A clawback adjustment applies 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 notional deductions where the expenditure was for a depreciating asset used in R&D activities).
Clawback does not decrease the grant or offset you receive. Rather, it increases the income tax you are liable to pay on the recoupment. This income tax increase is called a 'clawback adjustment'.
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
- 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.
Calculating clawback adjustments
The clawback adjustment is extra income tax of 10% on both of the following:
- the R&D expenditure and decline in value for which you claimed a notional deduction in relation to the recoupment
- the expenditure and decline in value for which your affiliates and entities connected with you claimed a notional deduction in relation to 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.
If an entity’s notional R&D deductions exceed $100 million for an income year, the amount of expenditure used in the calculation of the clawback adjustment may be reduced.
Example – Clawback from R&D activities
Burgundy Bagasse Ltd 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 $500,000 reimbursement under a government vine-pull scheme for certain costs they incurred to remove those vines. Of this amount, $400,000 was for expenditure they notionally deducted under the R&D tax incentive.
Clawback of $40,000 (10% of $400,000), in the form of extra income tax, will apply in relation to the R&D expenditure that is reimbursed under the vine-pull scheme.End of example
What happens if you repay the recoupment?
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 of extra income tax you are liable to pay for the year in which you received the recoupment.
When are you liable to pay the clawback adjustment amount?
You are liable to pay the extra income tax on a recoupment you receive in the year in which you receive it – that is, 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 received offsets in later income years, your past income tax assessments may need to be amended.
Are grants you receive for R&D assessable?
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).
For information on registration, eligibility of R&D activities and findings, contact AusIndustry:
- Visit the ‘Contact Us’ page on the business.gov.auExternal Link website for details on how to contact AusIndustry via phone (13 28 46), email or web chat.
For information on eligible entities and amounts you can claim, contact the ATO:
- visit ato.gov.au/randdtaxincentive
- phone us on 13 28 66 between 8.00am and 6.00pm Monday to Friday
- email us at firstname.lastname@example.org