Parts D&E - Australian owned & foreign owned R&D incremental tax concession

Calculation instructions

The steps below will assist you to calculate the amount of the extra deductions (extra 50% deduction on Australian owned R&D activities and/or extra 75% deduction on foreign owned R&D activities) that a company may be eligible to claim.

Definitions of the terms used throughout these instructions are available at Definitions.

If you do not wish to claim either of these deductions, do not complete these steps and go to Part F - R&D tax offset (eligible Australian owned expenditure only).

Year abbreviations

Y0	the current year of income for which the company tax return is being completed - for most companies the current year is 2007-08.
Y-1	the 2006-07 year of income (if 2007-08 is the current year of income).
Y-2	the 2005-06 year of income (if 2007-08 is the current year of income).
Y-3	the 2004-05 year of income (if 2007-08 is the current year of income).

Step 1 - Is the company a member of a group for the purposes of the R&D tax concession?

(Parts D&E)

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 the ITAA 1936 for the current year of income and the previous three years of income ('the four years'). The 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).

Step 1.1 (Part D)

If you incurred incremental expenditure, as defined in subsection 73P(2) of the ITAA 1936, on Australian owned R&D activities and are eligible for and wish to claim the Australian owned R&D incremental tax concession, you will need to complete part D of the Research and development tax concession schedule 2008.

The schedule will automatically populate the company's name and TFN at a item 1 in Part D. Enter the name and TFN of all group members that have incurred incremental expenditure on Australian owned R&D activities in a group membership period in any of the four years at item 1 in part D of the Research and development tax concession schedule 2008.

In addition, enter the name and TFN of all group members that have incurred expenditure on foreign owned R&D, as defined in subsection 73B(14C) of the ITAA 1936, in a group membership period in any of the four years at item 1 in part E of the Research and development tax concession schedule 2008. The schedule will automatically populate the company's name and TFN at a item 1 in Part E.

Step 1.2 (Part E)

If you incurred expenditure on foreign owned R&D and are eligible for and wish to claim the foreign owned R&D incremental tax concession, you will need to complete part E of the Research and development tax concession schedule 2008.

The schedule will automatically populate the company's name and TFN at a item 1 in Part E. Enter the name and TFN of all group members that have incurred expenditure on foreign owned R&D, as defined in subsection 73B(14C) of the ITAA 1936, in the group membership period in the Y₀ year of income at item 1 in part E of the Research and development tax concession schedule 2008, if not already completed.

In addition, enter the name and TFN of all group members that have incurred incremental expenditure on Australian owned R&D in a group membership period in any of the four years at item 1 in part D of the Research and development tax concession schedule 2008, if not already completed. The schedule will automatically populate the company's name and TFN at a item 1 in Part D.

Step 2 - Calculate the reduced expenditure on Australian owned R&D for each year - that is, the total incremental expenditure for the company and grouped company members adjusted to take into account any grants or recoupments attributable to that incremental expenditure.

(Part D)

Step 2.1.1

Incremental expenditure is a subset of R&D expenditure as defined in subsection 73B(1) of the ITAA 1936, and includes contracted expenditure, salary expenditure and other expenditure incurred directly in respect of R&D activities.

For these purposes, incremental expenditure only includes amounts of expenditure deductible under subsections 73B(13) and 73B(14) of the ITAA 1936 (or would be so deductible ignoring the operation of the $20,000 limit in paragraph 73B(14)(b)), in respect of registered, Australian owned R&D activities.

It excludes the following:

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

The following labels in Part A relate to the expenditure items that may form part of incremental expenditure in the Y₀ year of income:

• B and C in item 1
• F and G in item 2
• I and J in item 3
• O and P in item 4
• W and X in item 6

The schedule will automatically populate the company's Y₀ incremental spend at a item 1 Part D.

Step 2.1.2

Although Y₀ is automatically populated from the information contained in Part A of the R&D schedule, you may need to make adjustments if any of the following circumstances apply.

• An intra-group markup 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 the ITAA 1936) (Note: If no other amounts are included at row f insert this amount as a negative).
• Where the company has a transitional substituted accounting period in the claim year, make adjustments (positive or negative) in rows f and g 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) in rows f and g. For more information. See sections 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 the ITAA 1936. If none of the expenditure is apportionable, do not include the expenditure as incremental expenditure (subsection 73P(4) of the ITAA 1936).
• If you are claiming the foreign owned R&D incremental tax concession (and not the Australian owned R&D incremental tax concession) but you have also incurred expenditure on Australian owned R&D and your aggregate R&D amount is $20,000 or less, you will need to include the amount of any salary expenditure, other R&D expenditure, contract - other expenditure and eligible feedstock expenditure that you have incurred in relation to Australian owned R&D in row f.

Row f is used to adjust the incremental expenditure claimed at 100%. 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 may also 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 (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 ofincome.

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 2.1.3

Ensure that you have entered the total amount of government grants and recoupments attributable to incremental expenditure on Australian owned R&D at A item 2 in Part C. The schedule will automatically adjust the company's incremental expenditure to take into account government grants and recoupments entered at A item 2 in Part C and calculate the company's reduced expenditure on Australian owned R&D.

Step 3 - Calculate the reduced expenditure on foreign owned R&D for the Y₀ year and reduced notional expenditure on foreign owned R&D for the previous three years.

(Part E)

Step 3.1.1

Reduced expenditure on foreign owned R&D for the company is the expenditure on foreign owned R&D for the company and grouped company members adjusted to take into account any grants or recoupments attributable to that expenditure on foreign owned R&D.

For these purposes, expenditure on foreign owned R&D for the Y₀ year is equal to the amount shown at J item 17 in Part A of the Research and development tax concession schedule 2008.

The schedule will automatically populate the company's Y₀ expenditure on foreign owned R&D at a item 1 Part E.

Step 3.1.2

Although Y₀ is automatically populated from the information contained in Part A of the R&D schedule, you may need to make adjustments if any of the following circumstances apply.

• Where the deduction amounts reported in Part A of the Research and development tax concession schedule 2008 relate to a period that is greater or less than 12 months, you must make adjustments (positive or negative) in row f to reflect the expenditure on foreign owned R&D 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) in row f. For more information, see sections 73BAC and section 73BAD of the ITAA 1936 and the Guide to the R&D tax concession.
• If you are claiming the Australian owned R&D incremental tax concession (and not the foreign owned R&D incremental tax concession) but you have also incurred expenditure on foreign owned R&D of $20,000 or less, you will need to include the amount of this expenditure in row f.

Row (f) is used to adjust the expenditure on foreign owned R&D.

You will need to calculate the reduced expenditure on foreign owned R&D for all other entities with group membership periods for the Y₀ year of income. The types of adjustments you may be required to make to the Y₀ amount for the company may also affect the amounts reported in respect of the Y₀ year of income for the other group members.

Step 3.1.3

Ensure that you have entered the total amount of government grants and recoupments attributable to expenditure on foreign owned R&D at F item 3 in Part C. The schedule will automatically adjust the company's expenditure on foreign owned R&D to take into account government grants and recoupments entered at F item 3 in Part C and calculate the company's reduced expenditure on foreign owned R&D.

Step 3.2

Work out, for each of the Y_-1, Y_-2 and Y_-3 years of income, the reduced notional expenditure on foreign owned R&D by the company in its group membership period for the year of income, using either step 3.2.1 or step 3.2.2 below for each of these years.

Step 3.2.1 is the transitional method for calculating the notional expenditure on foreign owned R&D and only applies to the 2008 year of income. For instructions on how to calculate the notional expenditure on foreign owned R&D for future income years, see the specific instructions for those years.

If the company has incurred an amount of expenditure on foreign owned R&D in its group membership period for the Y₀ year (worked out at step 3.1.1) and each of the Y_-1, Y_-2 and Y_-3 years of income is a nil expenditure year (concerning the establishment of a new presence in Australia - see subsection 73QB(2) of the ITAA 1936), use step 3.2.1 to calculate the notional expenditure on foreign owned R&D and do not complete step 3.2.2.

If the company has incurred an amount of expenditure on foreign owned R&D in its group membership period for the Y₀ year including all or part of the year of income starting after 30 June 2007 and before 1 July 2008 (worked out at step 4.1.1) and any of the Y_-1, Y_-2 and Y_-3 years of income is not a nil expenditure year (concerning the establishment of a new presence in Australia - see subsection 73QB(2) of the ITAA 1936), use step 3.2.2 to calculate the notional expenditure on foreign owned R&D and do not complete step 3.2.1.

The Definitions list defines 'nil expenditure year'.

Step 3.2.1

(companies with a nil expenditure year for the Y_-1, Y_-2 and Y_-3 years)

If your company and all of its group members have established a new presence in Australia, enter 0 at each line of item 1 in part E of the Research and development tax concession schedule 2008 (for which you have inserted a company name) for the Y_-1, Y_-2 and Y_-3 years of income.

Step 3.2.2

(companies under the transitional rules)

Companies that do not have a nil expenditure year will be deemed (under the transitional rules) to have deducted an amount in the three years prior to the Y₀ year of income. This deemed expenditure history is worked out by reference to an eligible company's expenditure on foreign owned R&D in the Y₀ year of income (expenditure on foreign owned R&D (from step 3.1.1 above) plus any adjustments to expenditure on foreign owned R&D (from step 3.1.2 above)).

For the company and each other eligible group member, calculate the notional expenditure on foreign owned R&D as follows:

Y_-1 year of income:

Multiply your expenditure on foreign owned R&D for the Y₀ year of income from step 3.1.1 by 90%. Enter this result at each line of item 1 in part E of the Research and development tax concession schedule 2008 (for which you have inserted a company name) for the Y_-1 year of income.

Y_-2 year of income:

Multiply your expenditure on foreign owned R&D for the Y₀ year of income from step 3.1.1 by 80%. Enter this result at each line of item 1 in part E of the Research and development tax concession schedule 2008 (for which you have inserted a company name) for the Y_-2 year of income.

Y_-3 year of income:

Multiply your expenditure on foreign owned R&D for the Y₀ year of income from step 3.1.1 by 70%. Enter this result at each line of item 1 in part E of the Research and development tax concession schedule 2008 (for which you have inserted a company name) for the Y_-3 year of income.

Step 4 - Calculation of adjustment amounts, adjustment balances and entitlement to the Australian owned and foreign owned R&D incremental tax concessions.

(Parts D & E)

The schedule will automatically populate the total R&D spend (Australian owned and foreign owned R&D) 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 Australian owned R&D 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' in item 2 of Part D for the relevant year, in answering the question 'Indicate whether the company, or any of its group members, was eligible, or deemed to be eligible, to claim the incremental tax concession (under sections 73Y, 73QA or 73QB of the ITAA 1936) in the specified years.

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 in Part D (at M item 3) the extra 50% deduction which the company is entitled to (if eligible) under the Australian owned R&D incremental tax concession. Transfer this amount to M - Australian owned R&D - extra incremental 50% deduction item 7 on the Company tax return 2008.

The schedule will also automatically calculate in Part E (at K item 2) the extra 75% deduction which the company is entitled to (if eligible) under the foreign owned R&D incremental tax concession. Transfer this amount to K - Foreign owned R&D - extra incremental 75% deduction item 7 on the Company tax return 2008.

More information

For more information, see:

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