Before you start to fill in the schedule, you will need to make certain calculations and complete certain parts of the Company tax return 2013.
The following labels on the Company tax return 2013 relate to the R&D tax incentive:
- at page 5 item 7 Reconciliation to taxable income or loss
- D Accounting expenditure in item 6 subject to R&D tax incentive
- at page 9 item 21 Research and development tax incentive
- A Non-refundable R&D tax offset
- B Non refundable R&D tax offset carried forward from previous year
- C Non-refundable R&D tax offset to be utilised in current year
- D Non-refundable R&D tax offset to be carried forward
- U Refundable R&D tax offset
- W Feedstock adjustment - additional assessable income
- at page 11 Calculation statement
- M R&D recoupment tax
- At item 7 Reconciliation to taxable income or loss on the Company tax return 2013, complete D Accounting expenditure in item 6 subject to R&D tax incentive. To complete this item, see Preliminary calculation – Add-back of research and development (R&D) accounting expenditure.
Total notional R&D deduction amount
Using Part A of these instructions, calculate your total notional R&D deduction amount to determine whether the company can claim an R&D tax offset. To be eligible to claim an R&D tax offset, the company's total notional deductions at Part A must be at least $20,000. If your total notional deductions are less than $20,000, you will only be able to obtain the R&D tax offset for:
- expenditure incurred to a Research Service Provider (RSP) for services within a research field for which the RSP is registered under the Industry Research and Development Act 1986 (IR&D Act), where that RSP isn't an associate of the R&D entity
- expenditure incurred as a monetary contribution under the Cooperative Research Centre (CRC) program.
Do not complete a schedule unless either:
- your total notional deductions are at least $20,000
- you have incurred expenditure to a RSP
- you have made a monetary contribution under the CRC program.
If you do not have to complete a schedule and you have a feedstock adjustment or clawback adjustment to make, you must record this on the company tax return:
- Feedstock adjustment:
- Item 21, W Feedstock adjustment - additional assessable income
- Item 7, B Other assessable income
- Clawback adjustment:
- Calculation statement - label M R&D Recoupment tax.
Expenditure to associates
Under the R&D tax incentive, you can only obtain an R&D tax offset for expenditure incurred to an associate when that amount is paid. Prior to completing the Research and development tax incentive schedule, you will need to determine which amounts you have paid to associates. See Part D – R&D expenditure to associates.
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Consolidated groups
The amounts used in the calculation of the R&D tax incentive for consolidated groups must be worked out on a consolidated basis, with all intra-group transactions eliminated. They must not be calculated on an aggregated basis, by simply adding together the expenditure of each company in the group.
Only one Research and development tax incentive schedule is required for a consolidated group, to be completed by the head company.
Clawback adjustment
A clawback adjustment will apply if you have:
- claimed a notional deduction under the R&D tax incentive, and
- received, or become entitled to receive, a government recoupment such as a grant or reimbursement that relates to this expenditure.
The government recoupment may be from an Australian Government agency or a state or territory body.
Under subdivision 355-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 at the Calculation statement, label M R&D recoupment tax on the Company tax return 2013.
If a clawback adjustment applies, read Part C – Clawback – R&D recoupment tax.
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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).
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Expenditure incurred while not at arm's length
Adjust the amount of expenditure incurred in accordance with the rules in section 355-400 of the ITAA 1997 if any of this expenditure was incurred while not dealing at arm's length, or to an associate (as defined in section 318 of the ITAA 1936).
If you incur expenditure to either:
- an associate
- 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 a company can claim as a notional R&D deduction is reduced to reflect mark-ups between connected or affiliated entities.
Prior to completing the schedule you need to calculate your reduction amount as per subsection 355-415(2) of the ITAA 1997.
Overseas expenditure
Companies wishing to claim a notional deduction for overseas R&D activities under Division 355 of the ITAA 1997 must have a positive overseas finding from Innovation Australia before they can make a claim. Sections 28C and 28D of the Industry Research and Development Act 1986 (IR&D Act) provide information on findings about activities to be conducted outside Australia, including conditions that must be met.
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- For more information about the location of your R&D activities and global innovation, refer to Research and development tax incentiveExternal Link on the Department of Industry, Innovation and Science website.
Depreciating assets
Determine amounts that are notionally deductible for depreciating assets under subdivision 355-E or section 355-520 of the ITAA 1997, in relation to your R&D activities.
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Grouping rules
You need to consider the grouping rules to work out whether your company qualifies for the refundable tax offset, including whether it is an R&D entity that either:
- meets the aggregated turnover threshold, which is calculated on a 'group' basis
- is controlled by one or more exempt entities.
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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.
Core technology expenditure
Expenditure incurred in acquiring technology that is ‘core technology’ cannot be claimed under the R&D tax incentive.
There are special transitional arrangements covering un-deducted core technology expenditure (previously deductible under the R&D tax concession).
These arrangements will help ensure that any un-deducted core technology expenditure is eligible for deduction, even though such deductions are not taken into account in calculating the amount of any tax offset a company might be entitled to under the R&D tax incentive.
The rules outlined below apply irrespective of whether the company continues to use the core technology for eligible R&D activities after 1 July 2011.
If the core technology is a depreciating asset (for example, a patent) the provisions in Division 40 of the ITAA 1997, for deducting amounts for depreciating assets, will apply on the basis that the opening adjustable amount is the amount of un-deducted expenditure in relation to the asset.
If the core technology is not a depreciating asset, the un-deducted expenditure is deductible in equal proportions over five income years, starting in the first income year beginning on or after 1 July 2011.
Un-deducted core technology amounts, claimed under the transitional rules, should be shown at item 7, X Other deductible expenses in the Company tax return 2013.
Building expenditure
Expenditure incurred to acquire or construct either:
- a building or a part of a building
- an extension, alteration or improvement to a building
is ineligible to be notionally deducted under the R&D tax incentive.
Interest expenditure
Expenditure incurred for interest (within the meaning of subsection 128A(1AB) of the ITAA 1936) payable to an entity is ineligible to be notionally deducted under the R&D tax incentive.
Goods and services tax (GST)
Adjust expenditure amounts to exclude any GST input tax credits to which you are entitled (see Division 27 of the ITAA 1997).
Lodging the schedule
Lodge the completed Research and development tax incentive schedule 2013 or a printout from the completed calculator with the appropriate company tax return.
Complete all items that apply to your company, including yes or no items. If an item or label (other than a yes or no item) does not apply, leave it blank unless otherwise instructed.
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