Instructions for early balancing SAP entities before completing the R&D tax incentive schedule.
Preparing the R&D tax incentive schedule for early balancing SAP entities
If you are not an Early Balancing SAP entity use Research and development tax incentive schedule instructions. The instructions below are only for Early Balancing SAP entities, to ensure correct calculations inline with legislation.
Before you start to fill in the schedule, you will need to make certain calculations and complete certain parts of the Company tax return 2022.
- Q item 6 Total expenses
- D item 7 Accounting expenditure in item 6 subject to R&D tax incentive
Once you have completed your schedule you may have to show further information from the Research and development tax incentive schedule in the Company tax return:
- Item 21 Research and development tax incentive
- A Non-refundable R&D tax offset
- B Non-refundable R&D tax offset carried forward from previous year
- C Non-refundable R&D tax offset to be utilised in current year
- D Non-refundable R&D tax offset to be carried forward to next year
- U Refundable R&D tax offset
- W Clawback amounts – additional assessable income
- Calculation Statement
- M R&D recoupment tax
For more information on completing the items above, see:
- Company tax return instructions 2022
- Preliminary calculation – Add-back of research and development (R&D) accounting expenditure.
Total notional R&D deduction amount
Using Part A of these instructions, calculate your total notional R&D deduction amount to determine whether you can claim an R&D tax offset. To be eligible to claim an R&D tax offset, your total notional deductions at Part A must be at least $20,000. If your total notional deductions are less than $20,000, you will only be able to obtain the R&D tax offset for:
- expenditure incurred to a Research Service Provider (RSP) for services within a research field for which the RSP is registered under the Industry Research and Development Act 1986 (IR&D Act), when that RSP isn't an associate of the R&D entity
- expenditure incurred as a monetary contribution under the Cooperative Research Centre (CRC) program.
Do not complete a schedule unless any of the following apply:
- your total notional deductions are at least $20,000
- you have incurred expenditure to an RSP
- you have made a monetary contribution under the CRC program.
If you only have to report clawback amounts covered by Part B of this schedule:
- you do not have to complete a schedule
- you must record the clawback amounts in the Company tax return
- feedstock adjustment at W item 21 Clawback amounts – additional assessable income and at B item 7 Other assessable income
- clawback adjustment in the Calculation statement at M R&D recoupment tax.
Expenditure to associates
Under the R&D tax incentive, you can only obtain an R&D tax offset for expenditure incurred to an associate when that amount is paid. Before completing the Research and development tax incentive schedule, you will need to determine which amounts you have paid to associates.
For more information, see
Consolidated groups
The amounts used in the calculation of the R&D tax incentive for consolidated groups must be worked out on a consolidated basis, with all intra-group transactions eliminated. They must not be calculated on an aggregated basis, by simply adding together the expenditure of each company in the group.
Only one Research and development tax incentive schedule is required for a consolidated group, to be completed by the head company.
Clawback amounts
A clawback adjustment applies if both of the following apply:
- you claimed a notional deduction under the R&D tax incentive
- you received, or became entitled to receive, a government recoupment such as a grant or reimbursement that relates to this expenditure.
The government recoupment may be from an Australian Government agency or a state or territory body.
Under subdivision 355-G of the ITAA 1997, the income tax you are liable to pay on the recoupment will be increased. This is referred to as a clawback adjustment and is recorded in the Calculation statement, at M R&D recoupment tax in the Company tax return 2022.
For more information, see
Prepayments
Adjust the amount of expenditure incurred in accordance with the prepayment provisions in sections 82KZL to 82KZMF of the Income Tax Assessment Act 1936 (ITAA 1936).
For more information, see Deductions for prepaid expenses 2022.
Expenditure incurred while not at arm's length
If you incur expenditure to either an associate or another party with which you are not dealing at arm's length and the expenditure incurred exceeds the market value of the relevant R&D activity, the amount eligible for a notional R&D deduction is treated as being the market value of the R&D activity.
Intra-group mark-ups
The amount that you can claim as a notional R&D deduction is reduced to reflect mark-ups between connected or affiliated entities.
Before completing the schedule you need to calculate your reduction amount using the method statement in subsection 355-415(2) of the ITAA 1997.
Overseas expenditure
You must have a positive overseas finding from AusIndustry before you can claim a notional deduction for expenditure on overseas R&D activities under Division 355 of the ITAA 1997. Sections 28C and 28D of the Industry Research and Development Act 1986 (IR&D Act) provide information on findings about activities to be conducted outside Australia, including conditions that must be met. You cannot claim for expenditure on overseas activities if the R&D is conducted for a foreign corporation that is connected or affiliated with you.
For more information about the location of your R&D activities, go to business.gov.auExternal Link
Depreciating assets
Determine amounts that are notionally deductible for decline in value of depreciating assets under subdivision 355-E or section 355-520 of the ITAA 1997, in relation to your R&D activities.
For more information, see the Guide to depreciating assets 2022.
Entitlement requirements
To work out whether you qualify for the refundable or non-refundable tax offset, you need to consider whether you:
- meet the aggregated turnover threshold, or
- are controlled by one or more exempt entities.
‘Aggregated turnover’ is explained in Definitions.
Regardless of a company's aggregated turnover, if one or more exempt entities have direct control or indirect control of the company (with a relevant control threshold of 50%), then the company is only eligible for the 38.5% non-refundable tax offset.
For more information, see:
- R&D tax incentive – 1 July 2011 to 30 June 2021
- Grouping for aggregated turnover purposes
- Step 3 – Calculate your aggregated turnover of Research and development tax incentive.
Expenditure that is not at risk
As per section 355-405 of the ITAA 1997, a company cannot claim a notional deduction for expenditure if it is not at risk in respect of that expenditure. Apply section 355-405 of the ITAA 1997 to reduce your notional deductions by any amount for which the company was not at risk.
TR 2021/5 Income tax: research and development tax offsets – the 'at risk' rule considers the tests for determining whether a company’s expenditure is at risk.
Core technology expenditure
Expenditure incurred in acquiring technology that is core technology cannot be claimed under the R&D tax incentive.
If you are unsure as to whether your particular technology is core technology, you can request a finding from AusIndustry. This finding gives you certainty about whether expenditure incurred in acquiring the technology is excluded under the R&D tax incentive.
Building expenditure
Expenditure cannot be claimed under the R&D tax incentive if it is incurred to acquire or construct:
- a building or a part of a building, or
- an extension, alteration or improvement to a building.
Interest expenditure
Expenditure incurred for interest (within the meaning of subsection 128A(1AB) of the ITAA 1936) payable to an entity cannot be claimed under the R&D tax incentive.
Goods and services tax (GST)
Adjust expenditure amounts to exclude any GST input tax credits to which you are entitled (see Division 27 of the ITAA 1997).
Lodging the schedule
For information on how to lodge your schedule, see Lodgment.
Complete all items that apply to you, including yes or no items. If an item or label (other than a yes or no item) does not apply, leave it blank unless otherwise instructed.
Continue to: Completing the R&D schedule for early balancing SAP entities