A feedstock adjustment is an amount you include in your assessable income. It applies when you obtain an R&D tax incentive offset for your feedstock expenditure incurred on R&D activities, when those activities also produce tangible products for supply to someone else, or to be applied to the R&D entity's own use (other than in transforming such products for supply).
The feedstock adjustment applies to expenditure on the following:
- goods or materials (feedstock inputs) transformed or processed during R&D activities in producing one or more tangible products (feedstock outputs)
- energy that is input directly into that transformation or processing.
A feedstock adjustment may also apply in respect of amounts claimed for the decline in value of assets used in acquiring or producing feedstock inputs.
The feedstock provisions apply to both core R&D activities and supporting R&D activities that transform or process feedstock inputs. The provisions are not confined to mass production activities.
When a feedstock adjustment is triggered, you must include an amount in your assessable income. This may be in the current or in a future income year, depending on when the output is supplied or applied.
You do not need to complete Part B unless your R&D activities have produced a marketable product supplied to someone else, or applied to your own use during 2019–20 (other than in transforming such a product for supply). If your R&D activities have not produced a marketable product supplied to someone else or applied to your own use, go to Part C – Clawback – R&D recoupment tax in these instructions.
If you have a feedstock adjustment (additional assessable income) in 2019–20 but are not claiming the R&D tax offset, you do not need to complete the Research and development tax incentive schedule 2020. You will still need to work out your feedstock adjustment and include it at W item 21 and B item 7 of the Company tax return 2020. These instructions provide details about how you work out your feedstock adjustment.
See also:
Item 1 Feedstock revenue total
Enter at item 1 Feedstock revenue total the total amount of feedstock revenue from all R&D activities, where those activities have produced products supplied to someone else, or applied to the R&D entity's own use (other than in transforming such products for supply).
Item 2 Expenditure on feedstock inputs attributable to feedstock output
Enter at item 2 Expenditure on feedstock inputs attributable to feedstock output the total amount of feedstock inputs attributable to feedstock outputs on all R&D activities, if those activities have produced products supplied to someone else, or applied to the R&D entity's own use (other than in transforming such products for supply).
Also include in the total amount written at item 2 Expenditure on feedstock inputs attributable to feedstock output the total amount of energy input directly into the transformation or processing and the decline in value of assets used in acquiring or producing the inputs to the R&D activities.
If you must include an additional amount in your assessable income as a result of triggering a feedstock adjustment, you may choose to reduce the amount of feedstock input expenditure in item 2 Expenditure on feedstock inputs attributable to feedstock output to calculate the additional assessable income for the feedstock adjustment in a particular income year if:
- the total R&D notional deductions in the income year in which the relevant R&D expenditure arose exceeds $100 million, and
- the sum of the proposed reduction and any prior reductions under these rules for that income year is not greater than the amount by which your R&D expenditure exceeded $100 million (for example, if total R&D expenditure is $150 million, then you may reduce additional liabilities by no more than $50 million).
Item 3 Feedstock adjustment – additional assessable income
The amount to be shown at B Feedstock adjustment – additional assessable income is the total of all feedstock adjustments that are required to be made for all R&D activities, if those activities have produced products supplied to someone else, or applied to the R&D entity's own use (other than in transforming such products for supply).
Step 1
Determine which R&D activities have produced marketable products.
Step 2
For each of the R&D activities identified at step 1 above, work out each of the following amounts:
- 2A – feedstock revenue
- 2B – the sum of amounts claimed (in the current income year or an earlier income year) as notional deductions for
- feedstock inputs attributable to feedstock outputs from each of these R&D activities
- energy input directly into the transformation or processing
- the decline in value of assets used in acquiring or producing the feedstock inputs to these R&D activities.
Where you have total notional R&D deductions that exceed $100 million, the amount used for the purposes of 2B may be reduced. The amount of the reduction when combined with reductions under the clawback and balancing adjustment rules cannot exceed the excess of notional R&D deductions over $100 million.
Step 3
For each of the R&D activities identified at step 1 above, determine whether the amount calculated at step 2A is less than the amount calculated at step 2B, as the feedstock adjustment amount will be calculated as one third of the lesser amount.
Step 4
For each of the R&D activities identified at step 1 above, work out your feedstock adjustment amount as follows:
- If the amount calculated at step 2A is less than the amount calculated at step 2B, divide the amount shown at step 2A by 3.
- If the amount calculated at step 2B is less than the amount calculated at step 2A, divide the amount shown at step 2B by 3.
Step 5
Add together each of the amounts calculated at step 4 above. Enter the total at B item 3 Feedstock adjustment – additional assessable income.
If you complete the form on your computer, this will be calculated for you at B item 3. If you have multiple feedstock outputs, the additional assessable income may be too high. If this happens, click the box below label B (‘Check this box to overwrite the value at label B above. Uncheck to use calculation.’) and enter the correct value.
Include this amount in the Company tax return 2020 at W Feedstock adjustment – additional assessable income item 21 and B Other assessable income item 7.