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Part A: Calculation of R&D deduction

Last updated 31 May 2011

Important notes on Part A of the Research and development tax concession schedule

For items 1 to 14 in part A, note the following:

Base amount column

The base amount for each item is the amount of the deduction available for the particular classification of expenditure before any additional concessional component is added. This column includes expenditures incurred on Australian owned R&D and foreign owned R&D.

Attention

Do not include the amount of the additional concession at any item in the 'Base amount' column.

End of attention

Claimable at 100% column

The 'Claimable at 100%' column is for expenditure on Australian owned R&D that includes, but is not limited to, expenditure that:

  • is subject to the application of clawback (section 73C of the ITAA 1936)
  • represents an intra-group markup (subsections 73B(14AA) to (14AD) of the ITAA 1936)
  • is subject to the operation of section 73CA of the ITAA 1936 (expenditure not at risk)
  • is deductible only at the 100% rate.

Do not include expenditure on foreign owned R&D in this column. These amounts must be included in the 'Foreign owned R&D expenditure' column.

Claimable at 125% column

The 'Claimable at 125%' column is for expenditure on Australian owned R&D that is eligible for deduction at the rate of 125%. Where there is a shaded area instead of a box, the additional concession (that is, the extra 25%) does not apply to that item of expenditure.

Attention

Do not include the amount of the additional concession (that is, the extra 25%) at items 1 to 15 in part A. Do this at item 16.

End of attention

Foreign owned R&D expenditure column

Include in the 'Foreign owned R&D expenditure' column all expenditure incurred on foreign owned R&D that is eligible for a deduction under subsection 73B(14C) of the ITAA 1936. This expenditure is claimable at the rate of 100%. Where there is a shaded area instead of a box, no deduction is available under subsection 73B(14C) for that item of expenditure.

A deduction for expenditure on foreign owned R&D may only be claimed for amounts incurred on Australian-centred research and development activities carried out wholly or primarily on behalf of certain grouped foreign companies. The eligibility criteria for claiming this type of expenditure are set out in subsection 73B(14C). These criteria include the requirement for a written agreement between the company and the foreign company, the requirement that all eligible company group members be registered for the year in respect of their relevant Australian-centred research and development activities, and the requirement for the expenditure on foreign owned R&D by the eligible company to exceed $20,000 for the year of income.

Attention

Threshold for expenditure on foreign owned R&D

Where you have incurred expenditure on foreign owned R&D that is less than or equal to $20,000 in your tax accounting period, you may need to adjust this amount for the purposes of applying the threshold test in paragraph 73B(14C)(f) of the ITAA 1936 (that is, the expenditure on foreign owned R&D by the eligible company for the year of income is greater than $20,000). The reasons for this might include:

  • section 716-850 of the ITAA 1997 applies, because the company is a member of a consolidated group but has a non-membership period for the year of income, or
  • the amounts reported in the Foreign owned R&D expenditure column of part A are for a period greater or lesser than 12 months, as they relate to the company having a transitional substituted accounting period. The amount calculated in such a case, for the purposes of paragraph 73B(14C)(f), is for expenditure incurred on foreign owned R&D in the 12 months ending at the end of this transitional period.

In these circumstances, you will need to lodge your schedule and returns using the paper form available. Before doing this, you will need to email the Innovation Segment for additional instructions at InnovationTax@ato.gov.au

End of attention

See Guide to the R&D tax concession for more information on eligibility for this type of deduction.

If you are claiming amounts in this column, you will also need to consider other taxation implications in regard to your related party international dealings. For further information, see Schedule 25A instructions 2011 (NAT 2639) and the taxation rulings referred to within that publication.

Item 1

Contracted expenditure - RRA

(relevant to Australian owned and foreign owned R&D)

Show at this item expenditure incurred by an eligible company to a registered Australian research agency (RRA) for the performance by the RRA of research and development activities on behalf of the company or wholly or primarily on behalf of a grouped foreign company. The Definitions list defines 'registered Australian research agency (RRA)'.

The RRA must not be an associate of the eligible company and must have been registered with Innovation Australia in respect of the class of activities on which the expenditure was incurred.

Expenditure incurred on Australian owned R&D cannot be 'contracted expenditure' unless, when the expenditure was incurred, the eligible company was capable of using, or had formulated a plan to use, any results of the R&D directly in connection with a business that the company carried on or proposed to carry on (subsection 73B(1B) of the ITAA 1936). This restriction does not apply to expenditure incurred on foreign owned R&D (subsection 73B(1BA) of the ITAA 1936).

At item 1 show eligible expenditure on items included in paragraph (c) of the definition of 'contracted expenditure' under subsection 73B(1) of the ITAA 1936. These amounts should be adjusted as required under subsection 73B(11) of the ITAA 1936 for advance R&D expenditure and accelerated expenditure.

At A show the total amount of eligible contracted expenditure (the base amount).

At B show any amount of contracted expenditure on Australian owned R&D claimable at 100%.

At C show any amount of contracted expenditure on Australian owned R&D claimable at 125%.

At D show any amount of contracted expenditure on foreign owned R&D.

The total of the amounts at B, C and D must equal the base amount at A.

For more information, see:

  • subsections 73B(1), 73B(1B), 73B(1BA), 73B(13), 73B(14C) and 73B(14D) of the ITAA 1936
  • Guide to the R&D tax concession.

Item 2

Salary expenditure

(relevant to Australian owned and foreign owned R&D)

At item 2 show the amount of eligible salary expenditure for employees who are engaged in eligible research and development activities (as defined in subsection 73B(1) of the ITAA 1936), including:

  • salaries, wages, allowances, bonuses, overtime payments, penalty rate payments, annual leave, sick leave and long service leave, and
  • on-costs such as contributions to a superannuation fund, premiums for workers compensation insurance and payroll tax.

You may need to apportion the expenditure incurred between research and development and non-research and development activities.

You cannot claim this type of expenditure in respect of Australian owned R&D unless your aggregate research and development amount is greater than $20,000.

You cannot claim this type of expenditure in respect of foreign owned R&D unless your expenditure on foreign owned R&D is greater than $20,000.

This item does not include:

  • salary expenditure incurred in the construction of R&D plant, depreciating assets, structural improvements and buildings
  • salary expenditure of R&D support staff not directly connected with the research and development activities; include those at item 3 Other R&D expenditure
  • salary expenditure in respect of Australian owned R&D where your aggregate research and development amount is less than or equal to $20,000
  • salary expenditure in respect of foreign owned R&D where your expenditure on foreign owned R&D is less than or equal to $20,000.

Adjust the amount of salary expenditure claimed in accordance with the prepayment provisions (sections 82KZL to 82KZMF of the ITAA 1936).

At E show the total R&D salary expenditure incurred (the base amount).

At F show any amount of R&D salary expenditure on Australian owned R&D claimable at 100%.

At G show any amount of R&D salary expenditure on Australian owned R&D claimable at 125%.

At A show any amount of salary expenditure on foreign owned R&D.

The total of the amounts at F, G and A must equal the base amount at E.

For more information, see:

  • subsections 73B(1), 73B(14), 73B(14C) and 73B(14D) of the ITAA 1936
  • Taxation Ruling TR 2002/1 - Income tax: research and development: plant expenditure (pre 29 January 2001)
  • Guide to the R&D tax concession.

Item 3

Other R&D expenditure

(relevant to Australian owned and foreign owned R&D)

At item 3 show eligible other R&D expenditure incurred directly in respect of relevant research and development activities carried on, by or on behalf of the company, or wholly or primarily on behalf of a grouped foreign company. (See paragraph (c) of the definition of 'research and development expenditure', subsection 73B(1) of the ITAA 1936.)

Do not include amounts to be shown at item 4 Contract - other or item 5 Plant leasing.

Overhead and administrative expenditure are directly in respect of research and development activities where:

  • the eligible research and development activities contributed to all or an identifiable part of the expenditure being incurred, or
  • the conduct of eligible research and development activities by the company would be materially impaired if the expenditure was not incurred.

You cannot claim this type of expenditure in respect of Australian owned R&D unless your aggregate research and development amount is greater than $20,000.

You cannot claim this type of expenditure in respect of foreign owned R&D unless your expenditure on foreign owned R&D is greater than $20,000.

Adjust the amount of other research and development expenditure claimed in accordance with the prepayment provisions (sections 82KZL to 82KZMF of the ITAA 1936).

'Other R&D expenditure' does not include:

  • core technology expenditure
  • interest expenditure
  • feedstock expenditure (show eligible feedstock expenditure and residual feedstock expenditure (Australian owned R&D only) at separate items)
  • expenditure incurred acquiring or constructing tangible assets, plant, pilot plant (including certain prototypes) or a building, or extending, altering or making improvements to a building
  • expenditure incurred acquiring or constructing a section 73BA depreciating asset
  • other expenditure in respect of Australian owned R&D where your aggregate research and development amount is less than or equal to $20,000
  • other expenditure in respect of foreign owned R&D where your expenditure on foreign owned R&D is less than or equal to $20,000.

At H show the total amount of 'other R&D expenditure' incurred (the base amount), excluding any amounts to be shown at items 4 or 5.

At I show any amount of other R&D expenditure on Australian owned R&D claimable at 100%.

At J show any amount of other R&D expenditure on Australian owned R&D claimable at 125%.

At K show any amount of other R&D expenditure on foreign owned R&D.

The total of the amounts at I, J and K must equal the base amount at H.

For more information, see:

  • subsection 73B(1), 73B(14), 73B(14C) and 73B(14D) of the ITAA 1936
  • Guide to the R&D tax concession.

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