Other R&D expenditure
You may incur a number of administrative costs and overheads as a result of conducting R&D activities and employing R&D staff. For example, you may have overheads, such as rent, light and power, property rates and taxes, cleaning and certain types of insurance, to the extent they are expenditure incurred on eligible R&D activities.
The expenses which you can claim as R&D expenditure are limited to the extent they are incurred on R&D activities. The type of expenditure that qualifies for a notional deduction under Division 355External Link of the ITAA 1997 depends on the facts of each particular case. Administrative costs and overheads may be incurred on R&D activities where there is a direct link between the R&D activities and the expenditure incurred.
Ineligible expenses are those without sufficient link to the R&D activities, particularly where they relate to general company operating or marketing expenditure that would be incurred regardless of the R&D activities.
These ineligible expenses could include:
- advertising (for instance, of a company's product)
- audit fees
- bad debts
- company establishment and other fees incurred under the companies code in relation to the administration of the company
- costs incurred in preparing taxation returns
- decline in value of a depreciating asset
- directors' fees
- distribution and selling expenses
- employee benefits such as canteen and recreational facilities
- entertainment expenses
- grounds and garden maintenance costs
- insurance premiums on matters unrelated to R&D such as loss of profits and product liability
- legal expenses not associated with any approved research project, for example, legal expenses for a patent search before undertaking a research project or in taking out a patent after a successful project
- patents and trademarks in marketing a new product or technology, or as a result of R&D activity
- rent paid for premises that are not used in R&D activities
- salaries, associated costs and on-costs of support staff not linked with R&D activities and of staff employed in areas such as distribution, sales, marketing and debt collection
- tender costs.
Leased plant and buildings
Rent or lease payments for equipment or buildings used in your R&D activities would constitute R&D expenditure. Such equipment or buildings need not be used exclusively in your R&D activities, but if the use is not exclusive, the expenditure would only qualify for notional deduction to the extent that it is on R&D activities. You must determine a reasonable basis of apportionment which produces an allocation of expenditure to R&D activities with a reasonable degree of accuracy.
Where you use leased equipment or buildings to carry out R&D activities for yourself, as well as for other persons, the proportion of the relevant lease payments incurred on your own R&D activities would potentially qualify for a notional deduction under Division 355External Link of the ITAA 1997.
Accountants' and consultants' fees
Whether expenditure incurred on accountant's and consultant's fees is notionally deductible under Division 355External Link of the ITAA 1997 depends upon whether:
- the activities associated with the work undertaken by the accountant and/or consultant, to which the fee relates, are R&D activities
- the extent to which the expenditure was incurred on those R&D activities.
Generally, activities associated with work by accountants and consultants are ineligible activities under the R&D tax incentive. Such ineligible activities include:
- preparing a registration application for the R&D tax incentive
- preparing a tax return to claim the R&D tax incentive.
Where an activity is considered an R&D activity, such activities must be registered with Innovation Australia.
Expenditure incurred on R&D activities is notionally deductible under section 355-205External Link of the ITAA 1997.
Tax related expenses incurred for the management of a company's tax affairs may be deductible under section 25-5External Link of the ITAA 1997. Eligibility of R&D activities is determined by Innovation Australia and should not be confused with eligible expenditure, which is determined by us.
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