Claiming the R&D offset for expenditure incurred on R&D activities conducted outside Australia

18 June 2024

The R&D Tax Incentive program seeks to encourage R&D activities to be undertaken in Australia. Expenditure incurred on R&D activities conducted outside Australia is not eligible R&D expenditure unless the claimant holds an Advance and Overseas Finding (AOF) for those activities.

Applications for AOFs must be lodged before the end of the income year in which the overseas R&D activity was conducted, and they allow AusIndustry to make a finding on the eligibility of an R&D activity for the current income year and the two following income years. This means that for 30 June 2024 balancers, finding applications are due no later than 30 June 2024, and such findings can cover activities (including work done overseas) from 1 July 2023 to 30 June 2026. However, if AusIndustry does not issue a finding for the overseas R&D activities, they cannot be registered, and the overseas R&D expenditure is not eligible for the R&D tax offset.

The eligibility criteria for an overseas R&D activity are: 

1. A finding has been made that it meets the eligibility criteria for an eligible “core” or “supporting” R&D activity (hence the need for both an advance and overseas finding).

2. It has a significant scientific link to one or more core R&D activities conducted solely in Australia, such that the Australian core R&D activities cannot be completed without the overseas activity being conducted.

3. It is not possible to conduct the overseas activity solely within Australia because of at least one of the following reasons:

a. Conducting it in Australia requires access to a facility, expertise or equipment not available in Australia

b. Conducting it in Australia would contravene a law relating to quarantine

c. Conducting it requires access to a population (of living things) not available in Australia 

d. Conducting it requires access to a geographical or geological feature not available in Australia

4. The total actual and reasonably anticipated expenditure incurred on overseas R&D activities does not exceed that incurred and to be incurred on Australian R&D activities. This is assessed over the life of the R&D project, which includes R&D activities that took place before the finding period.

Things to consider:

• If you already have an overseas finding certificate, AusIndustry administrative guidance indicates it will apply until the completion of the overseas R&D activity, even if the overseas R&D activity takes longer than three years. However, it is important for claimants to review the scope of current overseas R&D activities to ensure that these are still covered by the finding, as it is not uncommon for the R&D focus to shift based on new results that come to light.
• If you need to apply for an AOF, it is important to structure the application to ensure all planned future R&D activities (i.e. two years in advance) are adequately captured.
• When submitting a finding application, the R&D entity does not need to obtain a finding for every single activity in a project – only those that require a finding in order to be eligible. This has the potential to reduce the amount of effort required to prepare a finding application. For example, if a project comprises an Australian supporting activity, an Australian core activity and an overseas activity with expenditure less than the Australian core activity, the R&D entity does not need a finding for the supporting R&D activity.  

For companies with a June year end, the deadline for lodging an AOF Application is 30 June 2024 (to capture expenditure incurred on overseas R&D activities conducted in the current income year). Contact us if you need advice about planning and applying for an AOF.