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21. Research and development tax incentive

Last updated 17 January 2023

Instructions to complete research and development (R&D) tax incentives.

About the R&D tax offset

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 Industry Research and Development Act 1986 (IR&D Act 1986), where that RSP is not an associate of the R&D entity
  • expenditure incurred as a monetary contribution under the Co-operative Research Centre (CRC) program.

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 2022 with your Company tax return 2022.

For more information on the R&D tax incentive, see:

Non-refundable R&D tax offset

Complete in this section, labels A, B, C, and D.

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 the Research and development tax incentive schedule 2022 at Part E, A Non-refundable R&D tax offset item 3.

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 a 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.

You can obtain the amount to include at B from your previous year’s company tax return at D Non-refundable R&D tax offset carried forward to next year item 21 in the Company tax return 2021.

However, do not include an amount at B if you are prevented from using the non-refundable R&D tax offset from 2011–12 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 base rate entity for the income year, net exempt income is reduced by $1 for each 25 cents of the tax offset; otherwise net exempt income is reduced by $1 for each 30 cents of the tax offset.
  • Division 65 states that you cannot apply a tax offset brought forward from a prior year if Subdivision 165-A of the ITAA 1997 (as applied to a carry forward tax offset) prevents you from doing so. You cannot use a carry forward tax offset if you are unable to meet either the continuity of ownership test or the business continuity test in Division 165-A of the ITAA 1997.

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 item 21.

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 2022 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 15a).

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 15b).

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 item 21.

Example 15a

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:

Subtotal 1 T2

$100,000.00

Non-refundable carry forward tax offsets D

$60,000.00

Subtotal 2 T3

$40,000.00

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

Non-refundable R&D tax offset A

$60,000.00

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

$0.00

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

$60,000.00

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

$0.00

 

End of example

 

Example 15b

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:

Subtotal 1 T2

$60,000.00

Non-refundable carry forward tax offsets D

$100,000.00

Subtotal 2 T3

$0.00

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

Non-refundable R&D tax offset A

$50,000.00

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

$50,000.00

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

$60,000.00

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

$40,000.00

 

End of example

Refundable R&D tax offset

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 2 of the Research and development tax incentive schedule 2022.

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

Adjustments

W – Clawback amounts – additional assessable income

If you have completed the Research and development tax incentive schedule 2022, include at W the amount calculated in Part B, P Total clawback - additional assessable income item 9.

If you have a clawback amount but are not claiming the R&D tax offset, you do not need to complete the Research and development tax incentive schedule 2022. You will still need to calculate your clawback amount and include it at W. See the instructions for the Research and development tax incentive schedule 2022 (Part B) for details about how you calculate your clawback amount.

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

X – Balancing adjustments – catch up deduction

If you have completed the Research and development tax incentive schedule 2022, include at X the amount calculated in Part B, Q Balancing Adjustments - catch up deduction item 10.

If you have a balancing adjustment but are not claiming the R&D tax offset, you do not need to complete the Research and development tax incentive schedule 2022. You will still need to work out your balancing adjustment and include it at X. See the instructions for the Research and development tax incentive schedule 2022 (Part B) for details about how you calculate your balancing adjustment amount.

You will also need to include this amount in X Other deductible expenses item 7.

Continue to: 22. Early stage venture capital limited partnership tax offset

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