This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.
End of attention
Before you start to fill in the schedule, you will need to make certain calculations and complete certain parts of the company tax return.
Six labels on the Company tax return 2012 relate to the R&D tax incentive:
- at page 5 item 7 'Reconciliation to taxable income or loss'
- label D 'Accounting expenditure in item 6 subject to R&D tax incentive'
- at page 9 item 22 'Research and development tax incentive'
- label A 'Non-refundable R&D tax offset'
- label C 'Non-refundable R&D tax offset to be utilised in current year'
- label D 'Non-refundable R&D tax offset carried forward to next year'
- label U 'Refundable R&D tax offset'
- at page 10 'Calculation statement'
- label M 'R&D recoupment tax'.
At item 7 'Reconciliation to taxable income or loss' on the Company tax return 2012, complete D 'Accounting expenditure in item 6 subject to R&D tax incentive' (to complete this item, see Preliminary calculation - Add-back of research and development (R&D) accounting expenditure).
See Company tax return instructions 2012 for further information on completing the labels above.
End of further information
Total notional R&D deduction amount
Using Part A of these instructions, calculate your total notional R&D deduction amount to determine whether the company can claim an R&D tax offset. To be eligible to claim an R&D tax offset, the company's total notional deductions at part A must be 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 Industry Research and Development Act 1986 (IR&D Act), where that RSP isn't an associate of the R&D entity
- expenditure incurred as a monetary contribution under the Cooperative Research Centre (CRC) program.
Do not complete a schedule unless:
End of attention
- your total notional deductions are at least $20,000
- you have incurred expenditure to a RSP, or
- you have made a monetary contribution under the CRC program.
Expenditure to associates
Under the R&D tax incentive, you can only obtain an R&D tax offset for expenditure incurred to an associate when that amount is paid. Prior to completing the Research and development tax incentive schedule, you will need to determine which amounts you have paid to associates: see Part D - R&D expenditure to associates.
The amounts used in the calculation of the R&D tax incentive for consolidated groups must be worked out on a consolidated basis, with all intra-group transactions eliminated. They must not be calculated on an aggregated basis, by simply adding together the expenditure of each company in the group.
A clawback adjustment will apply if you have:
- claimed a notional deduction under the R&D tax incentive, and
- received, or become entitled to receive, a government recoupment such as a grant or reimbursement that relates to this expenditure.
The government recoupment may be from an Australian Government agency or a state or territory body.
Under subdivision 355-G of the ITAA 1997, the income tax you are liable to pay on the recoupment will be increased. This is referred to as a clawback adjustment and is recorded at label M 'R&D recoupment tax' on the Company tax return 'Calculation statement'.
If a clawback adjustment applies, read Part C - Clawback - R&D recoupment tax.
Adjust the amount of expenditure incurred in accordance with the prepayment provisions in sections 82KZL to 82KZMF of the Income Tax Assessment Act 1936 (ITAA 1936).
Expenditure incurred while not at arm's length
Adjust the amount of expenditure incurred in accordance with the rules in section 355-400 of the ITAA 1997 if any of this expenditure was incurred while not dealing at arm's length, or to an associate (as defined in section 318 of the ITAA 1936).
If you incur expenditure to either:
- an associate, or
- another party with which you are not dealing at arm's length.
and the expenditure incurred exceeds the market value of the relevant R&D activity, the amount eligible for a notional R&D deduction is treated as being the market value of the R&D activity.
The amount that a company can claim as a notional R&D deduction is reduced to reflect mark-ups between connected or affiliated entities.
Prior to completing the schedule you need to calculate your reduction amount as per subsection 355-415(2) of the ITAA 1997.
Companies wishing to claim a notional deduction for overseas R&D activities under Division 355 of the ITAA 1997 must have a positive overseas finding from Innovation Australia before they can make a claim. Sections 28C and 28D of the IR&D Act provide information on findings about activities to be conducted outside Australia, including conditions that must be met.
For more information about the location of your R&D activities, go to the AusIndustry website and search for:
End of further information
- Research and development tax incentive - overview
- R&D Tax Incentive - Overseas R&D.
Determine amounts that are notionally deductible for depreciating assets under subdivision 355-E or section 355-520 of the ITAA 1997, in relation to your R&D activities.
Grouping rules for aggregated turnover purposes
You need to consider the grouping rules to work out whether your company qualifies for the refundable tax offset, including whether it is an R&D entity that:
- meets the aggregated turnover threshold, which is calculated on a 'group' basis, or
- is controlled by one or more exempt entities.
Expenditure that is not at risk
As per section 355-405 of the ITAA 1997, a company cannot claim a notional deduction for expenditure if it is not at risk in respect of that expenditure. Apply section 355-405 of the ITAA 1997 to reduce your notional deductions by any amount for which the company was not at risk.
Core technology expenditure
Expenditure incurred in acquiring technology that is 'core technology' cannot be claimed under the R&D tax incentive.
There are special transitional arrangements covering undeducted core technology expenditure (previously deductible under the R&D tax concession).
These arrangements will help ensure that any undeducted core technology expenditure is eligible for deduction, even though such deductions are not taken into account in calculating the amount of any tax offset a company might be entitled to under the R&D tax incentive.
The rules outlined below apply irrespective of whether the company continues to use the core technology for eligible R&D activities after 1 July 2011.
If the core technology is a depreciating asset (for example, a patent) the provisions in Division 40 of the ITAA 1997, for deducting amounts for depreciating assets, will apply on the basis that the opening adjustable amount is the amount of undeducted expenditure in relation to the asset.
If the core technology is not a depreciating asset, the undeducted expenditure is deductible in equal proportions over five income years, starting in the first income year beginning on or after 1 July 2011.
Undeducted core technology amounts, claimed under the transitional rules, should be shown at item 7 label X 'Other deductible expenses' in the Company tax return2012.
End of attention
Expenditure incurred to acquire or construct either:
- a building or a part of a building, or
- an extension, alteration or improvement to a building
is ineligible to be notionally deducted under the R&D tax incentive.
Expenditure incurred for interest (within the meaning of subsection 128A(1AB) of the ITAA 1936) payable to an entity is ineligible to be notionally deducted under the R&D tax incentive.
Goods and services tax (GST)
Adjust expenditure amounts to exclude any GST input tax credits to which you are entitled (see Division 27 of the ITAA 1997).
Lodging the schedule
For information on how to lodge your schedule, go to Lodgment.
Complete all items that apply to your company, including yes or no items. If an item or label (other than a yes or no item) does not apply, leave it blank unless otherwise instructed.
Last modified: 21 Dec 2012QC 26005