Identify your R&D expenditure
The clawback adjustment is calculated on the amount of expenditure that relates to the recoupment for which you have received the R&D tax incentive. To work out your clawback adjustment, you first need to identify your 'R&D expenditure' (that is relevant to the recoupment).
The first step to identifying your 'R&D expenditure' is to work out whether your recoupment is either a:
- recoupment of expenditure incurred on or in relation to certain activities
- recoupment that requires expenditure to be incurred or to have been incurred on certain activities.
You would have considered what type of recoupment you have when answering whether a clawback adjustment is required in question 1.
Year-by-year calculation
You calculate the clawback amount on a year-by-year basis. The total of the amounts worked out for each offset year is included in assessable income for the trigger year.
The adjustment for each clawback amount is worked out using this formula:
(starting offset - adjusted offset - deduction amount) ÷ corporate tax rate for the present year
When you calculate the clawback adjustment, the:
- starting offset is the actual amount of R&D tax offset the entity receives that includes an amount being clawed back (remembering that the formula is used separately for each offset year that includes an amount being clawed back)
- adjusted offset is the offset amount that the entity would have received for the offset year if its notional R&D deductions were reduced by the amount being clawed back
- deduction amount is the clawback amount multiplied by the R&D entity's company tax rate for the offset year (so, by subtracting this, the clawback only includes the incentive component of the tax offset)
- tax rate means that the amount is grossed-up for the entity's company tax rate for the current year to work out the equivalent amount to include in assessable income.
Notional R&D deductions exceed $150 million
If an entity's notional R&D deductions exceed $150 million for an income year, the amount of expenditure used in the calculation of the clawback adjustment may be reduced.
Recoupment of expenditure incurred
A recoupment of this type could include reimbursement, refund or recovery of expenditure incurred.
If you have received a recoupment of expenditure incurred on certain activities (including R&D activities), your R&D expenditure that is relevant to your clawback adjustment is the expenditure that has been recouped to the extent that both the following apply:
- You have claimed either or both
- a notional deduction for that expenditure
- the notional decline in value (if the expenditure relating to the recoupment was for an R&D asset).
- The notional deductions and/or notional decline in value have been taken into account in working out the R&D tax incentive tax offset obtained for one or more income years.
If only some of your expenditure has been recouped – (for example, you have only been partially reimbursed for R&D expenditure you have incurred) – then your R&D expenditure that you use when calculating your clawback adjustment is limited to the amount of expenditure that has been recouped or reimbursed, rather than the total R&D expenditure.
Recoupment that requires expenditure to be incurred
This form of a recoupment is often referred to as a grant that provides funding for specific purposes. If your recoupment requires expenditure to be incurred on certain activities (including R&D activities), your R&D expenditure for these purposes is the expenditure that is required to be incurred to the extent that both of the following apply:
- You have claimed either or both
- a notional deduction for that expenditure under Division 355 of the ITAA 1997
- the notional decline in value (if the expenditure relating to the recoupment was for an R&D asset) under Division 355 of the ITAA 1997.
- The notional deductions and/or notional decline in value have been taken into account in working out your R&D tax incentive tax offset for one or more income years.
Example: calculating a clawback adjustment – grant
Company V receives a grant from an Australian government agency of $2.3 million for its R&D project that it carries out in the income year ending 30 June 2022. The Australian government agency requires that Company V carries out certain specified activities in the relevant income year and Company V is also required to spend at least $3.6 million on the R&D project in the relevant income year. Its aggregated turnover for that income year is greater than $50 million and its total expense is $15 million. Its company tax rate is 30%.
Company V spends $3.6 million (including grant funding) on the project that qualifies for a notional deduction. The company also claims an R&D tax offset for this expenditure in the income year ending 30 June 2022. The R&D expenditure that Company V uses when calculating its clawback adjustment is $3.6 million.
Company V's clawback adjustment in the income year ending 30 June 2022 (before calculating the cap for grants) is calculated according to the formula:
(starting offset − adjusted offset − deduction amount) ÷ corporate tax rate
The starting offset of $1,650,000 is the actual amount of the tax offset that Company V can claim.
|
Step |
Notional deduction amount |
Offset rate |
Offset amount |
|---|---|---|---|
|
Work out the part of the total notional deductions that exceed nil but don't exceed 2% of the R&D entity's total expenses |
Total expense × 2% = $15,000,000 × 2% = $300,000 |
38.5% |
$300,000 × 38.5% = $115,500 |
|
Work out the part of the total notional deductions that exceed 2% of the R&D entity's total expenses |
$3,600,000 − $300,000 = $3,300,000 |
46.5% |
$3,300,000 × 46.5% = $1,534,500 |
Company V calculates the adjusted offset on a notional deduction amount of $1,300,000 ($3,600,000 − $2,300,000), which excludes the amount of notional deductions that relates to the grant.
|
Step |
Notional deduction amount |
Offset rate |
Offset amount |
|---|---|---|---|
|
Work out the part of the total notional deductions that exceed nil but don't exceed 2% of the R&D entity's total expenses |
Total expense × 2% = $15,000,000 × 2% = $300,000 |
38.5% |
$300,000 × 38.5% = $115,500 |
|
Work out the part of the total notional deductions that exceed 2% of the R&D entity's total expenses |
$1,300,000 − $300,000 = $1,000,000 |
46.5% |
$1,000,000 × 46.5% = $465,000 |
Therefore, the adjusted offset is $580,500.
The deduction amount is calculated by multiplying the amount of expenditure related to the recoupment under the grant by Company V’s tax rate of 30%. This is calculated as:
$2,300,000 × 30% = $690,000.
Company V calculates the clawback amount of $1,265,000 to include in its assessable income as:
($1,650,000 - $580,500 - $690,000) ÷ 30%
The tax on this amount ($379,500) reflects the incentive component of the tax offset.
End of exampleIf you have a grant that is paid in 2 instalments over more than one income year (or trigger year), you will need to identify the R&D expenditure for each income year to calculate your clawback adjustment. In this circumstance, you don't include R&D expenditure that you have already taken into account to work out your earlier clawback adjustment in the following year. The example below shows how R&D expenditure is identified in these circumstances.
Example: working out R&D expenditure for multiple years
Company Y receives a grant from an Australian government agency of $200,000 for certain specified R&D activities. Under the agreement the Australian government agency agreed to pay $200,000 over 2 years to Company Y. Company Y is required under the agreement to spend $500,000 (including the grant funding) over these 2 years. In the income year ending 30 June 2022, Company Y receives its first instalment of the grant ($150,000), which relates to expenditure required to be incurred on the R&D project in the income year ending 30 June 2022 ($350,000). This expenditure qualifies for a notional deduction under Division 355 of the ITAA 1997 and is also claimed as an R&D tax offset in the same income year.
On 30 June 2023, Company Y receives its second and final instalment of the grant ($50,000), which relates to expenditure required to be incurred on the R&D project in the income year ending 30 June 2023 ($150,000). This expenditure qualifies for a notional deduction under Division 355 of the ITAA 1997 and is also claimed as an R&D tax offset in the same income year.
Company Y is eligible for the 43.5% refundable tax offset (calculated as Company Y’s tax rate of 25% plus an uplift of 18.5%). Entitlement to each grant instalment did not arise before it was paid to Company Y.
The R&D expenditure that Company Y uses when calculating its clawback adjustment in the income year ending 30 June 2022 is $350,000.
The R&D expenditure that Company Y uses when calculating its clawback adjustment in the income year ending 30 June 2023 is $150,000.
Calculating the clawback adjustment
For the income year ending 30 June 2022, Company Y received a recoupment amount of $150,000 for incurring $350,000 on R&D expenditure and for the year ending 30 June 2023 a recoupment amount of $50,000 for incurring $150,000 on R&D expenditure. The clawback amount is limited to the net amount of the recoupment attributable to R&D expenditure:
Net amount of the recoupment × (R&D expenditure ÷ project expenditure)
Since all Company Y's project expenditure was R&D expenditure, the clawback amount is $150,000 and $50,000 for the years ending 30 June 2022 and 2023 respectively.
|
Step |
2021–22 |
2022–23 |
|---|---|---|
|
Starting offset |
$350,000 × 43.5% = $152,250 |
$150,000 × 43.5% = $65,250 |
|
Adjusted offset |
$200,000 × 43.5% = $87,000 |
$100,000 × 43.5% = $43,500 |
|
Deduction amount |
$150,000 × 25% = $37,500 |
$50,000 × 25% = $12,500 |
|
Clawback adjustment |
$152,250 − $87,000 − $37,500 = $27,750 ÷ 25% = $111,000 |
$65,250 − $43,500 − $12,500 = $9,250 ÷ 25% = $37,000 |
End of example
Example: working out R&D expenditure for multiple years
Company Y’s aggregated turnover is less than $20 million for the income years ending 30 June 2022 and 2023 and its total notional deduction is $1 million and $1.5 million for each of those years respectively, which includes the expenditure incurred and a recoupment amount in relation to $400,000 in grant funding with amounts that became entitled to be received of $300,000 in the 2021-22 income year and $100,000 2022-23 income years.
|
Step |
2021–22 |
2022–23 |
|---|---|---|
|
Starting offset |
$1,000,000 × 43.5% = $435,000 |
$1,500,000 × 43.5% = $652,500 |
|
Adjusted offset |
($1,000,000 − $300,000) = $700,000 × 43.5% =$304,500 |
($1,500,000 − $100,000) = $1,400,000 × 43.5% =$609,000 |
|
Deduction amount |
$300,000 × 25% = $75,000 |
$100,000 × 25% = $25,000 |
|
Clawback adjustment amount |
($435,000 - $304,500 -$75,000) ÷ 25% = $222,000 |
($652,500 - $609,000 - $25,000) ÷ 25% = $74,000
|
Company Y includes $222,000 and $74,000 in its assessable income for the years ending 30 June 2022 and 2023 respectively.
End of exampleIf a connected or affiliated entity has received or is entitled to receive a recoupment in relation to expenditure that has been taken into account in working out your R&D tax offset, this will also affect your clawback adjustment.
Cap for grants
If your recoupment is a grant then a cap applies to ensure the tax outcome:
- reflects the extent to which your grant is related to the R&D expenditure
- doesn't exceed the R&D proportion of the recoupment.
This is done by using the following formula:
Net amount of the recoupment × (R&D expenditure ÷ project expenditure)
Net amount of the recoupment means the total amount of the recoupment received or entitled to be received during the trigger year, less any repayments of that recoupment during an income year.
Project expenditure is total expenditure required to be incurred or to have been incurred on certain activities for the recoupment received or entitled to be received during the trigger year. You need to refer to your grant agreement to work out what your project expenditure is in respect of each recoupment received. A recoupment may be an instalment under the agreement. To the extent that grant conditions allow, it is up to you to decide how to apply the mandated project expenditure. This means that you can apply the mandated project expenditure against non-R&D activities first. Where you choose to spend more on your project than the grant mandates, you can apply your ‘extra’ expenditure to R&D activities first.
R&D expenditure is as much of the project expenditure that is notionally deducted in working out your R&D tax offset for any income year.
If you have received a recoupment that is a reimbursement, no cap applies. This is because the recoupment will always equal the expenditure being reimbursed.
See Clawback adjustment for information about identifying your R&D expenditure.
Examples of different scenarios
How you work out the clawback adjustment in different scenarios:
- Recoupment that reimburses R&D and other expenditure
- Recoupment that partially reimburses R&D expenditure
- Grant for R&D expenditure and other expenditure
- Grant for R&D expenditure and other expenditure
- Grant paid for multiple years.
Recoupment that reimburses R&D and other expenditure
Example: recoupment that reimburses R&D and other expenditure
In the income year ending 30 June 2022, Company E conducts R&D activities for which they receive the R&D tax offset. Company E receives a $500,000 reimbursement under an Australian government agency scheme for specified costs that it incurred, of which $400,000 was eligible for R&D expenditure notionally deducted under the R&D tax incentive and for which they received an R&D tax offset in the relevant income year.
Company E's clawback adjustment to be included for the income year ending 30 June 2022 is calculated on the reimbursement amount of $400,000 for which it claimed a notional deduction.
End of exampleRecoupment that partially reimburses R&D expenditure
Example: recoupment that partially reimburses R&D expenditure
Company F conducts R&D activities on which it incurred $1 million R&D expenditure and for which it receives an R&D tax offset in the year ended 30 June 2022. In the income year ending 30 June 2023, Company F receives a $500,000 reimbursement from an Australian government agency for half of the R&D expenditures it incurred in the previous income year.
Company F's clawback adjustment to be included in its assessable income for the income year ending 30 June 2023 is calculated on the reimbursement amount of $500,000. Company F’s aggregated turnover is less than $20 million and its R&D tax offset rate is 43.5% (calculated as company tax rate of 25% plus uplift of 18.5%).
Clawback adjustment = (Starting offset - Adjusted offset - Deduction amount) ÷ Company tax rate
Starting offset = $1,000,000 × 43.5% = $435,000
Adjusted offset = ($1,000,000 - $500,000) × 43.5% = $217,500
Deduction amount = ($500,000 × 25%) = $125,000
Company tax rate = 25%
Clawback amount = ($435,000 - $217,500 – $125,000) ÷ 25% = $370,000
The clawback adjustment to be included in Company F’s assessable income in the 2022–23 income year is $370,000. The tax payable on this amount is $92,500. This reflects the incentive component of the tax offset received on the R&D expenditure provided for by the grant.
End of exampleGrant for R&D expenditure and other expenditure
Example: grant for R&D expenditure and other expenditure
Company Q receives a $90,000 grant in relation to certain activities that it conducts in the income year ending 30 June 2022. The grant agreement between Company Q and an Australian government agency specifies that Company Q is required to spend $1 million (including grant funding) on a particular project, which it does in the same income year. Of this amount, $100,000 is required to be spent on R&D activities that relate to expenditure for which Company Q claims the R&D tax incentive tax offset. The remaining $900,000 that Company Q is required to spend relates to other activities that don't qualify for the R&D tax incentive. Company Q’s aggregated turnover is less than $20 million and its R&D tax offset rate is 43.5% (calculated as company tax rate of 25% plus uplift of 18.5%).
The total project expenditure is $1 million, but only $100,000 of this expenditure was claimed under the R&D tax incentive. The clawback amount is capped at $9,000 calculated as:
Net amount of recoupment × (R&D expenditure ÷ Project expenditure)
$90,000 × ($100,000 ÷ $1,000,000) = $9,000
Company Q determines that a clawback adjustment is required and works out its clawback adjustment for the income year ending 30 June 2022 as:
Clawback adjustment = (Starting offset - Adjusted offset - Deduction amount) ÷ Company tax rate
Starting offset = $100,000 × 43.5% = $43,500
Adjusted offset = ($100,000 - $9,000) × 43.5% = $39,585
Deduction amount = ($9,000 × 25%) = $2,250
Company tax rate = 25%
Clawback adjustment = ($43,500 - $39,585 - $2,250) ÷ 25% = $6,660
The tax payable on this amount that is included in assessable income is $1,665. This reflects the incentive component of the tax offset received on the R&D expenditure provided for by the grant.
End of exampleGrant for R&D expenditure and other expenditure
Example: grant for R&D expenditure and other expenditure
In the income year ending 30 June 2022 Company P's aggregated turnover is less than $5 million. It receives approval for a $100,000 grant from an Australian government agency, which is paid later in that income year. The grant is paid for specified activities including R&D activities that Company P carries out in the relevant income year.
The grant agreement requires that Company P spend at least $2 million on the specified activities. Half of this required expenditure on the activities specified in the agreement relates to R&D activities on which Company P claims the R&D tax offset. Company P’s tax rate is 25% and its R&D tax offset rate is 43.5% (determined as company tax rate of 25% plus an uplift factor of 18.5%).
Company P spends $3 million on the project (including $1,500,000 on the R&D activities in which it is entitled to claim the R&D tax offset in the relevant income year). More is spent than the grant required. The clawback amount is capped at $50,000 calculated as:
Net amount of recoupment × (R&D expenditure ÷ Project expenditure)
$100,000 × ($1,000,000 ÷ $2,000,000) = $50,000
Company P determines that clawback applies and calculates its clawback adjustment:
Clawback Adjustment = (Starting offset - Adjusted offset - Deduction amount) ÷ Company tax rate
Starting offset = $1,500,000 × 43.5% = $652,500
Adjusted offset = ($1,500,000 - $50,000) × 43.5% = $630,750
Deduction amount = ($50,000 × 25%) = $12,500
Company tax rate = 25%
Clawback amount = ($652,500 – $630,750 – $12,500) ÷ 25% = $37,000
End of exampleGrant paid for multiple years
Example: grant paid for multiple years
In the income year ending 30 June 2022, Company Z has applied for and received approval for an Australian government agency grant for certain specified R&D activities. Its aggregated turnover for each income year ending 30 June 2022 to 2024 is under $10 million. Under the agreement, the Australian government agency agreed to pay $110,000 over the following 2 years to Company Z. Company Z is required under the agreement to spend $220,000 (including the grant funding) over these 2 years. If Company Z fails to spend the total amount required to be spent under the agreement with the Australian government agency by the end of the grant program, Company Z will need to repay an amount to the Australian government agency.
On 30 June 2023, Company Z receives its first instalment of the grant ($50,000), which relates to expenditure required to have been incurred on the R&D activities in the income year ending 30 June 2023.
On 30 June 2024, Company Z receives its second and final instalment of the grant ($60,000), which relates to expenditure required to have been incurred on the R&D activities in the income year ending 30 June 2024.
Entitlement to each grant instalment did not arise before it was paid to Company Z.
The following table outlines expenditure that Company Z is required to incur in the relevant income years by the Australian government agency (expenditure required to be incurred) and the actual expenditure Company Z incurred in the relevant income years (expenditure actually incurred).
|
Expenditure |
Income year ending |
Income year ending |
Income year ending |
|---|---|---|---|
|
Expenditure required to be incurred – claimed under the R&D tax incentive |
0 |
$100,000 |
$120,000 |
|
Expenditure actually incurred – expenditure claimed under the R&D tax incentive |
$20,000 |
$200,000 |
$170,000 |
Determine trigger years
The timing of the clawback adjustment depends on the trigger year or years. In this example, Company Z receives 2 instalments of the grant, one in the income year ending 30 June 2023 and one in the income year ending 30 June 2024. Therefore, Company Z has 2 trigger years, the income years ending 30 June 2023 and 30 June 2024. Its company tax rate is 25% for each trigger year.
Income year ending 30 June 2022
No clawback adjustment is required for this income year.
Income year ending 30 June 2023
Company Z calculates its clawback adjustment as follows:
Clawback adjustment = (Starting offset - Adjusted offset - Deduction amount) ÷ corporate tax rate
Starting offset = ($200,000 × 43.5%) = $87,000
Adjusted offset = ($200,000 - $50,000) × 43.5% = $65,250
Deduction amount = ($50,000 × 25%) = $12,500
Clawback amount = ($87,000 – $65,250 – $12,500) ÷ 25% = $37,000
Income year ending 30 June 2024
Company Z calculates its clawback adjustment as follows:
Clawback adjustment = (Starting offset - Adjusted offset - Deduction amount) ÷ corporate tax rate
Starting offset = ($170,000 × 43.5%) = $73,950
Adjusted offset = ($170,000 - $60,000) × 43.5% = $47,850
Deduction amount = ($60,000 × 25%) = $15,000
Clawback amount = ($73,950 - $47,850 - $15,000) ÷ 25% = $44,400
Company Z includes the clawback adjustments of $37,000 and $44,400 in its assessable income in the income years ending 30 June 2023 and 2024 respectively.
End of example
Example: grant received after expenditure incurred
Company L enters into a grant agreement with an Australian government agency in the income year ending 30 June 2022. The grant agreement between Company L and the Australian government agency requires that Company L spends $500,000 on certain R&D activities in the 2021-22 income year. Once Company L spends this amount and meets other milestones, the Australian government agency pays the grant of $250,000. Company L claims the R&D tax incentive for the $500,000 expenditure it is required to incur under the grant agreement. Company L also claims the R&D tax incentive for an additional $200,000 it spent on the same R&D project in that income year. Company L lodges and is paid its grant claim during the 2022-23 income year once all milestone requirements are met.
Company L's aggregated turnover for that year is $10 million and its tax rate is 25% for the 2021–22 and 2022–23 income years.
Company L determines that a clawback adjustment is required and works out its clawback adjustment for the income year ending 30 June 2023 as:
Clawback adjustment = (Starting offset - Adjusted offset - Deduction amount) ÷ Company tax rate
Starting offset = ($700,000 × 43.5%) = $304,500
Adjusted offset = ($700,000 - $250,000) × 43.5% = $195,750
Deduction amount = ($250,000 × 25%) = $62,500
Clawback amount = ($304,500 - $195,750 - $62,500) ÷ 25% = $185,000
Clawback adjustment = $185,000
End of exampleRelated entities
When working out your clawback adjustment, you also need to consider whether you have claimed (or will claim in the future) an R&D tax offset for expenditure that has the required connection with any government recoupment received or entitled to be received by:
- an entity connected with you
- an entity that is an affiliate of yours or an R&D entity you are an affiliate of.
Example: recoupment for a related entity
In the income year ending 30 June 2022, Company Q received a recoupment from an Australian government agency. The amount of the recoupment was $200,000. This recoupment was a reimbursement of expenses that Company Q incurred in the relevant income year.
The recoupment reimbursed Company Q for $150,000 of expenditure it has incurred in relation to R&D activities. The remaining $50,000 recoupment related to other expenditure incurred by Company Q. Company R notionally deducted the $150,000 reimbursed expenditure under the R&D tax incentive and therefore has claimed the R&D tax incentive tax offset for this expenditure in the relevant income year.
In the relevant income year, Company Q owned all the shares of Company R and controlled Company R. Therefore, Company Q is connected with Company R and will need to take into account the recoupment received when calculating its clawback adjustment.
End of exampleA recoupment that is repaid
You may have received a recoupment that may need to be repaid or partially repaid at a later date under the recoupment agreement. For example, the government repayment obligation may align with the success of the project. If the project is considered successful and a certain amount of sales are made in connection with the project, then you may be required to repay part of your recoupment to the government agency. Alternatively, a recoupment may need to be repaid if you have breached certain conditions of the recoupment agreement.
If your grant is repaid to some extent in an income year, you may need to reduce the expenditure required to be incurred in the year the grant was received. You will also need to recalculate your cap, to take into account a repayment by reducing the net amount of the recoupment by the amount of the grant that is repaid.
If your recoupment is a reimbursement, you will need to adjust your calculation of the clawback adjustment to take into account that the recoupment has been reduced and therefore reimburses a lesser amount of the expenditure that you can claim a notional deduction and R&D tax offset in relation to.
If you are required to repay all or part of your recoupment in an income year after the income year that you receive or are entitled to receive your recoupment, you may need to amend your income tax return (if you had previously lodged it with a clawback adjustment). You will need to work out the new clawback adjustment taking into account the repayment of the recoupment and change your clawback adjustment accordingly.
Example: repayment of reimbursement
In the income year ending 30 June 2022, Company J had an aggregated turnover of less than $20 million. Company J carried out an R&D project and incurred R&D expenditure of $400,000 for which the R&D tax incentive was claimed. During that year, the company also applied for funding from an Australian government agency funding program. As a result, Company J received a partial reimbursement of its expenditure of $200,000 in the same income year. In that income year, Company J also makes a clawback adjustment in its tax return which is worked out as follows:
(Starting offset - Adjusted offset - Deduction amount) ÷ Company tax rate
Clawback adjustment = (($400,000 × 43.5%) - ($200,000 × 43.5%) - ($200,000 × 25%)) ÷ 25%= $148,000
In the income year ending 30 June 2023, it was determined that Company J had breached the funding agreement and did not qualify for funding for all of the expenditure it had incurred. Therefore, Company J repaid $150,000 to the Australian government agency in the income year ending 30 June 2023. As a result, the clawback adjustment will need to be recalculated as follows:
Starting offset = ($400,000 × 43.5%) = $174,000
Adjusted offset = ($400,000 - $50,000) × 43.5% = $152,250
Deduction amount = ($50,000 × 25%) = $12,500
Clawback adjustment = ($174,000 -$152,250 - $12,500) ÷ 25% = $37,000
Therefore, Company J will need to amend its tax return for the income year ending 30 June 2022 to show a reduced clawback adjustment of $37,000.
End of example
Example: grant repayment
Company U applies to a competitive grants scheme and receives $1 million toward its proposal to spend $10 million on final stage R&D activities during the income year ending 30 June 2022. The grant is repayable at 10 cents for every dollar on any sales over $5 million the project generates within 3 years. Company U's aggregated turnover is $20 million in that year.
In the income year ending 30 June 2022, Company U spends $12 million on R&D activities for its project, including expenditure required to be incurred by the grant program of $10 million, which the company claims an R&D tax incentive tax offset for in the relevant income year.
In the income year ending 30 June 2022, the company determines that clawback applies.
Starting offset = ($12,000,000 × 43.5%) = $5,220,000
Adjusted offset = ($12,000,000 - $1,000,000) × 43.5% = $4,785,000
Deduction amount = ($1,000,000 × 25%) = $250,000
Clawback amount = ($5,220,000 - $4,785,000 - $250,000) ÷ 25% = $740,000.
Part of grant later repaid
In the income year ending 30 June 2023, Company U achieves sales of $6 million arising from the project and so repays $100,000 (10 cents for every dollar above $5 million) of the grant. The net amount of the recoupment is now $900,000 ($1 million less $100,000).
Company U will need to recalculate its clawback adjustment and lodge an amendment to its tax return for the income year ending 30 June 2022:
Clawback = (($12,000,000 × 43.5%) - ($11,100,000 × 43.5%) - ($900,000 × 25%)) ÷ 25% = $666,000
End of example