An amount of the R&D tax offset you have claimed in any year is clawed back in the current year if one or more of the following clawback events happens during the year:
- you have received a recoupment amount from a government source for expenditure which it has obtained an R&D tax offset
- you have a feedstock adjustment for tangible products
- you have an assessable balancing adjustment for an R&D asset.
The clawback includes an additional amount in your assessable income.
A clawback adjustment arises in a year you, or an entity connected or affiliated with you, either receives or is entitled to receive a recoupment from an Australian Government agency, or a state or territory body, and either:
- the recoupment (such as a reimbursement) relates to expenditure incurred on certain activities or the recoupment (such as a grant) requires expenditure to either be or have been incurred on certain activities
- you are eligible for the R&D tax incentive in relation to that expenditure (or decline in value notional deductions where the expenditure was for a depreciating asset) used in those activities.
The clawback is worked out on the amount of the R&D expenditure recouped.
A feedstock adjustment arises where you obtain an R&D tax offset for your feedstock expenditure incurred on R&D activities and during an income year those activities produce products that you, or an entity connected or affiliated with you, supply to someone else or apply to own use.
The feedstock adjustment applies to either:
- expenditure on goods or materials (feedstock inputs) that are transformed or processed during R&D activities in producing one or more tangible products (feedstock outputs)
- expenditure on energy that is input directly into that transformation or processing
- the decline in value of assets used in acquiring or producing the feedstock inputs.
The feedstock provisions apply to both core R&D activities and supporting R&D activities that transform or process feedstock inputs. The provisions are not confined to mass production or industrial activities.
Where a feedstock adjustment is triggered, you must include an amount in your assessable income. This may be in the current or in a future income year, depending on when the output is sold or applied.
The clawback is worked out on the lesser of the feedstock expenditure for the product supplied or applied to own use and their feedstock revenue. Feedstock revenue is calculated as:
A balancing adjustment happens when you stop holding a depreciating asset. A common example is when you sell the asset. The clawback is worked out on the termination value of the R&D asset at that time which exceeds its adjustable value (previously known as tax-written down value). The amount is capped to ensure the clawback does not apply to the extent that the asset has appreciated in value. If the asset was partially held for R&D purposes, the clawback amount is reduced in proportion to the non-R&D use of the asset.
A separate catch-up deduction arises instead if the adjustable value exceeds the termination value of the asset at the time of the balancing adjustment event. If you have a deductible balancing adjustment for an R&D asset, you can claim a catch-up deduction that mirrors the clawback for an assessable balancing adjustment. This provides a deduction in lieu of the amount of R&D tax offset which is forgone on the asset when the balancing adjustment event happens.
A clawback amount is included in your assessable income. The amount matches the incentive or premium component of the R&D tax offset that relates to the clawback event.
Use the following steps to work out the clawback amount:
- Start with each amount that is being clawed back in the current year.
- Separate each amount into the notional deduction that is being clawed back for each claim year.
- Add up the amounts being clawed back for each claim year.
- Multiply the total amount being clawed back for each claim year by your corporate tax rate for that year. This is called your deduction amount.
- Work out for each claim year the difference between your original R&D tax offset, and what your R&D tax offset would have been if notional deductions had been reduced by the total amount being clawed back for that year. This is called your offset differential.
- Add up all your deduction amounts and add up all your offset differentials.
- Subtract your total deduction amounts from your total offset differentials. This is the premium or incentive component of your R&D tax offset above your corporate tax rate for the amounts being clawed back.
- Gross up the premium or incentive component to an equivalent amount of assessable income by dividing the amount by your corporate tax rate for the current year. This amount is included in your assessable income.