Entitlement of R&D tax incentive
Entitlement to the R&D tax incentive is based, in part, on you having incurred expenditure on R&D activities that you can notionally deduct. You generally must satisfy the conditions in section 355-210 of the ITAA 1997, which sets out for whom R&D activities can be conducted. In general, you can only claim a notional deduction and, therefore, the R&D tax incentive for expenditures on R&D activities conducted for you and not to a significant extent for some other entity (with some exceptions concerning foreign corporations – see below).
R&D activities may be conducted for you if you conduct the activities for yourself or if another entity conducts these R&D activities for you.
Like the 'on own behalf' rule from the former R&D tax concession, this requirement generally limits claims to the R&D tax incentive to cases where you are the person who receives the majority of benefits arising from expenditure on R&D activities. In some cases, this rule will also prevent the duplication of claims by different entities where essentially the same R&D activities are involved.
Under subsection 355-210(1) of the ITAA 1997, you may also qualify for the R&D tax incentive if:
- your R&D activities are conducted for an associated foreign corporation that is a resident of a country with which Australia has a comprehensive double-tax agreement – if certain conditions are met
- you are a foreign corporation carrying on your business through a permanent establishment in Australia and the R&D activities are conducted for you and not for the permanent establishment – if certain conditions are met.
In most cases, however, expenditure incurred on R&D activities conducted to a significant extent for another entity cannot be claimed by you under the R&D tax incentive (refer to subsection 355-210(2) of the ITAA 1997). Whether or not that other entity is entitled to claim the R&D tax incentive will depend on whether it satisfies the various eligibility and expenditure conditions.
If you are claiming the R&D tax incentive for a monetary contribution you have made under the CRC program, it is not necessary to determine for whom R&D activities are conducted in order to determine eligibility to the R&D tax incentive for that expenditure.
When determining who activities are conducted for, special rules apply if you are a partner of an R&D partnership or are part of a consolidated or MEC group.
Refer to section 355-580 of the ITAA 1997 for notional deductions for the CRC program.
R&D partnerships
If you are a partner in an R&D partnership, special rules apply when working out who the R&D activities of the partnership are carried out for. Also, in an R&D partnership, the R&D tax incentive rules treat:
- R&D activities conducted by or for the R&D partnership as if they were conducted by or for the partner in a corresponding way
- relationships that the R&D partnership has with other entities that relate to the R&D activities as if the partner had corresponding relationships with those other entities
- things done by or for the R&D partnership that relate to the R&D activities as if they were instead done by or for the partner.
The R&D activities are also treated as if they are not conducted by or for the R&D partnership, or for any other partner of the R&D partnership.
These deeming rules mean an R&D entity that is a partner of an R&D partnership can satisfy the requirement that the R&D activities are conducted for that R&D entity and not for another.
For more information refer to:
- subsection 355-210(1) of the ITAA 1997 about who the R&D activities can be conducted for
- section 355-515 of the ITAA 1997 about R&D partnerships and who the R&D activities are conducted for.