Show download pdf controls
  • 21. Research and development tax incentive

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    An eligible company will be entitled to an R&D tax offset if its total notional deductions for an income year are at least $20,000. If your total notional deductions are less than $20,000, you will only be able to obtain the R&D tax offset for:

    • expenditure incurred to a Research Service Provider (RSP) for services within a research field for which the RSP is registered under the IR&D Act, where that RSP isn’t an associate of the R&D entity
    • expenditure incurred as a monetary contribution under the Co-operative Research Centre (CRC) program.

    A notional deduction is an amount that a company can take into account in calculating its tax offset. The total of your notional deductions is multiplied by the relevant R&D tax offset percentage and shown at either A Non-refundable R&D tax offset or at U Refundable R&D tax offset in item 21 of the Company tax return 2016. Notional deduction amounts are shown in Part A of the Research and development tax incentive schedule 2016.

    If you are claiming an R&D tax offset amount at A Non refundable R&D tax offset item 21 or at U Refundable R&D tax offset item 21, you must complete and lodge a Research and development tax incentive schedule 2016 with your Company tax return 2016.

    For more information on eligible notional deduction amounts and calculating your entitlement to the R&D tax offsets, see the Research and development tax incentive schedule instructions 2016 and the Guide to the Research and development tax incentive.

    Non-refundable R&D tax offset

    To claim a non-refundable R&D tax offset, an eligible company must:

    • have an aggregated turnover of $20 million or more, or
    • be controlled by one or more income tax-exempt entities.

    For eligible notional deductions on R&D activities that are $100 million or less, the non-refundable R&D tax offset is equal to the amount of eligible notional deductions x 40%.For eligible notional deductions on R&D activities which exceed $100 million, the non-refundable R&D tax offset is equal to the sum of eligible notional deductions for the first $100 million x 40%, and eligible notional deductions in excess of $100 million x the applicable company tax rate.

    Any unused portion of the non-refundable R&D tax offset may be carried forward to future income years, subject to the tax offset carry-forward rules in Division 65 of the ITAA 1997.

    If you have taxable income in the 2015–16 income year, the amount of the tax offset that can be carried forward is reduced by your net exempt income x 0.285 for a small business entity. Otherwise, the amount of tax offset that can be carried forward is reduced by your net exempt income x 0.3.

    A - Non-refundable R&D tax offset

    Write at A the amount of non-refundable R&D tax offset. This is the amount calculated in Part E, A Non-refundable R&D tax offset item 5, on the Research and development tax incentive schedule 2016.

    This amount plus the amount included in B Non-refundable R&D tax offset carried forward from previous year item 21 are included in your total at D Non-refundable carry forward tax offsets in the Calculation statement.

    B - Non-refundable R&D tax offset carried forward from previous year

    Write at B the amount of non-refundable R&D tax offset carried forward from the previous year. If you claimed non-refundable R&D tax offset in one or more earlier income years commencing on or after 1 July 2011 and did not apply all or part of the tax offset in those earlier income years, you may be able to carry forward and use those parts of the tax offset that was unapplied in this income year. To work out whether you can carry forward and use all or part of the non-refundable R&D tax offset from an earlier income year to this year, see Division 65 of the ITAA 1997.

    If you can carry forward and use all or part of your non-refundable R&D tax offset from one or more earlier income years commencing on or after 1 July 2011, you may be able to obtain the amount to include at B from your previous year’s company tax return. The amount to include at B may be found at D Non-refundable R&D tax offset carried forward to next year item 21 from your 2015 company tax return.

    Do not include an amount at B if you are prevented from using the non-refundable R&D tax offset from the income year ending 30 June 2012 by Division 65 of the ITAA 1997. For example, Division 65 states that before you can apply a tax offset brought forward from a prior year to reduce the amount of income tax that you will pay in a later year, you must apply it to reduce certain amounts of net exempt income. If the company is a small business entity for the year, net exempt income is reduced by $1 for each 28.5 cents of the tax offset; otherwise net exempt income is reduced by $1 for each 30 cents of the tax offset.

    If you have not previously claimed this non-refundable R&D tax offset, or you did not have any non-refundable R&D tax offset carried forward from one or more earlier income years commencing on or after 1 July 2011 you do not need to complete B.

    The amount you have included at B plus the amount included in A Non-refundable R&D tax offset item 21 are included in your total at D Non-refundable carry forward tax offsets in the Calculation statement.

    Prior to completing C item 21 and D item 21 you will need to complete the Company tax return 2016 Calculation statement to work out your income, tax payable (and other offset amounts) before you will know how much can be applied.

    C - Non-refundable R&D tax offset to be utilised in current year

    Write at C the amount of non-refundable R&D tax offset utilised in the current year. The non-refundable R&D tax offset can be utilised to reduce your tax payable to zero, but cannot go below zero, that is, not into a negative.

    To work out the non-refundable R&D tax offset you can use this year, you will need to consider amounts you have included in A Non-refundable R&D tax offset item 21 and B Non-refundable R&D tax offset carried forward from previous year item 21.

    If the amount at T2 Subtotal 1 in the Calculation statement is more than the amount at D Non-refundable carry forward tax offsets in the Calculation statement, the amount at C item 21 will be equal to the amount at A plus B item 21 (see example 1).

    If the amount at T2 Subtotal 1 in the Calculation statement is less than the amount at D Non-refundable carry forward tax offsets in the Calculation statement, you will need to calculate an amount at C. Show at C the amount of non-refundable R&D tax offset utilised to make T3 Subtotal 2 in the Calculation statement zero (see example 2).

    D - Non-refundable R&D tax offset carried forward to next year

    Write at D the amount of non-refundable R&D tax offset carried forward to next year. This amount is calculated by adding the amounts at A and B item 21 and then subtracting the amount at C item 21.

    You must complete C item 21 and the Calculation statement prior to completing D.

    Example 1

    Company XYZ has an amount at T2 Subtotal 1 in the Calculation statement of $100,000. The amount at D Non-refundable carry forward tax offsets in the Calculation statement was $60,000 from a non-refundable R&D tax offset of $60,000. The company had no R&D non-refundable tax offset carried forward from the previous income year. The amount at C item 21 will be equal to the amount at A plus B item 21. D item 21 is $0 as the entire non-refundable R&D tax offset has been applied against the amount at T2 Subtotal 1 in the Calculation statement and there is no amount remaining to be carried forward and applied in a future income year.

    In this example, the Calculation statement labels would show:

     Image from tax return

    The item 21 Non-refundable R&D tax offset labels would be completed as follows:

     Image from tax return

    End of example

     

    Example 2

    Company XYZ has an amount at T2 Subtotal 1 in the Calculation statement of $60,000. The amount at D Non-refundable carry forward tax offsets in the Calculation statement was $100,000 (including a non-refundable R&D tax offset of $50,000 from the current income year and a non-refundable R&D tax offset of $50,000 from the previous income year that Company XYZ can use in the current income year). The amount at C item 21 was $60,000 as this was the amount utilised to make T2 Subtotal 2 in the Calculation statement zero. D item 21 is $40,000 as this is the amount remaining after applying the non-refundable R&D tax offset against the amount at T2 Subtotal 1 in the Calculation statement.

    In this example, the Calculation statement labels would show:

    Example of completed calcluation statement labels.

    The item 21 Non-refundable R&D tax offset labels would be completed as follows:

    Example of completed non-refundable R&D tax offset labels.

    End of example

    Refundable R&D tax offset

    To claim a refundable R&D tax offset, an eligible company must:

    • have an aggregated turnover of less than $20 million, and
    • not be controlled by one or more income tax exempt entities.

    For eligible notional deductions on R&D activities that are $100 million or less, the non-refundable R&D tax offset is equal to the amount of eligible notional deductions x 45%.

    For eligible notional deductions on R&D activities which exceed $100 million, the refundable R&D tax offset is equal to the sum of eligible notional deductions for the first $100 million x 45%, and eligible notional deductions in excess of $100 million x the applicable company tax rate.

    Due to the refundable tax offset rules in Division 67 of the ITAA 1997, the refundable R&D tax offset directly reduces basic income tax liability of a company (income tax). Where the amount of the refundable R&D tax offset exceeds the amount of tax that the company would otherwise have had to pay, then the excess is refundable (subject to any other tax debts owing).

    U Refundable R&D tax offset

    Write at U the amount of refundable R&D tax offset. This amount is calculated in Part E, U Refundable R&D tax offset item 4 of the Research and development tax incentive schedule 2016.

    Include this amount in your total at E Refundable tax offsets in the Calculation statement.

    Feedstock adjustment

    You may need to include a feedstock adjustment to include an additional amount in your assessable income if you can claim the R&D tax offset under Division 355 of the ITAA 1997 for expenditure on goods, materials or energy used during R&D activities to produce marketable products or products applied to your own use.

    W - Feedstock adjustment – additional assessable income

    Write at W the total of all feedstock adjustments that are required to be made. A feedstock adjustment will need to be made where your R&D activities have produced products supplied to someone else, or applied to your own use (other than in transforming such products for supply) in this income year.

    If you have completed the Research and development tax incentive schedule 2016, include at W the amount calculated in Part B, B Feedstock adjustment - additional assessable income item 3. You will also need to include this amount in B Other assessable income item 7.

    If you have a feedstock adjustment but are not claiming the R&D tax offset, you do not need to complete the Research and development tax incentive schedule 2016. You will still need to work out your feedstock adjustment and include it at W. See the instructions for the Research and development tax incentive schedule 2016 (part B) for details about how you work out your feedstock adjustment. When you have worked out your feedstock adjustment, include the amount at W.

    You will also need to include this amount in B Other assessable income item 7.

    Last modified: 12 Feb 2019QC 48080