These instructions will help you complete the Research and development tax incentive schedule 2018, which in turn will help you complete the items for the research and development (R&D) tax offset at item 21 of the Company tax return 2018 (NAT 0656). For more information about the R&D tax incentive, see Research and development tax incentive.
If you fill in the Research and development tax incentive schedule 2018 on your computer, the form will complete some calculations and fields for you.
You can use our Research and development tax incentive calculator to help you complete the Research and development tax incentive schedule 2018. You can print a copy of the schedule when you have finished using the calculator. This schedule will be accepted for lodgment with an original tax return or an amendment request.
What's new?
R&D tax offset rates
From 1 July 2016, the refundable and non-refundable tax offset rates for the first $100 million of eligible expenditure have been reduced from:
- 45% to 43.5%, and
- 40% to 38.5%.
For simplicity, no change has been made to the provisions for the adjustment of tax benefits in respect of eligible research and development expenditure where the entity obtains a recoupment for the expenditure or sells feedstock to which the expenditure relates.
Who must complete a Research and development tax incentive schedule?
You must complete and lodge a Research and development incentive schedule 2018 if you make a claim at item 21 on your Company tax return 2018 for an R&D tax offset under the R&D tax incentive, that is, Division 355 of the Income Tax Assessment Act 1997 (ITAA 1997).
If you have a feedstock adjustment (additional assessable income) but are not claiming an R&D tax offset in this year of income, you do not need to complete the Research and development tax incentive schedule 2018. You will still need to work out your feedstock adjustment and include it at W item 21 and B item 7 on the Company tax return 2018. See Part B for information about how you work out your feedstock adjustment.
Who can claim the R&D tax incentive?
You may be entitled to claim the R&D tax incentive in your Company tax return 2018 if you are an R&D entity that has registered its R&D activities with AusIndustry (on behalf of Innovation Australia) for 2017–18.
Only R&D entities can register R&D activities and claim the R&D tax offset. You are an eligible R&D entity if you are a corporation that is any of the following:
- incorporated under an Australian law
- incorporated under foreign law but an Australian resident for income tax purposes
- incorporated under foreign law, and both of the following apply
- the corporation is a resident of a country with which Australia has a comprehensive double tax agreement which includes a definition of 'permanent establishment', and
- the corporation carries on business in Australia through a permanent establishment as defined in the double tax agreement. It is then eligible to the extent that it carries on business through that permanent establishment.
You are not eligible for the R&D tax incentive if you are:
- an individual
- a corporate limited partnership
- an exempt entity (because your entire income is exempt from income tax).
Trusts are not generally eligible R&D entities. The exception is a body corporate in the capacity of trustee for a public trading trust.
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You must register before claiming
You must register before you make a claim for the R&D tax incentive on the company's tax return. You must lodge an application for registration of the activities with AusIndustry within 10 months of the end of your income year. For example, if your income year ends on the 30 June, then you must register by 30 April of the following year.
Who are the R&D activities conducted for?
Generally, an R&D entity is only entitled to a tax offset if the R&D activities were conducted for one of the entities below:
- the R&D entity itself
- a foreign corporation that is
- connected with, or an affiliate of, the R&D entity (or the R&D entity is an affiliate of the foreign resident)
- a resident of a country with which Australia has a comprehensive double tax agreement.
R&D activities that are conducted for a foreign corporation must be conducted under a written agreement meeting certain conditions between the R&D entity and the foreign corporation.
Additionally, if the R&D entity is a foreign corporation carrying on business through a permanent establishment in Australia, it may be entitled to an R&D tax offset if the R&D activities are conducted for the foreign corporation (and not for the permanent establishment in Australia).
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Who administers the R&D tax incentive?
The R&D tax incentive is jointly administered by AusIndustry (on behalf of Innovation Australia), and the Australian Taxation Office (ATO).
For information about how to register for the R&D tax incentive and about what R&D activities qualify for the incentive:
- business.gov.auExternal Link
- phone AusIndustry on 13 28 46.
For information about what amounts are eligible for the R&D tax incentive and how to claim:
- Research and development tax incentive
- phone us on 13 28 66.
Before you complete the Research and development tax incentive schedule
Before you start to fill in the schedule, you will need to make certain calculations and complete certain parts of the Company tax return 2018.
Six labels on the Company tax return 2018 relate to the R&D tax incentive:
- at page 5 item 7 Reconciliation to taxable income or loss
- D Accounting expenditure in item 6 subject to R&D tax incentive
- at page 9 item 21 Research and development tax incentive
- A Non-refundable R&D tax offset
- B Non-refundable R&D tax offset carried forward from previous year
- C Non-refundable R&D tax offset to be utilised in current year
- D Non-refundable R&D tax offset to be carried forward to next year
- U Refundable R&D tax offset
- W Feedstock adjustment - additional assessable income
- at page 11 Calculation statement
- M R&D recoupment tax
For more information on completing the labels above, see:
- Company tax return instructions 2018 (NAT 0669)
- Preliminary calculation – Add-back of research and development (R&D) accounting expenditure).
Total notional R&D deduction amount
Using Part A of these instructions, calculate your total notional R&D deduction amount to determine whether you can claim an R&D tax offset. To be eligible to claim an R&D tax offset, your total notional deductions at Part A must be 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), when that RSP isn't an associate of the R&D entity
- expenditure incurred as a monetary contribution under the Cooperative Research Centre (CRC) program.
Do not complete a schedule unless any of the following apply:
- your total notional deductions are at least $20,000
- you have incurred expenditure to a RSP, or
- you have made a monetary contribution under the CRC program.
If you do not have to complete a schedule and you have a feedstock adjustment or clawback adjustment, you must record this on the company tax return:
- feedstock adjustment at W Feedstock adjustment – additional assessable income item 21 and B Other assessable income item 7
- clawback adjustment in the Calculation statement, label M, R&D recoupment tax.
Expenditure to associates
Under the R&D tax incentive, you can only obtain an R&D tax offset for expenditure incurred to an associate when that amount is paid. Before completing the Research and development tax incentive schedule, you will need to determine which amounts you have paid to associates; see Part D – R&D expenditure to associates.
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Consolidated groups
The amounts used in the calculation of the R&D tax incentive 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.
Only one Research and development tax incentive schedule is required for a consolidated group, to be completed by the head company.
Clawback adjustment
A clawback adjustment will apply if both of the following apply:
- you claimed a notional deduction under the R&D tax incentive
- you received, or have become entitled to receive, a government recoupment such as a grant or reimbursement that relates to this expenditure.
The government recoupment may be from an Australian Government agency or a state or territory body.
Under subdivision 355-G of the ITAA 1997, the income tax you are liable to pay on the recoupment will be increased. This is referred to as a clawback adjustment and is recorded at the Calculation statement, label M, R&D recoupment tax on the Company tax return 2018.
If a clawback adjustment applies, read Part C – Clawback – R&D recoupment tax.
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Prepayments
Adjust the amount of expenditure incurred in accordance with the prepayment provisions in sections 82KZL to 82KZMF of the Income Tax Assessment Act 1936 (ITAA 1936).
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Expenditure incurred while not at arm's length
If you incur expenditure to either an associate or another party with which you are not dealing at arm's length and the expenditure incurred exceeds the market value of the relevant R&D activity, the amount eligible for a notional R&D deduction is treated as being the market value of the R&D activity.
Intra-group mark-ups
The amount that you can claim as a notional R&D deduction is reduced to reflect mark-ups between connected or affiliated entities.
Before completing the schedule you need to calculate your reduction amount using the method statement in subsection 355-415(2) of the ITAA 1997.
Overseas expenditure
You must have a positive overseas finding from Innovation Australia before you can claim a notional deduction for expenditure on overseas R&D activities under Division 355 of the ITAA 1997. Sections 28C and 28D of the Industry Research and Development Act 1986 (IR&D Act provide information on findings about activities to be conducted outside Australia, including conditions that must be met.
For more information about the location of your R&D activities, go to business.gov.auExternal Link
Depreciating assets
Determine amounts that are notionally deductible for decline in value of depreciating assets under subdivision 355-E or section 355-520 of the ITAA 1997, in relation to your R&D activities.
For more information, see the Guide to depreciating assets 2018 (NAT 1996).
Entitlement requirements
To work out whether you qualify for the refundable or non-refundable tax offset, you need to consider whether you:
- meet the aggregated turnover threshold, or
- are controlled by one or more exempt entities.
‘Aggregated turnover’ is explained in Definitions.
Regardless of a company's aggregated turnover, if one or more exempt entities have direct control or indirect control of the company (with a relevant control threshold of 50%), then the company is only eligible for the 38.5% non-refundable tax offset.
For more information, see:
- Research and development tax incentive
- Grouping for aggregated turnover purposes
- Step 3 – Calculate your aggregated turnover of Research and development tax incentive.
Expenditure that is not at risk
As per section 355-405 of the ITAA 1997, a company cannot claim a notional deduction for expenditure if it is not at risk in respect of that expenditure. Apply section 355-405 of the ITAA 1997 to reduce your notional deductions by any amount for which the company was not at risk.
Core technology expenditure
Expenditure incurred in acquiring technology that is core technology cannot be claimed under the R&D tax incentive.
If you are unsure as to whether your particular technology is core technology, you can request a finding from Innovation Australia. This finding gives you certainty about whether expenditure incurred in acquiring the technology is excluded under the R&D tax incentive.
The law changed with effect from 1 July 2011. There are special transitional arrangements covering undeducted core technology expenditure which was previously deductible under the R&D tax concession.
These arrangements help ensure that any undeducted core technology expenditure is eligible for deduction, even though such deductions are not taken into account in calculating the amount of any tax offset a company might be entitled to under the R&D tax incentive.
The rules outlined below apply irrespective of whether the company continues to use the core technology for eligible R&D activities after 1 July 2011.
If the core technology is a depreciating asset (for example, a patent) the provisions in Division 40 of the ITAA 1997, for deducting amounts for depreciating assets, will apply on the basis that the opening adjustable amount is the amount of undeducted expenditure in relation to the asset.
If the core technology is not a depreciating asset, the undeducted expenditure is deductible in equal proportions over five income years, starting in the first income year beginning on or after 1 July 2011.
Undeducted core technology amounts, claimed under the transitional rules, should be shown at X Other deductible expenses item 7 on the Company tax return 2018.
Building expenditure
Expenditure cannot be claimed under the R&D tax incentive if it is incurred to acquire or construct:
- a building or a part of a building, or
- an extension, alteration or improvement to a building.
Interest expenditure
Expenditure incurred for interest (within the meaning of subsection 128A(1AB) of the ITAA 1936) payable to an entity cannot be claimed under the R&D tax incentive.
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 schedule, see Lodgment.
Complete all items that apply to you, 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.