How receiving a reimbursement or grant may impact you if you've claimed the research and development (R&D) tax offset.
A clawback adjustment applies for a recoupment if:
- you receive (or are entitled to receive), a government recoupment (such as a grant or reimbursement) for eligible research and development (R&D) expenditure
- you have claimed the R&D tax incentive tax offset for this eligible R&D expenditure (or decline in value of notional deductions where the expenditure was for a depreciating asset used in R&D activities).
Clawback does not decrease the grant or tax offset you receive. Rather, it increases your assessable income by an amount for the notional deduction that an R&D entity received or is entitled to receive in relation to the recoupment amount. This is called a 'clawback adjustment'.
This clawback adjustment also applies to you if the recoupment belongs to an entity that is connected or affiliated with you, or you are affiliated with.
A clawback adjustment does not apply to:
- cash flow boosts you receive as it is not a recoupment of expenditure incurred on or in relation to certain activities
- a JobKeeper payment you received for your paid employees as the payment already triggered the at-risk rule – the total expenditure you can claim as a notional deduction for your wage expenditure has already been reduced by its receipt on application of the at-risk rule
- a JobKeeper payment you received based on business participation as the payment is not a recoupment of expenditure incurred on or in relation to certain activities.
Recoupments you receive under the Cooperative Research Centre (CRC) Program are exempt from the clawback adjustment.
For more information see:
- section 355-440 and section 355-450 of the ITAA 1997
- Subdivision 355-K of the ITAA 1997
- connected entities and affiliates
- Taxation Determination TD 2021/9 Income tax: JobKeeper payments received or expected as a result of research and development expenditure
The clawback adjustment is calculated on the R&D expenditure and decline in value for which you claimed a notional deduction in relation to the recoupment. The expenditure amount is reduced for any repayments of the recoupment.
A cap applies to ensure the clawback adjustment cannot exceed the amount of a grant you received that, on a pro-rata basis, relates to the total expenditure on R&D activities and related decline in value. This means the benefit of the R&D tax incentive cannot be clawed back beyond the amount of the grant.
The adjustment for each clawback amount is worked out as:
This formula calculates an amount on a year-by-year basis. The total of the amounts worked out for each offset year is included in assessable income for the trigger year.
The 'starting offset' is the actual amount of R&D tax offset the entity receives that includes an amount being clawed back. The formula is used separately for each offset year that includes an amount being clawed back.
The 'adjusted offset' is the offset amount that the entity would have received for the offset year if its notional R&D deductions were reduced by the amount being clawed back.
The 'deduction amount' is the clawback amount multiplied by the R&D entity's company tax rate for the offset year. By subtracting this, the clawback only includes the incentive component of the tax offset.
The amount worked out above is then grossed-up for the entity's company tax rate for the current year to work out the equivalent amount to include in assessable income.
This formula is also used to calculate the assessable income included in relation to other clawback amounts for feedstock and balancing adjustments. The formula will be used repeatedly where there is more than one clawback amount.
For more tools to assist you to calculate the amount to include in your assessable income for your recoupment, you can also refer to the R&D tax incentive schedule instructions 2022 and the R&D tax incentive calculator.
Example: clawback of recoupment
Burgundy Bagasse Ltd (Burgundy) conducts R&D activities in relation to a new machine that removes, shreds, crushes and bales grape vines. The activities for which they receive the R&D tax incentive include trials on a vineyard they use to produce table wine.
Burgundy Bagasse Ltd also receives a reimbursement under a government vine-pull scheme for certain costs they incurred to remove those vines. They received $400,000 for expenditure which they notionally deducted under the R&D tax incentive.
Burgundy's aggregated turnover for the 2021–22 income year is below $20 million and its total notional R&D deduction for that year is $2 million. The company's tax rate is 25%. Burgundy is eligible for a 43.5% refundable tax offset for the 2021–22 income year.
The company has no other clawback amounts.
Burgundy's starting offset is $2,000,000 × 43.5% = $870,000.
Burgundy's adjusted offset is determined by excluding the reimbursement amount that was notionally deducted and multiplying the result by its tax offset rate, which is:
- $2,000,000 − $400,000 = $1,600,000
- $1,600,000 × 43.5% = $696,000.
The deduction amount is determined by multiplying the reimbursement amount that was notionally deducted by Burgundy's tax rate in the 2021–22 income year, which is $400,000 × 25% = $100,000.
For the expenditure that is reimbursed under the vine-pull scheme, Burgundy includes the clawback amount of $296,000 in its 2021–22 income year, which is calculated as follows:
- ($870,000 − $696,000 − $100,000) ÷ 25% = $296,000.
If you have repaid a recoupment (such as a grant) in full or in part, the amount you received is taken to be the recoupment less the amount you repaid. This will reduce the amount included in assessable income for the year in which you received the recoupment.
You include the amount in assessable income for a recoupment you receive in the year in which you receive it or become entitled to receive it. This is called the 'trigger year'. This is the case regardless of whether you claimed the related R&D tax offsets in the same, an earlier or a later income year. If you receive a related R&D tax offset in a later income year, your past income tax assessment for the trigger year may need to be amended.
Grants you receive for R&D expenditure that attract the R&D tax incentive must be included in your total assessable income, unless they are specifically exempt under a provision of either the:
- Income Tax Assessment Act 1936 (ITAA 1936)
- Income Tax Assessment Act 1997 (ITAA 1997)
You can find more information at Whether recoupments are assessable income.
For information on eligible entities and how to claim the incentive:
- phone us on 13 28 66 between 8:00 am and 6:00 pm Monday to Friday.
For information on registration, eligibility of R&D activities and findings, you can contact AusIndustry by:
- phone on 13 28 46
- submitting an email enquiryExternal Link
Refer to Contact us on the business.gov.auExternal Link website for the full list of contact details.How receiving a reimbursement or grant may impact you if you've claimed the research and development (R&D) tax offset.