Introduction

These instructions will help you complete the Research and development tax concession schedule 2011, which in turn will help you complete the items for expenditure on research and development (R&D) in theCompany tax return 2011 (NAT 0656). For more information about the R&D tax concession, see the joint AusIndustry - ATO publication Guide to the R&D tax concession.

There is an automated spreadsheet that replicates the research and development tax concession schedule on our website at www.ato.gov.au/randd

This spreadsheet will do the R&D calculations automatically for you.

We will accept a printout of the completed spreadsheet as an official research and development tax concession schedule.

What's new?

Proposed new law

In the 2009-10 Federal Budget the Government announced that it would replace the current Research and Development (R&D) tax laws with a new R&D tax incentive. This new incentive would provide a 45 per cent refundable tax offset for eligible entities with a group turnover of less than $20 million, or a 40 per cent non-refundable tax offset in the case of all other eligible entities.

Subsequently, Tax Laws Amendment (Research and Development) Bill 2010 was introduced into Parliament. This Bill indicates the new incentive is to apply for income years starting on or after 1 July 2010. However as the Bill is yet to be passed by Parliament these instructions apply to the current law which is still in force.

Who must complete a Research and development tax concession schedule?

You must complete and lodge a Research and development tax concession schedule 2011 if you make a claim on your company tax return for expenditure on research and development activities under the R&D tax concession, that is, sections 73B to 73Z of the Income Tax Assessment Act 1936 (ITAA 1936).

Who can claim the R&D tax concession?

You may be entitled to claim the R&D tax concession for your company if it is:

• an eligible company that has registered its research and development activities with Innovation Australia through AusIndustry for the 2010-11 year of income, or
• the head company of a consolidated group where at least one of the subsidiary members in the group is an eligible company and has registered its research and development activities with Innovation Australia through AusIndustry for the 2010-11 year of income (section 73BAB of the ITAA 1936).

An eligible company is a body corporate incorporated under a law of the Commonwealth or of a State or Territory (subsection 73B(1) of the ITAA 1936).

On whose behalf are the research and development activities conducted?

For income years commencing after 30 June 2007, eligible companies may be able to claim expenditure under the R&D tax concession that are:

• incurred in respect of eligible research and development activities, as defined, that are carried out by or on behalf of the claimant company and not on behalf of any other person (Australian owned R&D)
• incurred in respect of Australian-centred research and development activities, as defined, that are carried out on behalf of a foreign company (foreign owned R&D).

The Definitions list defines 'research and development activities', 'foreign company' and 'Australian-centred research and development activities'. 'Australian owned R&D' and 'foreign owned R&D' are not defined terms, but shorthand expressions used to describe particular activities, as set out above.

You can only claim the R&D tax concession for expenditure on research and development activities that are registered with Innovation Australia. Innovation Australia, supported by AusIndustry, determines whether activities are research and development activities and Australian-centred research and development activities.

You must lodge an application for registration of the activities with Innovation Australia within 10 months of the end of your income year.

Before you complete the Research and development tax concession schedule

Before you start to fill in the Research and development tax concession schedule 2011, you will need to make certain calculations and complete certain parts of the company tax return. Read through the points below. Although not exhaustive, they list important information.

Seven items on the Company tax return 2011 relate to the R&D tax concession:

• at page 4 item 7 Reconciliation to taxable income or loss
• • D Accounting expenditure in item 6 subject to R&D tax concession
  • L Australian owned R&D tax concession - not including label M
  • J Foreign owned R&D tax concession - not including label K
  • M Australian owned R&D - extra incremental 50% deduction
  • K Foreign owned R&D - extra incremental 75% deduction
   
• at page 5 item 7 Reconciliation to taxable income or loss
• • Y R&D tax offset, if chosen
   
• at page 8 Calculation statement
• • U R&D tax offset.
   

General

• At item 7 Reconciliation to taxable income or loss on the Company tax return 2011, complete D Accounting expenditure in item 6 subject to R&D tax concession (for information on how to complete this item, see Preliminary calculation - Add-back of research and development (R&D) accounting expenditure).
• Using parts A and B of these instructions, calculate your aggregate research and development amount to determine whether
• • the company can deduct an amount of 'research and development expenditure' (other than contracted expenditure paid to a registered Australian research agency (RRA)) under subsection 73B(14) of the ITAA 1936; that is, an aggregate research and development amount of more than $20,000, and
  • the company's expenditure qualifies for a 100% or 125% deduction under subsections 73B(4D), 73B(4E), 73B(15), 73B(23), 73B(24B) and 73BA(3) of the ITAA 1936.
  • The Definitions list defines 'aggregate research and development amount'.
   
• Using parts A and B of these instructions, calculate your expenditure on foreign owned R&D to determine if you have incurred the required amount for claiming under subsection 73B(14C); that is, more than $20,000.
• • The Definitions list defines 'expenditure on foreign owned R&D'.
   
• Calculate how much has been spent in each category that qualifies for a deduction under section 73B of the ITAA 1936.

Consolidated groups

• The amounts used in the calculation of the R&D tax concession for consolidated groups must be worked out on a consolidated basis, with all intra-group transactions eliminated. They must not be calculated on an aggregated basis, by simply adding together the expenditure of each company in the group.

Clawback

Section 73C of the ITAA 1936 can operate to claw back the additional 25% concession for expenditure on a project of Australian owned R&D for companies that have received a government grant (other than a CRC program grant) for the same project. If you need to make any clawback calculations, you must make them in accordance with section 73C.

• You will need to determine whether the company (or any company required to be grouped with it) received, or was entitled to receive, a grant or recoupment in respect of any amounts claimed under the R&D tax concession.
• To find out how the clawback rules operate where a subsidiary leaves or joins a consolidated group, see section 73BAE of the ITAA 1936 and section 701-5 of the Income Tax Assessment Act 1997 (ITAA 1997).
• If clawback applies, you may find it useful to read Important notes on part A of the research and development tax concession schedule of these instructions and Part C: Government grants and recoupments other than CRC program grants.

Note that the receipt of a grant can also directly affect the calculations for the Australian owned R&D - extra incremental 50% deduction and the foreign owned R&D - extra incremental 75% deduction.

Prepayments

• Adjust the amount of expenditure incurred in accordance with the prepayment provisions in sections 82KZL to 82KZMF of the ITAA 1936 and subsection 73B(11) of the ITAA 1936.

Intra-group markup

• Determine any portion of the expenditure that represents a total group markup (subsections 73B(14AA) to (14AD) of the ITAA 1936) that is:
• • ineligible for the additional 25% component in accordance with the intra-group markup provisions (relevant to expenditure on Australian owned R&D only), and
  • excluded from the definition of incremental expenditure for the purposes of Australian owned R&D and foreign owned R&D expenditure.
   

Overseas expenditure

• Companies wishing to claim a deduction for overseas R&D activities under section 73B, 73BA or 73QA of the ITAA 1936 or a tax offset under section 73I of the ITAA 1936 must have an overseas provisional certificate from Innovation Australia before they can make a claim. Sections 39EC and 39ED of the Industry Research and Development Act 1986 (IR&D Act) cover the application requirements and decisions on applications for overseas provisional certificates.

Depreciating assets

• Determine amounts that are deductible in relation to depreciating assets or plant under section 73BA of the ITAA 1936, in relation to Australian owned R&D activities.

Core technology

• Determine how much core technology expenditure is deductible in accordance with subsections 73B(12A) and 73B(12B) of the ITAA 1936 in respect of Australian owned R&D.

Extra incremental deductions - Australian owned and foreign owned R&D

• Determine whether the company is eligible for the extra 50% deduction for expenditure on Australian owned R&D or the extra 75% deduction for expenditure on foreign owned R&D by referring to subsections 73QA(1) and 73QB(1) of the ITAA 1936.

Grouping rules

• If you are claiming:
• • research and development expenditure or contracted expenditure for amounts paid to associates
  • deductions for the Australian owned and/or foreign owned R&D incremental tax concessions
  • the R&D tax offset
   

you need to determine which entities are in the company group in accordance with section 73L of the ITAA 1936. You will also need to consider these grouping rules, if an associate has received a grant in relation to research and development activities that you are claiming (as clawback may apply). Note that in addition to considering the grouping rules in section 73L, you will also need to consider section 73R of the ITAA 1936 if you are determining entitlement to deductions for the Australian owned and/or foreign owned incremental tax concessions.

Expenditure that is not at risk

• Apply section 73CA of the ITAA 1936 to any expenditure for which the company was not at risk, or section 73CB of the ITAA 1936 to any expenditure incurred to a tax-exempt body that was not at risk (relevant to expenditure on Australian owned R&D only).

Rollover relief

• See sections 73E to 73G of the ITAA 1936 to determine expenditure that may qualify for rollover relief.

Goods and services tax (GST)

• Adjust expenditure amounts to exclude any GST input tax credits to which you are entitled (see Division 27 of the ITAA 1997).

Lodging the schedule

For information on how to lodge your Research and development tax concession schedule 2011, go to Lodgment.

Complete all items on the Research and development tax concession schedule 2011 that apply to your company, including yes or no items. If an item or label (other than a yes or no item) does not apply, leave it blank unless otherwise instructed.