In today’s global landscape, many Australian companies are collaborating with international experts or accessing specialist facilities overseas to advance their research. But what happens when part of your R&D takes place outside of Australia?
The good news: you may still be able to claim the R&D Tax Incentive – if you apply for an Advance Overseas Finding (AOF).
What is an Advance Overseas Finding?
Normally, the R&D Tax Incentive (RDTI) only covers activities carried out in Australia. However, an AOF allows eligible businesses to include certain overseas R&D costs when specific conditions are met.
An AOF is a binding decision issued by the Department of Industry, Science and Resources (DISR) confirming that nominated overseas activities are eligible for the RDTI. Importantly, you must apply before the end of the income year in which the overseas activities are (or will be) conducted – not after year-end like a standard R&D registration.
When are overseas activities eligible?
To qualify, overseas activities must meet four key criteria:
- Eligible R&D activity – The work must be an eligible core or supporting R&D activity under the RDTI rules.
- Connection to Australian R&D – The overseas activity must be directly connected to, and essential for, your Australian-based R&D activity.
- Not possible in Australia – You must demonstrate that the activity cannot reasonably be conducted in Australia due to one of the following:
- Requires facilities, expertise, or equipment unavailable in Australia.
- Quarantine laws prevent it.
- A specific population (of living things) is not available in Australia.
- Certain geographical or geological features are not available in Australia.
- Australian expenditure exceeds overseas spend – across the life of the project, more R&D spend must occur in Australia than overseas. A three-year project budget is typically required to demonstrate this.
Lessons from the T.D.S Biz case
The Federal Court decision in T.D.S Biz Pty Ltd v Commissioner of Taxation, underscored why timing and documentation matter.
TDS Biz sourced bespoke components manufactured overseas purely because it was cheaper – but without an AOF, the Court ruled these expenses ineligible. Cost savings alone do not justify conducting R&D overseas, and an AOF must be in place before claiming any offshore R&D costs.
The case reinforces that custom or experimental work conducted offshore needs an AOF, whereas routine purchases generally do not.
Getting the documentation right
A successful AOF application requires detailed supporting evidence – more than a standard R&D registration. Strong applications typically include:
- Contracts or statements of work detailing where and when activities occur.
- Research documentation proving that outcomes couldn’t be determined in advance.
- Expert opinion letters confirming why the work can’t be done in Australia.
- Cost estimates comparing Australian and overseas components.
Depending on the reason for conducting work overseas, you may also need:
- Lack of expertise – Job ads, recruiter briefs, candidate summaries and interview notes showing a genuine Australia-wide search.
- Lack of facilities – Written confirmations from Australian providers about capability or capacity limits.
- Population or geography-based limitations – Analyses demonstrating why required populations or features are unavailable in Australia.
Our insights and tips
From helping clients navigate the AOF process, we’ve found that:
- Timing matters – The AOF must be lodged before financial year-end. While average processing time is around 72 days, delays are common if documentation is incomplete.
- Budgets must balance – If overseas expenditure exceeds related Australian R&D spend, none of the overseas activities will be eligible. Robust project budgeting and evidence are critical.
- Findings have long-term value – Once approved, an AOF remains valid for the duration of the project, provided the activities don’t significantly change.
The bottom line
An AOF can substantially increase the value of your R&D claim, but only if you plan ahead, gather the right evidence and meet the strict eligibility rules.
By aligning your Australian and international efforts and preparing a strong application you can turn a complex compliance process into a strategic opportunity.
If you’d like to explore whether an AOF applies to your R&D activities, contact your local William Buck R&D Advisor for tailored guidance.
