Methods of apportionment
Preferably, your accounting and record keeping processes should enable the tracking of expenditure to your R&D activities on a 'real time' basis, so apportionment methodologies are only used in limited situations. However, we recognise that this is not always practical for companies, especially smaller companies where R&D activities only make up a small portion of the company's activities.
The appropriate basis of apportionment needs to be determined for each expenditure type based on all of the following:
- the type of R&D activities you are conducting
- how you are conducting your R&D activities
- the type of expenditure you have incurred.
If the expenditure is incurred over a period of use (for example, utilities such as electricity, decline in value of R&D assets), an apportionment based on the time spent by employees on R&D activities over total company employee hours may be more appropriate than a dollar value of R&D salary over total company salary. A dollar value can inflate or deflate an amount you can claim, because employees within a company are unlikely to be renumerated consistently. A dollar value is unlikely to be representative of time spent.
Expenses such as rates, land taxes, rent and lease costs which are mainly for the area used for R&D activities, may be best apportioned on a basis that reflects the area of use. How many staff and time spent is irrelevant for determining the extent to which this type of expenditure has been incurred on your R&D activities and would therefore not represent a reasonable basis of apportionment.
The apportionment basis of R&D salaries over total company salaries, for expenditure, will only be considered reasonable under the R&D tax incentive where the expenditure is based on how much an employee earns (for example, payments of super, worker's compensation and payroll taxes) and if these amounts can not be separately determined by reference to a company's accounts.
Using the decline in value costs for assets used in R&D activities as a proportion of total company decline in value, to apportion all expenditure (including expenses unrelated to the use of the R&D asset), is not an appropriate apportionment methodology.