PART D Research and development incremental tax concession

Calculation instructions

If your answer is 'No', you can go to Part E.

Otherwise, the following instructions will assist you in completing Part D and determining your entitlement (if eligible). You must complete this part for all companies in the group that carry out R&D.

The steps below show how to calculate the amount of the premium (additional 50%) a company may be eligible to claim. Definitions of the terms used throughout these instructions are available at Definitions.

Year abbreviations

Y0	the current year of income for which the company tax return is being completed - for most companies the current year is 2006-07
Y-1	the 2005-06 year of income (if 2006-07 is the current year of income)
Y-2	the 2004-05 year of income (if 2006-07 is the current year of income)
Y-3	the 2003-04 year of income (if 2006-07 is the current year of income)

Step 1 - Is the company a member of a group for the purposes of the incremental tax concession?

Test whether the company has any group relationships and determine any relevant group membership periods by using the grouping rules in sections 73L and 73R of ITAA 1936 for the year of income and the previous three years of income. A head company of a consolidated group will also need to consider the R&D grouping provisions (for example, if it is grouped with other entities with less than 100% control or ownership).

If the company is a member of such a group, follow steps 2-3 for all members of the group that have had incremental expenditure in a group membership period in any of the four years Y₀, Y_-1, Y_-2 and Y_-3.

Enter the name and TFN of the company and all group members (if any) that have incurred incremental expenditure in a group membership period in any of the four years at item 1 in Part D Research and development incremental tax concession on page 2 of the R&D schedule.

Step 2 - Calculate R&D spend for each year - that is, the total incremental expenditure for the company and grouped company members.

Incremental expenditure is R&D expenditure as defined in subsection 73B(1) of ITAA 1936, and therefore includes contracted expenditure, salary expenditure and other expenditure incurred directly in respect of R&D activities, whether deductible or not.

Exclude the following:

• expenditure to lease or hire plant, and
• any expenditure included above under a contract that is, in substance, for the acquisition of plant and not for the receipt of services.

The following labels in Part A relate to the expenditure items that may form part of incremental expenditure of the company in question:

• A item 1
• E item 2
• H item 3
• N item 4
• V item 6

The schedule will automatically populate the company's name, TFN and Y₀ incremental spend at row 'a' item 1 Part D.

Although Y⁰ is automatically populated from the information contained in Part A of the R&D schedule, it only includes deductible amounts. You may need to make adjustments any of the following circumstances apply

• The company has incurred some R&D expenditure which is not deductible (for example, in relation to unregistered activities). You must include such amounts at row (f) of Part D.
• An intra-group mark-up is included in Part A. You must deduct the amount of the intra-group mark-up at row (f) (subsection 73P(5) and 73B(14AC of ITAA 1936) (Note: If no other amounts are included at row (f) insert your value as a negative).
• Where the amounts entered in Part A of the R&D Schedule relate to a period that is greater or less than 12-months, you must make adjustments (positive or negative) to row (f) to reflect the incremental expenditure incurred in the 12-month period.
• If section 73BAC or section 73BAD of the ITAA 1936 applies to the company (a company has left or joined a consolidated group) you may need to make an adjustment (positive or negative) to rows (f) and (g). For more information, refer to section 73BAC and section 73BAD of the ITAA 1936 and the Guide to the R&D tax concession.
• If expenditure under a contract is both for the acquisition of plant and for the provision of services, you must apportion the expenditure on a reasonable basis between them, as per subsection 73P(3) of ITAA 1936. If none of the expenditure is apportionable, do not include the expenditure as incremental expenditure (subsection 73P(4) of ITAA 1936).

Note: Row (f) is used to adjust the incremental expenditure claimed at 100% and incremental expenditure that is not deductible in the Y⁰ year of income. Row (g) is used to adjust the incremental expenditure claimable at 125%. A negative value may be inserted in these rows if necessary.

The types of adjustments you may be required to make to the Y₀ amount are also likely to affect the amounts reported in respect of the Y₀, Y_-1, Y_-2 and Y_-3 years of income for the company and other group members.

The company will need to calculate the amount of its incremental expenditure for the immediate prior three years of income (Y₀, Y_-1, Y_-2 and Y_-3) and the incremental expenditure for all other entities with group membership periods for the Y₀, Y_-1, Y_-2 and Y_-3 years of income.

Enter the amounts of incremental expenditures for each company in the columns labelled Y₀, Y_-1, Y_-2 and Y_-3 incremental expenditure at item 1.

Ensure that incremental expenditure for a consolidated group as claimant is recorded in a single row only at row a.Do not disaggregate incremental expenditure for each member of the consolidated group.

Step 3 - Calculation of adjustment amounts and adjustment balances

The schedule will automatically populate the total R&D spend of the company, for the Y₀, Y_-1, Y_-2 and Y_-3, years of income, the adjustment amounts and the adjustment balances.

If the company was eligible for the incremental tax concession in Y_-1 and/or Y_-2, AND satisfies the provisions of subsections 73T(3), 73T(4) and or 73V(3) of ITAA 1936, select 'Yes' for the relevant year, in answering the question 'Please indicate whether the company, or any of its group members, was eligible to claim the increment in 2005-06 and/ or 2004-05'.

The schedule will then automatically calculate any adjustment amount for Y₀ (AA₀) and Y_-1 (AA_-1), and the adjustment balance

The schedule will then automatically calculate (at label M) the deduction which the company is entitled to under the incremental tax concession. Transfer this amount to Label M - Incremental R&D(additional 50%) deductionItem 7 on the Company tax return 2007. 

More information

For more information, see:

• sections 73L to 73Z of ITAA 1936
• sections 73BAC and 73BAD of the ITAA 1936
• Guide to the R&D tax concession