crucial to understand that “aggregated turnover” isn’t just your company’s revenue; it includes the turnover of related entities as well.
How Aggregated Turnover Impacts Your Claim
- Under $20 Million: If your aggregated turnover is less than $20 million and you’re not controlled by any exempt entities, you can claim the 43.5% refundable tax offset.
- $20 Million or More: If your aggregated turnover is $20 million or more, or you are controlled by exempt entities, you can claim the non-refundable 38.5% tax offset.
Defining Annual Turnover
An entity’s annual turnover is the total ordinary income it derives during the income year from its ordinary business activities. This includes worldwide income but excludes GST. If an R&D entity doesn’t conduct business for the entire income year, its annual turnover is calculated proportionally, based on a reasonable estimate of what the full-year turnover would be.
Who’s Included in Aggregated Turnover?
Aggregated turnover is the combined annual turnover of:
- The R&D entity itself
- Any entity connected to the R&D entity
- Any entity affiliated with the R&D entity
Transactions between these related entities are excluded from the calculation.
Defining “Connected” Entities
An entity is considered connected to the R&D entity if:
- Either entity controls (owns 40% or more of) the other.
- Both entities are controlled by the same third entity.
Defining “Affiliated” Entities
An entity (Entity A) is considered connected to the R&D entity if:
- Entity A can reasonably be expected to act in accordance with the R&D entity’s directions or wishes in its business activities.
Key Considerations for Founders
Founders seeking the R&D tax incentive should carefully consider aggregated turnover rules, especially during capital raising. Attracting investment that results in an investor acquiring a substantial equity interest (40% or more) can give them control of the company. This means the investor’s income will be included in the R&D entity’s aggregated turnover. Depending on the investor’s size, this could push the aggregated turnover above the $20 million threshold, reducing the offset rate and making it non-refundable.
Ensure your R&D Tax Incentive claim is prepared professionally by speaking to our consultants. Understanding aggregated turnover is crucial to securing the right level of tax offset.
