How is the clawback adjustment calculated?
The clawback adjustment is extra income tax of 10% on both of the following:
- the R&D expenditure and decline in value for which you claimed a notional deduction in relation to the recoupment
- the expenditure and decline in value for which your affiliates and entities connected with you claimed a notional deduction in relation to the recoupment.
A cap applies to ensure the clawback adjustment cannot exceed the amount of a grant you received that, on a pro-rata basis, relates to the total expenditure on R&D activities and related decline in value. This means the benefit of the R&D tax incentive cannot be clawed back beyond the amount of the grant.
If an entity’s notional R&D deductions exceed $100 million for an income year, the amount of expenditure used in the calculation of the clawback adjustment may be reduced.
End of attention
Burgundy Bagasse Ltd conducts R&D activities in relation to a new machine that removes, shreds, crushes and bales grape vines. The activities for which they receive the R&D tax incentive include trials on a vineyard they use to produce table wine.
Burgundy Bagasse Ltd also receives a $500,000 reimbursement under a government vine-pull scheme for certain costs they incurred to remove those vines. Of this amount, $400,000 was for expenditure they notionally deducted under the R&D tax incentive.
Clawback of $40,000 (10% of $400,000), in the form of extra income tax, will apply in relation to the R&D expenditure that is reimbursed under the vine-pull scheme.
End of example