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R&D tax concession schedule 2004 - instructions

Accompanying instructions to the research and development tax concession schedule 2004.

Last updated 21 February 2006

1. Foreword

This publication is to assist in the completion of the Research and development tax concession schedule 2004, referred to in these instructions as the R&D schedule.

This publication is NOT a guide to the income tax law. More detailed information is available in other publications. Other publications you may need to refer to when completing the R&D Schedule are:

  • Guide to the R&D Tax Concession (available from www.ato.gov.au\randd
  • Guide to depreciating assets (NAT 1996-6.2004)
  • Income Tax Assessment Act 1936
  • Income Tax Assessment Act 1997
  • Industry Research and Development Act 1986
  • Company tax return 2004 instructions (NAT 0669-6.2004)

Please get help from the Tax Office or a professional tax practitioner if you feel this publication does not fully cover your circumstances.

As part of our commitment to producing accurate publications, a taxpayer will not be subject to penalties if it is demonstrated that a tax claim is based on wrong information contained in this publication. However, interest could be payable depending on the circumstances of each case.

2. Overview

These instructions and the R&D schedule are provided to assist companies in complying with the legislative and administrative requirements for claiming deductions for research and development (R&D) expenditure in their tax returns. For a fuller explanation of the R&D tax concession, refer to the joint AusIndustry/Tax Office publication Guide to the R&D tax concession available on the Tax Office website at www.ato.gov.au/randd under 'overview'.

3. Who is required to complete an R&D schedule?

All companies making a claim in their tax returns in respect of R&D activities under the R&D tax concession (sections 73B to 73Z of Income Tax Assessment Act 1936 (ITAA 1936) are required to complete and lodge the R&D Schedule.

4. Who is eligible to claim the R&D tax concession?

Companies that may be entitled to R&D deductions are as follows:

1. Eligible companies that have registered their research and development activities with the Industry Research and Development Board (IRDB) through AusIndustry (Department of Industry, Tourism and Resources), for the income year ended 30 June 2004.

Eligible company as defined in subsection 73B(1) of ITAA 1936 means 'a body corporate incorporated under a law of the Commonwealth or of a State or Territory'.

2. The head company of a consolidated group where at least one of the subsidiary companies in the group is an eligible company and is registered with the IRDB. (Section 73BAB of ITAA 1936)

Note: The concession is not claimable in situations where an eligible company incurs expenditure in the capacity of a trustee or nominee other than in the capacity of a trustee of a public trading trust, see subsection 73B(3) of ITAA 1936.

The tax concession is available only in respect of expenditure on eligible research and development activities. The IRDB and AusIndustry have responsibility for determining whether activities carried out are eligible research and development activities. For further information contact the AusIndustry Hotline on 13 28 46 or visit the AusIndustry website at www.ausindustry.gov.au.

Applications for registration of research and development activities must be lodged with the IRDB within 10 months of the end of the income year.

Note: Registration is a prerequisite for deduction, and must be obtained prior to making a claim in the company's tax return. Companies choosing to claim the R&D tax offset (see explanation of this at 14 below) must do so when they lodge their return of income (which includes the R&D schedule) and must be registered at that time.

Administrative

There are five labels on the Company tax return relating to the research and development tax concession:

  • label D-R&D accounting expenditure claimed under the R&D concession
  • label L-R&D concession claim (100%, 125% not 50% increment)
  • label M-R&D incremental concession-additional 50% increment
  • label Y-Election to take R&D tax offset
  • label U - R&D tax offset

These labels are located at item 7-Reconciliation to taxable income or loss on page 2 and the calculation statement on page 4 of the Company tax return 2004.

5. Before you complete the R&D schedule

The following list is not exhaustive.

5.1. General

Complete label D - R&D accounting expenditure claimed under R&D concession in item 7 - Reconciliation to taxable income or loss in the Company tax return 2004. See Preliminary Calculation - label D at 9.1.7 below.

Calculate the aggregate R&D amount to ensure that you have in excess of $20,000 of this type of expenditure and to determine whether expenditures under subsections 73B(14), (15) and section 73BA of ITAA 1936 qualify for the 100% or 125% deduction.

Calculate the amounts incurred for each category of expenditure available for deduction under section 73B of ITAA 1936.

5.2. Consolidated groups

For consolidated groups the amounts to be used as the base amounts in the calculation of the R&D tax concession deductions must be on a consolidated basis (that is, with all intra group transactions eliminated) and not an aggregated basis (that is, simply aggregating each group company's expenditure).

5.3. Clawback (Government grants and recoupments-other than CRC program grants)

Determine whether the company or any company required to be grouped with the company received or was entitled to receive a grant or recoupment in respect of any amounts claimed under the R&D tax concession, and undertake any clawback calculations required because of this, in accordance with section 73C of ITAA 1936.

For the operation of the clawback rules where a subsidiary leaves or joins a consolidated group refer to sections 73BAE (ITAA 1936) and section 701-5 (ITAA 1997), respectively.

See also Important notes on completing the R&D schedule at 8 below and Part C of the R&D schedule if clawback applies.

5.4. Prepayments

Adjust the amount of expenditure incurred in accordance with the pre-payment provisions, contained in sections 82KZL to 82KZMF of ITAA 1936 and subsection 73B(11) of ITAA 1936.

5.5. Intra-group mark-up

Determine any portion of the expenditure ineligible for the additional 25% component in accordance with the intra-group mark-up provisions (subsections 73B(14AA) - (14AD) of ITAA 1936).

5.6. Overseas expenditure

Determine expenditures relating to overseas R&D activities. Companies must have a certificate from the IRDB (overseas provisional certificate, section 39ED of Industry Research and Development Act 1986 (IR&D 1986)) to be eligible to claim overseas expenditure.

5.7. Depreciating assets/ plant

Determine any amounts available for deduction as depreciation under sections 73BH, 73BJ, 73BA and 73BC of ITAA 1936 and Division 40 of ITAA 1997. Refer to the publication Guide to depreciating assets.

5.8. Core technology

Determine the deductible amount of core technology expenditure in accordance with subsections 73B(12)-(12B) of ITAA 1936.

5.9. Incremental expenditure

Determine eligibility to the incremental tax concession under section 73Q of ITAA 1936.

5.10. Grouping Rules

Determine which entities are in the company group in accordance with sections 73L, 73M and 73R of ITAA 1936.

Note: A head company of a consolidated group will also need to consider these provisions (for example, where it is grouped with other entities with less than 100% control or ownership).

5.11. Expenditure that is not at risk

Apply section 73CA of ITAA 1936 to any expenditure for which the company was not at risk or section 73CB of ITAA 1936 to any expenditure incurred to a tax-exempt body which was not at risk.

5.12. Roll-over relief

Apply sections 73E, 73F and 73G of ITAA 1936 to relevant expenditure.

5.13. GST

Adjust expenditure amounts to take account of any entitlement to GST credits. Refer to Division 27 of ITAA 1997.

5.14. Lodging the R&D schedule

The R&D tax concession schedule must be lodged with the appropriate company tax return.

5.15. Amendments

An R&D schedule must be completed when there is a request for an amendment that includes changes to a company's R&D claim. The amended figures must be shown in the R&D schedule. This schedule is to be forwarded together with a letter requesting the amendment, to:

Innovation Segment
Australian Taxation Office
GPO Box 2540
ADELAIDE SA 5001

This applies only to the income year ended 30 June 2002 and subsequent income years.

6. Research and development website

Information related to the R&D Tax Concession is available through the research and development website. The website is located at www.ato.gov.au/randd. Information located at this site includes The Guide to the R&D Tax Concession which is under 'overview'.

For enquiries relating to the preparation and lodgment of this schedule please phone the Business infoline on 13 28 66.

7. AusIndustry contact details

For information regarding registration for the R&D tax concession and determination of eligible R&D activities which qualify for the concession, contact:

AusIndustry

Hotline number13 28 46

Websitewww.ausindustry.gov.au

8. Important notes on completing the R&D schedule

Answer all items on the schedule, including yes/no items that apply. If an item or label does not apply, leave it blank.

8.1.1. Base amount column

In respect of Part A of the schedule, items 1 to 14, 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. The three columns adjacent to the base amount column allocate the base amount into three parts, according to the level, if any, of concession that those parts attract (100%, 125% and 150%). Where a label is shaded out on the schedule, that expenditure does not attract that level of the concession. Do not add in the amount of the additional concession in these labels-this is done at item 16.

8.1.2. Claimable at 100% column

The 'Claimable at 100%' column includes but is not limited to:

  • expenditure to which clawback applies (section 73C of ITAA 1936)
  • expenditure which represents an intra group mark-up (subsections 73B(14AA)-(14AD) of ITAA 1936), or
  • expenditure which is subject to the operation of section 73CA or 73CB of ITAA 1936 (expenditure not at risk or expenditure incurred to tax-exempt bodies which is not at risk).

8.1.3. Claimable at 125% column

Include in this column all amounts that are eligible as a deduction at the rate of 125%.

8.1.4. Claimable at 150% column

The 'Claimable at 150%' column will apply in very limited circumstances to expenditures which are covered under the 1996 transitional rules applying at the time of the change of the concessional rate from 150% to 125%.

8.1.5. Incremental tax concession deduction

Part A of the R&D schedule does not calculate any incremental tax concession deduction (50% Premium)-this is determined at Part D.

9. General schedule information

9.1.1. Original or Amended claim

If the company has previously lodged a schedule for the 2004 year of income then show X in the box to the right of Amended otherwise show X in the box to the right of Original.

9.1.2. Company name

Enter the name of the company. The name shown must be the same as that shown on the company's tax return.

9.1.3. Tax file number

Enter the tax file number (TFN) of the company.

9.1.4. AusIndustry/IRDB registration number

Enter the AusIndustry/IRDB registration number issued to the company for this income year in respect of registered activities. If as a head entity of a consolidated group you are not registered with AusIndustry for the current year then please enter the registration number of any one company in the consolidated group that has been registered.

9.1.5. Signature as prescribed in the tax return

The person who is required to sign, and who signs, the tax return of the company is also required to sign the R&D schedule.

9.1.6. Australian business number (ABN)

Enter the company's ABN.

9.1.7. Preliminary calculation - label D

Enter at label D the write-back of R&D accounting expenditure from expense amounts included at the appropriate expenditure labels in item 6 - Calculation of total profit or loss, in the company tax return 2004. Note: The amount shown here must be the same as the amount shown at label D - R&D accounting expenditure claimed under R&D concession at item 7 in the company tax return. If no expense amounts relating to R&D deductions have been included at Item 6 - Calculation of total profit or loss (e.g. amounts are capitalised) enter a zero (0) at label D.

9.1.8. For consolidated groups

If aggregated expenditure has been used for accounting R&D expenditure under item 6 of the Company return, then the full amount of this aggregated expenditure must be added back at item 7, label D of the company tax return.

10. PART A - Calculation of research & development deduction

10.1. Item 1 Contracted expenditure- registered research agency (RRA)

Enter at this item expenditure on items included in paragraph (c) of the definition of 'contracted expenditure' under subsection 73B(1) of ITAA 1936, adjusted as required under subsection 73B(11) of ITAA 1936 for advance and accelerated expenditure.

Contracted expenditure means expenditure incurred by an eligible company to a body (not being an associate of the eligible company) that was, or is taken to have been, registered under section 39F of the IR&DA 1986 when the expenditure was incurred as a research agency in respect of the class of research and development activities on which the expenditure was incurred. That is, the registered body is an RRA.

Expenditure will qualify as contracted expenditure only where at the time the expenditure was incurred, the eligible company was capable of utilising, or had formulated a plan to utilise, any results of the R&D directly in connection with a business that that company carried on or proposed to carry on, (subsection 73B(1B) of ITAA 1936).

Enter at label A the total amount of contracted expenditure - RRA incurred.

Enter at label B any amount of the contracted expenditure that is claimable at 100%.

Enter at label C any amount of the contracted expenditure that is claimable at 125%.

Enter at label D any amount of the contracted expenditure claimable at 150%.

Note: The total of labels B, C and D should equal the base amount otherwise, a warning 'Your claim does not balance' will appear on screen.

For more information, refer to:

10.2. Item 2 Salary expenditure

Enter at this item the amount of salary expenditure as defined in subsection 73B(1) of ITAA 1936, for those employees who are actually engaged in carrying out an eligible R&D activity 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 & payroll tax.

It may be necessary to apportion the expenditure incurred between R&D and non-R&D activities. For more information refer to Taxation Ruling IT 2552, paragraphs 4 -12.

This item does not include:

  • salary expenditure incurred in respect of the construction of R&D plant, depreciating assets, structural improvements or buildings.
  • salary expenditure of R&D support staff not directly connected with the research activity - these should be only taken into account at Item 3 - Other R&D expenditure at 10.3 below.
  • Salary expenditure that is to be adjusted in accordance with the prepayment provisions (sections 82KZL to 82KZMF of ITAA 1936).

Enter at label E the total R&D salary expenditure incurred (The Base Amount).

Enter at label F any amount of the total R&D salary expenditure claimable at 100%.

Enter at label G any amount of the total R&D salary expenditure claimable at 125%.

Note. The total of labels F and G should equal the base amount, otherwise a warning 'Your claim does not balance' will appear on screen.

For more information, refer to:

10.3. Item 3 Other R&D expenditure

Enter at this item other R&D expenditure, as per paragraph (c) of the definition of 'research and development expenditure', subsection 73B(1) of ITAA 1936, incurred directly in respect of R&D activities carried on by or on behalf of the company.

Do NOT include at this item amounts to be shown at:

Item 4 - Contract-other, and

Item 5 - Plant leasing.

Taxation Ruling IT 2552 states that overhead and administrative expenditure is directly in respect of R&D where:

  • the carrying on of eligible R&D activities contributed to the incurring of all or an identifiable part of the expenditure, or
  • the conduct of eligible R&D activities by the company would be materially impaired if the expenditure were not incurred.

For further information relating to this classification, refer to Taxation Rulings IT 2442, paragraphs 12-19 and IT 2552, paragraphs 13-21.

The amount of other R&D expenditure claimed is to be adjusted in accordance with the prepayment provisions (sections 82KZL to 82KZMF of ITAA 1936).

Other R&D expenditure does NOT include the following:

  • core technology expenditure.
  • interest expenditure.
  • feedstock expenditure (eligible feedstock expenditure and residual feedstock expenditure are to be shown against separate items).
  • expenditure incurred in the acquisition of construction of plant or pilot plant or a building or an extension, alteration or improvement to a building.
  • expenditure incurred in the acquisition or construction of a section 73BA of ITAA 1936 depreciating asset.

Enter at label H the total amount of other R&D expenditure, incurred, excluding any amounts to be entered at Item 4 or 5 (the base amount).

Enter at label I any proportion of the other R&D expenditure that is claimable at 100%.

Enter at label J any proportion of the other R&D expenditure that is claimable at 125%.

Enter at label K other R&D expenditure claimable at 150%.

Note: The total of labels I, J and K should equal the base amount otherwise, a warning 'Your claim does not balance' will appear on screen.

For more information, refer to:

10.4. Item 4 Contract - other

This item is a component of paragraph (c) of the definition of R&D expenditure in subsection 73B(1) of ITAA 1936 - Other R&D expenditure and requires any expenditure to be shown which is incurred under a contract to another party (other than an RRA) that is directly in respect of R&D activities carried on by or on behalf of the company.

This item excludes:

  • contracted expenditure-RRA, which must be shown at item 1
  • expenditure under a contract that is, in substance, for the acquisition of plant.

The amount of 'contract - other' expenditure claimed is to be adjusted in accordance with the prepayment provisions (sections 82KZL to 82KZMF of ITAA 1936).

Subsection 73B(9) of ITAA 1936 does not allow a deduction in respect of expenditure incurred on research and development activities on behalf of any other person.

Where the payment is to another group member, adjust the amount of expenditure to be claimed in accordance with the intra-group mark-up provisions (subsections 73B(14AA) - (14AD) of ITAA 1936.

Enter at label N the total amount of contract other expenditure, incurred. (the base amount).

Enter at label O any amount of the contract other expenditure that is claimable at 100%.

Enter at label P any amount of the contract-other expenditure that is claimable at 125%.

Enter at label Q any amount of the contract-other expenditure claimable at 150%.

Note The total of labels O, P and Q should equal the base amount otherwise a warning 'Your claim does not balance' will appear on screen.

For more information, refer to:

10.5. Item 5 Plant leasing

This item is a component of paragraph (c) of the definition of R&D expenditure in subsection 73B(1) of ITAA 1936. It requires any expenditure to be shown which is incurred in the hire or leasing of an item of plant that is directly in respect of R&D activities carried on by or on behalf of the company.

The amount of plant leasing expenditure claimed is to be adjusted in accordance with the prepayment provisions (sections 82KZL to 82KZMF of ITAA 1936).

Enter at label R the total amount of 'plant leasing expenditure', incurred. (the base amount).

Enter at label S any amount of the 'plant leasing expenditure' amount claimable at 100%.

Enter at label T any amount of the plant leasing expenditure amount that is claimable at 125%.

Enter at label U any amount of the plant leasing expenditure claimable at 150%.

Note. The total of labels S, T and U should equal the base amount otherwise, a warning 'Your claim does not balance' will appear on screen.

For more information, refer to:

10.6. Items 6 & 14 Feedstock expenditure

To ascertain any amounts to be included at these two labels, you will need firstly to determine the following amounts:

Feedstock expenditure is expenditure incurred in acquiring or producing materials or goods to be the subject of processing or transformation by the company in R&D activities. It includes expenditure on energy directly input into the processing or transformation of these materials or goods.

Feedstock input is feedstock expenditure in respect of materials or goods that were the subject of processing or transformation in R&D activities during the year of income.

  Feedstock output is the sales proceeds or value of any products that were obtained during the year of income from the processing or transformation of the materials or goods that were the subject of feedstock expenditure. It is either the amount received or receivable for the products sold in arm's length transactions or, if not sold, or not sold in an arm's length transaction, that amount that would have been received if they had been sold in an arm's length transaction.

10.7. Item 6 Eligible feedstock expenditure

Include here the amount of eligible feedstock expenditure as defined in subsection 73B(1) and (1A) of ITAA 1936, with respect to related R&D activities. It is the excess of the feedstock input over the feedstock output for the related activities, in the year of income. The eligible feedstock expenditure will attract the additional 25% concession component.

Where the company has an amount of eligible feedstock expenditure, include this amount at item 6. The remainder of feedstock input will be shown at item 14 as residual feedstock expenditure. For further information, see 10.15 below.

Note: The amount of eligible feedstock expenditure claimed is to be adjusted in accordance with the prepayment provisions (sections 82KZL to 82KZMF of ITAA 1936).

Enter at label V the total amount of eligible feedstock expenditure. (the base amount)

Enter at label W any amount of eligible feedstock expenditure claimable at 100%.

Enter at label X any amount of the eligible feedstock expenditure claimable at 125%.

Note: The total of Labels W and X should equal the base amount otherwise, a warning 'Your claim does not balance' will appear on screen.

For more information, refer to:

10.8. Item 7 Plant and post 23 July 1996 pilot plant deductions - pre 29 January 2001, (including loss adjustments)

This item includes plant and pilot plant deductions and balancing loss adjustments in respect of a unit of plant that is acquired under a contract entered into or commenced to be constructed prior to 12 p.m. (midday) Eastern Standard Time on 29 January 2001. The relevant amounts should be added together, as explained below, and shown at the appropriate labels. If the company has a balancing profit under paragraphs 73B(23)(f) or 73B(24)(g) of ITAA 1936, this profit amount is to be included at item 8. Each of these types of deduction is considered separately in the following paragraph and the amounts are to be added together.

10.8.1. Deductions for plant expenditure

Include at this item one third of the amount of qualifying plant expenditure for the year of income (subsections 73B(4) and (5) of ITAA 1936). To have an amount of qualifying plant expenditure, the company's intention at the time it incurred the expenditure on the unit of plant must have been to use the unit of plant exclusively for R&D activities, for at least an initial period (definition of plant expenditure in subsection 73B(1) of ITAA 1936), and the company must have satisfied the actual exclusive use tests contained in subsections 73B(4) and (5) of ITAA 1936. No amount can be claimed as qualifying plant expenditure where R&D activities ceased during the year of income (subsection 73B(5) of ITAA 1936).

Where these conditions are satisfied, one-third of the amount of qualifying plant expenditure forms the basis of the deduction allowable (subsection 73B(15) of ITAA 1936).

Note:

Where the unit of plant has been used exclusively for R&D activities by another person and consideration has been paid or is payable to the owner of the unit of plant, the deductible plant expenditure is reduced by one-half of the consideration received (subsection 73B(15A) of ITAA 1936).

The amount of plant deductions claimed is to be adjusted in accordance with the prepayment provisions (sections 82KZL to 82KZMF of ITAA 1936).

Where plant expenditure is deductible under section 73B(15) ITAA 1936, and as a result of the company joining a consolidated group, the tax cost is 'set' for that plant asset under section 701-55 (ITAA 1997), an adjustment may be required to any deduction allowable for the decline in value of that asset under division 40 (ITAA 1997) and section 73BC (ITAA 1936). (Refer to section 73BAF of (ITAA 1936)).

Enter at label A one third of qualifying plant expenditure, where a deduction for that expenditure is allowable under section 73B(15) of ITAA 1936, as part of the total net amount to be shown at this label (the base amount).

Enter at label B that part of the amount at label A claimable at 100%, as part of the total net amount to be shown at this label.

Enter at label C that part of the amount at label A claimable at 125%, as part of the total net amount to be shown at this label.

Enter at label D that part of the amount at label A claimable at 150%, as part of the total net amount to be shown at this label.

Note: The total amount of labels B, C and D should equal the amount included in the base amount otherwise, a warning 'Your claim does not balance' will appear on screen.

10.8.2. Deductions for pilot plant expenditure

Post-23 July 1996 pilot plant is:

  • an experimental model of other plant for use in research and development activities or for use in commercial production, being a model that is not for use in commercial production, but that has all of the intended characteristics of the other plant of which it is a model.
  • plant that is acquired after 23 July 1996 (and prior to 29 January 2001), and
  • plant that is acquired or constructed for use by the company exclusively for the carrying on of research and development activities, (subsections 73B(1) and 73B(4C) of ITAA 1936).

A deduction for expenditure in acquiring or constructing such an item of pilot plant is only allowable where the unit of pilot plant is used exclusively for the purpose of carrying on R&D activities during the year of income.

Include as the base amount at this item the annual deduction percentage of the qualifying pilot plant expenditure in respect of such items, as calculated under subsections 73B(4D) or (4E) of ITAA 1936.

In establishing this amount, where the qualifying pilot plant expenditure is $300 or less, or the useful life of the qualifying pilot plant is less than 3 years, the annual deduction percentage is 100% as per subsection 73B(4G) of ITAA 1936. Otherwise, determine the annual deduction percentage to be used in calculating the amount eligible for deduction, as two-thirds of the percentage shown in the table in subsection 73B(4H) of ITAA 1936.

Note:

To determine useful life for the purposes of applying this table, Subdivision 42-C of ITAA 1997 applies (refer to subsection 73B(4J) of ITAA 1936).

For pilot plant acquired or constructed after 29 January 2001, see item 9.

The amount of pilot plant expenditure claimed is to be adjusted in accordance with the prepayment provisions (sections 82KZL to 82KZMF of ITAA 1936).

Enter at label A the annual deduction percentage of pilot plant expenditure as part of the total net amount to be shown at this label (the base amount).

Enter at label B the annual deduction percentage of pilot plant expenditure, which is claimable at 100%, as part of the total net amount to be shown at this label.

Enter at label C the annual deduction percentage of pilot plant expenditure claimable at 125%, as part of the total net amount to be shown at this label.

Notes: The total amount of labels B and C should equal the amounts included in the base amount otherwise, a warning 'Your claim does not balance' will appear on screen.

The sum of all post-23 July 1996 pilot plant deductions allowable (for all years) to a company in respect of such pilot plant, must not exceed the qualifying pilot plant expenditure multiplied by 1.25 (subsection 73B(15AB) of ITAA 1936).

10.8.3. Balancing adjustments (loss) on the disposal of plant and pilot plant

Balancing adjustments under subsections 73B(23) and 73B(24B) of ITAA 1936, may arise where items of plant/pilot plant whose expenditure has attracted deduction under subsections 73B(15) and 73B(15AA) of ITAA 1936 are disposed of, lost or destroyed after being used exclusively for the carrying on of R&D activities, provided no deduction is allowable to the company for depreciation under Division 42 of ITAA 1997. The consideration received for the plant at the time of disposal may vary from the written down value (this being the original cost of the item less deductions for qualifying plant expenditure as calculated in accordance with subsections 73B(4A) and 73B(4B) of ITAA 1936). Where this balancing adjustment is a loss, it is recorded at this item.

Where the consideration receivable in respect of the disposal, loss or destruction of the unit of R&D plant is less than the written-down value, the amount of this difference is an allowable deduction (paragraphs 73B(23)(e) and 73B(23)(f) of ITAA 1936).

Enter at label A the amount of any balancing adjustment loss, as part of the total net amount to be shown at this label (the base amount).

Enter at label B the amount of any balancing adjustment (deduction) amounts that are claimable at 100%, as part of the total net amount to be shown at this label.

Enter at label C amount of any balancing adjustment (deduction) amounts that are claimable at 125% in accordance with subparagraph 73B(23)(e)(i) of ITAA 1936, as part of the total net amount to be shown at this label.

Note: The amount of labels B and C should equal the amount included in the base amount otherwise, a warning 'Your claim does not balance' will appear on screen.

For more information, refer to:

10.9. Item 8 Profits on disposal of pre-29January 2001 plant and pilot plant

10.10. Plant balancing adjustments (profits)

Where the consideration receivable is greater than the written-down value of the unit of plant (paragraph 73B(23)(f) of ITAA 1936), include the amount by which the consideration exceeds the written-down value up to the limit of the difference between the cost of the plant and its written-down value at this item.

Note: If choosing to take the R&D tax offset, this amount will be required for the calculation of the R&D tax offset entitlement.

10.10.1. Balancing adjustments sale of pilot plant (profits)

Where the consideration receivable is greater than the written-down value of the unit of pilot plant (paragraph 73B(24)(f) of ITAA 1936), include the amount by which the consideration exceeds the written-down value, up to a limit of the difference between the cost of the plant and its written-down value. Include this amount in the calculation of the net base amount to be shown at item 8.

Enter at label E and label F the amount of any balancing adjustment (assessable income), as part of the total net amount to be shown at these labels.

Note: The amount at label E should equal the amount at label F, otherwise a warning 'Your claim does not balance' will appear on screen.

For more information, refer to:

10.11. Item 9 Plant and depreciating assets - Post 29 January 2001(decline in value)

This item records deductions for depreciating assets (section 73BB of ITAA 1936), including certain capital works, that are used in carrying on R&D activities and that are commenced to be constructed, or acquired under contracts entered into, after 12.00 midday EST on 29 January 2001.

The amount allowable is determined through a notional application of the provisions of Division 40 of ITAA 1997, subject to the making of certain assumptions. These are set out in section 73BC of ITAA 1936.

For an asset that is applied to non-R&D purposes as well as R&D use in a year, the R&D portion of the decline in value will be deductible under section 73BA of ITAA 1936, with the remainder being considered for deduction under Division 40 of ITAA 1997.

The Capital allowances schedule 2004 may need to be completed. For more information, refer to the publication Guide to depreciating assets.

Note:

A deduction is not allowable if the company is entitled to a deduction for the asset under the Simplified Tax System pooling provisions (subdivision 328-B of ITAA 1997), or a Division 40 Low value pool (section 40-440 of ITAA 1997).

The amount of plant and depreciating assets claimed is to be adjusted in accordance with the prepayment provisions (sections 82KZL to 82KZMF of ITAA 1936).

Enter at label H the notional Division 40 amount, as determined under sections 73BA to 73BC of ITAA 1936. (the base amount).

Enter at label I the notional Division 40 amount as determined under sections 73BA to 73BC of ITAA 1936, claimable at 100%, including where the aggregate R&D amount is less the $20000.

Enter at label J the notional Division 40 amount as determined under sections 73BA to 73BC of ITAA 1936, claimable at 125%.

Note: The amounts at Labels I and J should equal the base amount otherwise, a warning 'Your claim does not balance' will appear on screen.

For more information, refer to:

10.12. Items 10 & 11 Balancing adjustments - plant & depreciating assets (post 29 Jan 2001)

Balancing adjustments under subsection 73BF of ITAA 1936 or section 40-292 of ITAA 1997 may arise where section 73BA depreciating assets undergo a balancing adjustment event (disposal), (section 40-295 of ITAA 1997). The termination value of the asset at the time of disposal may vary from its adjustable value just before the event occurred. (Division 40-300 of ITAA 1997) Where this occurs, a balancing adjustment is required. The amount of this balancing adjustment (a loss or a profit [negative]) is recorded at item 10 or 11 respectively.

If the section 73BA depreciating asset has never attracted deductions under Divisions 42 or 40 of ITAA 1997, the balancing adjustment is calculated under section 73BF. For section 73BA depreciating assets that have attracted such deductions, the balancing adjustment is calculated under section 40-292 of ITAA 1997.

Before starting items 10 & 11, refer to the publications Guide to depreciating assets and the Guide to R&D Tax Concession.

Item 10 Post-29 January 2001 disposal losses

Where the company is entitled to deduct an amount under section 40-292 of ITAA 1997 following a balancing adjustment event, include the amount of any part of the balancing adjustment that the company is entitled to increase by 25% under the formula in subsection 40-292(4) of ITAA 1997, in the calculation of the base amount for this item.

Where the company is entitled to deduct an amount under section 73BF, of ITAA 1936 following a balancing adjustment event, include the amount of any part of the balancing adjustment that the company is entitled to increase by 25% under the formula in subsection 73BF(3) of ITAA 1936 at this label.

Enter at label K the amount of any balancing adjustment (deduction) (the base amount)

Enter at label N the amount of any balancing adjustment (deduction) amounts that are claimable at 100%.

Enter at label O the amount of any balancing adjustment (deduction) amounts that are claimable at 125% in accordance with subsection 73BF(3) of ITAA 1936.

Note: the amounts included at Labels N and O should equal the amounts included in the base amount otherwise a warning 'Your claim does not balance' will appear on screen.

For more information, refer to:

  • The Guide to depreciating assets

Item 11 Post-January 2001 disposal profits

Where the company is required to include in assessable income an amount under section 40-292 of ITAA 1997 following a balancing adjustment event, include the amount of any part of the balancing adjustment that the company is required to increase by 25% under the formula in subsection 40-292(4) of ITAA 1997 at this label.

Where the company is required to include in assessable income an amount under section 73BF of ITAA 1936 following a balancing adjustment event, include the amount of any part of the balancing adjustment that the company is required to increase by 25% under the formula in subsection 73BF(3) of ITAA 1936 at this label.

Enter at label P the amount of any balancing adjustment (assessable amount). (the base amount)

Enter at label Q the amount of any balancing adjustment (assessable amount) amounts that are claimable at 100%.

Enter at label R the amount of any balancing adjustment (assessable income) amounts that are claimable at 125% in accordance with subsection 73BF(3) of ITAA 1936.

Note: The amounts at labels Q and R should equal the amount included in the base amount otherwise a warning 'Your claim does not balance' will appear on screen.

For more information, refer to:

10.13. Item 12 Core technology - deductible amount

Include at this item deductions for core technology expenditure as defined in subsection 73B(1) and 73B(1AB) of ITAA 1936. Core technology expenditure includes expenditure incurred in acquiring, or in acquiring the right to use, core technology for the purposes of R&D activities that are carried on by or on behalf of the company.

Subsection 73B(12A) of ITAA 1936 limits the deduction allowable for core technology expenditure incurred in a year of income to a maximum of one-third of the amount of R&D expenditure incurred during the year on R&D activities that are related to the core technology.

Under subsections 73B(12A) & 73B(12B) of ITAA 1936, any undeducted amounts of core technology expenditure can be carried forward to future years in which R&D activities related to the core technology take place.

Note:

The amount of core technology expenditure claimed is to be adjusted in accordance with prepayment provisions (section 82KZL to 82KZMF).

An adjustment may be required where core technology is disposed of (subsections 73B(12A) & 73B(12B) of ITAA 1936).

Where core technology expenditure is deductible under subsection 73B(12A), and as a result of the company joining a consolidated group, the tax cost of the core technology asset is 'set' under section 701-55 (ITAA 1997), an adjustment may be required to any deductions allowable for the decline in value of that asset under Division 40 ITAA 1997. (Refer section 73BAF of (ITAA 1936)).

Enter at labels S and T the total amount of deductible core technology expenditure for the year (after the operation of subsection 73B(12A) of ITAA 1936).

Note: The amounts shown at labels S and T must be the same otherwise, a warning 'Your claim does not balance' will appear on screen.

For more information, refer to:

10.14. Item 13 Interest or amounts in the nature of interest

Enter at this item interest expenditure as defined in subsection 73B(1) of ITAA 1936 and allowable as a deduction under sub-section 73B(14A) of ITAA 1936. This item includes interest, or an amount in the nature of interest, incurred during the year of income in the financing of R&D activities.

Note: The amount of interest expenditure claimed may need to be adjusted in accordance with the prepayment provisions (sections 82KZL to 82KZMF of ITAA 1936).

Enter at labels U and V the amount of interest expenditure as defined in subsection 73B(1) of ITAA 1936.

Note: The amounts entered at labels U and V must be the same otherwise, a warning 'Your claim does not balance' will appear on screen.

For more information, refer to:

10.15. Item 14 Residual feedstock expenditure

This item asks for residual feedstock expenditure, being the lesser amount of the company's feedstock input and feedstock output for the R&D activities in the year of income.

Where feedstock inputs are greater than feedstock outputs, record the feedstock outputs at label W.

Where feedstock inputs are less than feedstock outputs record the feedstock inputs at label W. This is the residual feedstock expenditure, as defined in subsection 73B(1) of ITAA 1936.

Note: The residual feedstock expenditure will not be deductible at the concessional rate. It is claimable at 100%. Subsection 73B(14B) of ITAA 1936 allows a deduction for residual feedstock expenditure.

Enter at labels W and X the amount of residual feedstock expenditure.

Note: The amounts shown at labels W and X must be the same otherwise, a warning 'Your claim does not balance' will appear on screen.

10.16. Item 15 Total of allocated base amounts

These totals are automatically calculated by the R&D schedule which totals each column.

10.17. Item 16 Claims including concession

These totals are automatically calculated by the R&D schedule by multiplying the labels at item 15 by the appropriate concessional percentage.

10.18. Item 17 Total claim

Label L is automatically calculated as the sum of labels E, F and G.

Where this amount is positive, it is automatically included in the R&D schedule at Label L, and is then to be transferred to Label L - R&D concession claim (100%, 125% not 50% increment) at item 7, - Reconciliation to taxable income or loss on Page 2 of the Company tax return 2004.

Where this amount is negative (resulting from profits on disposal of plant), it is automatically shown as a negative amount Label L and the dollar amount together with the code L is to be transferred to Label L-R&D concession claim (100%, 125% not 50% increment) at item 7, - Reconciliation to taxable income or loss on Page 2 of the Company tax return 2004.

11. PART B - Amount of expenditure on the following items

11.1. Item 1 CRC contributions

Enter at Label I the total of any R&D contributions to cooperative research centres (CRCs) that were included as base amounts in Part A - Calculation of research and development deduction.

11.2. Item 2 Trading stock expenditure

Enter at label J the total of any trading stock expenditures that were included as base amounts in items 1 to 5 of Part A - Calculation of research and development deduction. Trading stock expenditures are any expenditures incurred in connection with acquiring trading stock.

11.3. Item 3 Royalties paid to non-residents for the use of core technology

Enter at Label K the total of any royalties paid for core technology used in R&D activities.

11.4. Item 4 Total expenditure on plant & depreciating assets

Enter at Label N the total of any expenditure incurred in this financial year on purchasing any items of plant or depreciating assets used in R&D activities.

11.5. Item 5 Total expenditure on core technology

Enter at Label O the total of any expenditure on core technology that was used in R&D activities.

11.6. Item 6 Building expenditure and other adjustments required to the company's aggregate R&D amount

Include at Label X Part B other amounts that are not included in Part A that are needed to calculate the company's aggregate R&D amount. These amounts form part of the aggregate research and development amount even though they are not deductible under 73B of the ITAA 1936. These include:

  • The total amount of any decline in value of buildings used for the purpose of carrying on R&D activities, deductible under Division 43 of ITAA1997.
  • Certain expenditure relating to unregistered R&D activities (ie  research and development expenditure, pre 29 January 2001 plant expenditure (one third thereof), deductible amounts of qualifying plant expenditure re pre 29 January pilot plant (four fifths thereof) and interest expenditure).
  • For companies that are lodging a return regarding income and deductions for a period before or after they joined a consolidated group, the additional aggregate research and development amount calculated in accordance with section 716-850 of the ITAA 1997.

12. PART C - Government grants and recoupments other than CRC program grants

Enter at label P the total amount of (non CRC programs) Government grants received in relation to, or recoupments of, R&D expenditure, the company is claiming the R&D tax concession for in the 2004 year of income

Note: The clawback provisions (sections 73C or 73CB of ITAA 1936) may operate in relation to these amounts. For instructions on the application of the clawback, provisions refer to the publication Guide to the R&D tax concession. Expenditure to which clawback applies is shown in the 'Claimable at 100% column' in Part A.

13. PART D - Research & development incremental tax concession

13.1. Calculation instructions

The schedule asks the question: 'Do you wish to test the company's entitlement to the incremental concession under Section 73Q of the ITAA (Yes or No?)' If you choose No, you can proceed to Part E. Otherwise, the following instructions will assist you in completing Part D and determining your entitlement (if eligible). You must complete this Part for all companies in the group that carry out R&D.

Important Note: Before commencing this section, the company should determine if it is eligible to claim the incremental tax concession under section 73Q of the ITAA 1936.

Definitions for the terms used are provided at the end of these instructions at 17 below.

13.1.1. Step 1. Is the company a member of a group for the purposes of the incremental tax concession?

The company will need to test for any group relationships and determine relevant group membership periods by using the grouping rules contained in section 73L and 73R of ITAA 1936 for the year of income to which this tax return applies and the previous three years of income.

A head company of a consolidated group will also need to consider the R&D grouping provisions (eg. where it is grouped with other entities with less than 100% control or ownership).

If the company is a member of such a group, follow the steps below for all members of the group that have had incremental expenditure in their group membership period in any of the four years Y0, Y-1, Y-2, and Y-3.

Note: Y0 is the year for which the Company tax return is being completed.

Please ensure incremental expenditure for a consolidated group as claimant is recorded in a single row at Part D 1(a) only (i.e. not disaggregated).

13.1.2. Step 2. Calculate R&D spend for each year, being the total incremental expenditure for the company and grouped company members

Incremental expenditure is R&D expenditure, as defined in subsections 73B(1) of ITAA 1936, and therefore includes contracted expenditure, salary expenditure and other expenditure incurred directly in respect of R&D activities, whether deductible or not.

Exclude the following:

  • expenditure to lease or hire plant, and
  • any expenditure incurred under a contract that is, in substance, for the acquisition of plant and not for the receipt of services.

Note: Where expenditure under a contract is both for the acquisition of plant and for the provision of services, the expenditure must be apportioned on a reasonable basis between them, as per subsection 73P(3) of ITAA 1936. Where none of the expenditure is apportionable, the expenditure is not included as incremental expenditure (subsection 73P(4) of ITAA 1936).

The following schedule labels relate to the expenditure items that may form part of the company's incremental expenditure in Y0:

Part A, item1-label A, item 2-label E, item 3-label H, item 4-label N, item 6-label V.

At item 1 of Part D of the R&D schedule (page 2), the company's name, TFN and Y0 incremental spend will automatically be populated at row 'a'. Enter the incremental spend of the company for each of the Y-1, Y-2 and Y-3 years as appropriate.

Note: Although Y0 is automatically populated from the information contained in Part A of the R&D schedule, it only includes deductible amounts. The amount populated at Y0 will be incorrect if any of the following circumstances apply:

  • The company has incurred some R&D expenditure which is not deductible (for example, in relation to unregistered activities). Such amounts are to be included at row 'f' of Part D.
  • An intra group mark-up is included in Part A. The amount of the intra-group mark-up must be deducted at row (f) (subsections 73P(5) and 73B(14AA) to (14AD) of ITAA 1936). (Note: If no other amounts are to be included at row (f) insert as a negative value).
  • For a consolidated return, any incremental expenditure incurred by companies during the year of income before they joined the group, should be included at row (f) (Refer sections 73BAC and 73BAD (ITAA 1936) and the publication Guide to the R&D Tax Concession).
  • For a consolidated return, where a subsidiary company leaves a consolidated group during the year the incremental expenditure of that company incurred during the period of consolidation must be deducted at row (f) (Note: If no other amounts are to be included at row (f) insert as a negative value). (Refer sections 73BAC and 73BAD (ITAA 1936) and the publication Guide to the R&D tax concession)

Enter the company name, TFN and incremental spend for the Y0, Y-1, Y-2 and Y-3 years for all group members (if any) that have incurred incremental expenditure in a group membership period in any of the four years.

Ensure that the amounts of incremental expenditure included in this table, for the other group members, and for years Y-1 to Y-3 for the claimant company, incorporate any relevant adjustments as described in the 4 dot points above.

Note: Where the number of group members exceeds 5 include the details of the additional group members in the worksheet titled 'Additional Schedule (Part D) see red tab within R&D schedule.

The total R&D Spend of the company, for Y0, Y-1, Y-2 and Y-3 will be automatically populated by the schedule.

Calculation of adjustment amounts and adjustment balances

If the company was eligible for the incremental tax concession in Y-1 and/or Y-2, AND satisfies the provisions of section 73T(3), 73T(4) and or 73V(3), select 'yes' for the relevant year, in answering the question 'Please indicate whether the company, or any of its group members, was eligible to claim the increment in 2003 and/ or 2002'.  The R&D schedule will then automatically calculate any adjustment amount for Y0 (AA0) and Y-1 (AA-1), and the adjustment balance (AB).

The electronic schedule will then automatically calculate (at label M) the deduction which the company is entitled to under the incremental tax concession. Transfer this amount to Label M - R&D Incremental Concession on - Additional 50% increment at Item 7 - reconciliation to taxable income or loss on Page 2 of the Company Tax Return 2004.

For more information, refer to:

14. PART E - Research & development tax offset

14.1. Calculation instructions

The choice to take the research and development tax offset has the effect that the company has chosen to take the offset instead of a research and development tax concession deduction (refer to subsection 73I(1) of ITAA 1936). The company cannot claim both.

Important Notes

  The choice to take the R&D tax offset can only be made in the company's return of income (which includes the R&D schedule).

  The company must be registered with the IRDB before it makes its choice.

The choice to take the R&D tax offset is not available if an exempt entity, the affiliates of an exempt entity, an exempt entity together with its affiliates, or 2 or more exempt entities, at any time during the R&D tax offset year, legally or beneficially own, or have the right to acquire, the legal or beneficial ownership of interests in the company that carry between them the right to:

  exercise, or control the exercise of, at least 25% of the voting power of the company, or

  receive at least 25% of any distribution of income or capital by the company, (refer subsection 73J(2) of ITAA 1936).

The schedule asks the question: 'Does the company wish to check eligibility for the R&D Tax Offset?' Choose No if the company is not eligible because of exempt entity ownership as referred to in the last paragraph. If you choose No, you have completed the R&D schedule. Otherwise, the following instructions will assist you in determining the company's eligibility as well as any entitlement to the R&D tax offset.

If you choose 'yes', the company's name, TFN and aggregate research & development amount will automatically be populated at row (a). You must insert the company's turnover (calculated in accordance with section 73K of the ITAA 1936) at row (a). The names, TFNs, aggregate research and development amounts (as defined in section 73B(1) of the ITAA 1936) for the period the entity was grouped (refer paragraph 73J(c) of ITAA 1936)and turnovers whilst grouped (calculated in accordance with section 73K of the ITAA 1936)  of all entities that are required to be grouped under section 73L of ITAA 1936 must also be included at rows (b) to (e) at Part E, item 1-Research and development tax offset on page 2 of the R&D schedule.

Important Note: the aggregate research and development amount that is automatically populated for the company may not be correct unless you have properly followed instructions at 11.6 as above. The aggregate research and development amount of each of the entities grouped with the company must also be calculated with reference to this instruction.

Attach additional schedule(s) if there is insufficient space for all group members and ensure that the aggregate research and development amounts and turnover from the additional schedule(s) are summed and the totals placed in row 'g' of the original schedule.

If the total of the Aggregate Research and Development Amount column is $1,000,000 or less and the total of the R&D Group Turnover column is less than $5,000,000, the company is eligible to choose to claim the R&D Tax Offset (paragraphs 73K(1)(c) and (d) of ITAA 1936).

Note that the group Aggregate Research and Development amount and the group turnover are automatically totalled at label (B) and (C) respectively.

Definitions for the terms used are provided at the end of these instructions at 17 below.

The amount at Label Y is the company's entitlement to the R&D Tax Offset.

Transfer this amount to Label Y Election to take R&D tax offset at Item 7, Reconciliation to taxable income or loss on Page 2 of the Company tax return 2004.

Note: Inclusion of an amount at label Y - Election to take R&D tax offset has the effect that the company will be taken to have made the choice under subsection 73I(1) of ITAA 1936 to take the tax offset instead of the tax deduction under the R&D tax concession provisions. If the company is eligible to make this choice, but does not wish to do so, change the answer to the question 'Does the company wish to check eligibility for the R&D Tax Offset' above to 'No'.

The amount calculated at Label U (30% (company tax rate) of Label Y is to be transferred to Label U- R&D tax offset in the Calculation Statement on Page 4 of the Company Tax Return 2004.

For more information, refer to:

15. Transfer to company tax return 2004

You have now completed the R&D schedule. You should check that all amounts at Labels D, L, M, Y and U where applicable have been transferred to the same relative labels on the Company Tax Return 2004.

16. Glossary of Acronyms

ABN

Australian Business Number

ATO

Australian Taxation Office

IRDB

Industry Research and Development Board

ITAA 1936

Income Tax Assessment Act 1936

ITAA 1997

Income Tax Assessment Act 1997

R&D

Research and development

IR&DA 1986

Industry Research and Development Act 1986

TFN

Tax File Number

RRA

A Registered Research Agency (RRA) is an Australian Research Agency registered under the Industry Research & Development Act 1986.

CRC

Cooperative Research Centre

17. Definitions

17.1.1. Current Year (Y0).

For the 2003-2004 current year of income, Y0 is the abbreviation used to denote that year of income.

17.1.2. Previous Year (Y-1).

For the 2003-2004 current year of income Y-1 is the abbreviation used to denote the 2002-2003 year of income.

17.1.3. Year Y-2 (Y-2).

For the 2003-2004 current year of income Y-2 is the abbreviation used to denote the 2001-2002 year of income.

17.1.4. Year Y-3 (Y-3).

For the 2003-2004 current year of income Y-3 is the abbreviation used to denote the 2000-2001 year of income.

17.1.5. R&D spend.

R&D spend of an eligible company for a year of income means the sum of:

a. the incremental expenditure of the eligible company for the year of income incurred during its group membership period, and

b. the incremental expenditure of each group member of the eligible company for the year of income incurred during its group membership period. (subsection 73P(2) of ITAA 1936)

17.1.6. Adjustment Amount Year Zero (AA0).

AA0 is the abbreviation used to denote a group's adjustment amount for the Y0 year of income (subsection 73P(2) of ITAA 1936).

17.1.7. Adjustment Amount Year Minus One (AA-1).

AA-1 is the abbreviation used to denote a group's adjustment amount for the Y-1 year of income (subsection 73P(2) of ITAA 1936).

17.1.8. Running Average (RA0).

RA0 is the abbreviation used to denote the group's running average for the Y0 income year (subsections 73P(2) and 73U(1) of ITAA 1936).

17.1.9. Running Average (RA-1).

RA-1 is the abbreviation used to denote the group's running average for the Y-1 income (subsections 73P(2) and 73U(2) of ITAA 1936).

17.1.10. Incremental Expenditure.

Incremental expenditure means expenditure that is research and development expenditure except:

a. expenditure to lease or hire plant; and

b. expenditure under a contract to the extent that it is, in substance, for the acquisition of plant and not for the provision of services (subsection 73P(2) of ITAA 1936).

17.1.11. Total Group Mark-up

The Total Group Mark-up is 'the sum of the amounts derived by persons during the year of income for goods and services in respect of all or part of the things for which the R&D amount was for while those persons were grouped with the eligible company mentioned in section 73L; less the actual cost to those persons of providing those goods or services' (subsection 73B(14AC) of ITAA 1936).

18. References to Taxation Determinations and Taxation Rulings

IT 2442

Income tax: concession for eligible research and development expenditure

IT 2451

Income tax: investor funding of research and development

IT 2552 & IT 2552A

Income tax: research and development (R&D) - costing of expenditure

TR 2002/1

Income tax: research and development: plant expenditure

TD 98/1

Income tax: expenditure on research and development activities: core technology expenditure.

QC17624