• Introduction

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    These instructions will help you complete the Research and development tax incentive schedule 2013, 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 2013 (NAT 0656). For more information about the R&D tax incentive, you can go to ato.gov.au/randdtaxincentive

    An online calculator is also available to help you complete the Research and development tax incentive schedule 2013. 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?

    An additional label has been added to Part D of the Research and development tax incentive schedule 2013 to record R&D expenditure incurred to associates in the previous income year that has not yet been paid or claimed. These instructions have been updated to reflect the change.

    The item for the Research and development tax incentive in the Company tax return 2013 has changed to item 21 (formerly item 22). In addition, two new labels have been included at this item:

    • B Non-refundable R&D tax offset carried forward from a previous year
    • W Feedstock adjustment - additional assessable income.

    For more information about these new labels, see the Company tax return instructions 2013 (NAT 0669).

    Who must complete a Research and development tax incentive schedule?

    You must complete and lodge a Research and development incentive schedule 2013 if you make a claim at item 21 on your Company tax return 2013 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 2013. 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 2013. See Part B of these instructions 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 2013 if you are an R&D entity that has registered its R&D activities with Innovation Australia through AusIndustry for 2012–13.

    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:

    • incorporated under an Australian law, or
    • incorporated under foreign law but an Australian resident for income tax purposes, or
    • incorporated under foreign law, and
    • a resident of a country with which Australia has a comprehensive double tax agreement which includes a definition of 'permanent establishment', and
    • which carries on business in Australia through a permanent establishment as defined in the double tax agreement
    • to the extent that you carry 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.

    Further information

    For more information, see Research and development tax incentive - who can claim.

    End of further information

    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 Innovation Australia 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 with Innovation Australia 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).

    Who administers the R&D tax incentive?

    The R&D tax incentive is jointly administered by AusIndustry, part of the Department of Industry, Innovation, Science, Research and Tertiary Education (DIISRTE), and the Australian Taxation Office (ATO).

    Further information

    For information about how to register for the R&D tax incentive and about what R&D activities qualify for the incentive:

    For information about what amounts are eligible for the R&D tax incentive and how to claim:

    End of further information

    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 2013.

    Six labels on the Company tax return 2013 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

    U Refundable R&D tax offset

    W Feedstock adjustment - additional assessable income

    • at page 11 Calculation statement

    M R&D recoupment tax.

    At item 7 Reconciliation to taxable income or loss on the Company tax return 2013, complete D Accounting expenditure in item 6 subject to R&D tax incentive (to complete this item, see Preliminary calculation – Add-back of research and development (R&D) accounting expenditure).

    Further information

    See the Company tax return instructions 2013 for more information on completing the labels above.

    End of further information

    Total notional R&D deduction amount

    Using Part A of these instructions, calculate your total notional R&D deduction amount to determine whether the company can claim an R&D tax offset. To be eligible to claim an R&D tax offset, the company's 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), where 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:

    • 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 to make, you must record this on the company tax return:

    • Feedstock adjustment: item 21, W Feedstock adjustment - additional assessable income and item 7, B Other assessable income.
    • Clawback adjustment: 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. Prior to 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.

    Further information

    For more information, see Research and development tax incentive – expenditure incurred to an associate.

    End of further information

    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 you have:

    • claimed a notional deduction under the R&D tax incentive, and
    • received, or 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-GExternal Link 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 2013.

    If a clawback adjustment applies, read Part C – Clawback – R&D recoupment tax.

    Further information

    See Research and development tax incentive – clawback adjustment for more information about how this amount is calculated.

    End of further information

    Prepayments

    Adjust the amount of expenditure incurred in accordance with the prepayment provisions in sections 82KZLExternal Link to 82KZMFExternal Link of the Income Tax Assessment Act 1936 (ITAA 1936).

    Further information

    See Deductions for prepaid expenses 2013 (NAT 4170) for more information.

    End of further information

    Expenditure incurred while not at arm's length

    Adjust the amount of expenditure incurred in accordance with the rules in section 355-400External Link of the ITAA 1997 if any of this expenditure was incurred while not dealing at arm's length, or to an associate (as defined in section 318 of the ITAA 1936).

    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 markups

    The amount that a company can claim as a notional R&D deduction is reduced to reflect mark-ups between connected or affiliated entities.

    Prior to completing the schedule you need to calculate your reduction amount as per subsection 355-415(2)External Link of the ITAA 1997.

    Overseas expenditure

    Companies wishing to claim a notional deduction for overseas R&D activities under Division 355 of the ITAA 1997 must have a positive overseas finding from Innovation Australia before they can make a claim. 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.

    Further information

    For more information about the location of your R&D activities, go to the AusIndustryExternal Link website and search for:

    • Research and development tax incentive – overview
    • R&D Tax Incentive – Overseas R&D.
    End of further information

    Depreciating assets

    Determine amounts that are notionally deductible for depreciating assets under subdivision 355-EExternal Link or section 355-520External Link of the ITAA 1997, in relation to your R&D activities.

    Further information

    For more information, see the Guide to depreciating assets 2013 (NAT 1996).

    End of further information

    Grouping rules

    You need to consider the grouping rules to work out whether your company qualifies for the refundable tax offset, including whether it is an R&D entity that:

    • meets the aggregated turnover threshold, which is calculated on a 'group' basis, or
    • is controlled by one or more exempt entities.
    Further information

    For more information, see:

    End of further information

    Expenditure that is not at risk

    As per section 355-405External Link 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.

    There are special transitional arrangements covering undeducted core technology expenditure (previously deductible under the R&D tax concession).

    These arrangements will 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 40External Link 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 item 7, X Other deductible expenses in the Company tax return 2013.

    Building expenditure

    Expenditure incurred to acquire or construct either:

    • a building or a part of a building, or
    • an extension, alteration or improvement to a building

    is ineligible to be notionally deducted under the R&D tax incentive.

    Interest expenditure

    Expenditure incurred for interest (within the meaning of subsection 128A(1AB)External Link of the ITAA 1936) payable to an entity is ineligible to be notionally deducted 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 27External Link of the ITAA 1997).

    Lodging the schedule

    For information on how to lodge your schedule, go to Lodgment.

    Complete all items 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.

    Last modified: 02 Aug 2013QC 35616