Instructions for completing Part A – Calculation of notional R&D deduction.
R&D amounts
Show the notional R&D deduction amounts at Part A in whole dollars only. Do not multiply the amounts in Part A by an offset percentage, do that in Part E – R&D tax offset calculation.
In allocating notional R&D deduction amounts to items 1 to 9 in Part A, choose the item most appropriate to the expenditure or decline in value amount in question.
Australian owned R&D column
Show in this column all amounts that relate to R&D activities that this company has conducted for itself where it is a corporation that is either:
- incorporated under an Australian law
- incorporated under foreign law but an Australian resident for income tax purposes.
Foreign owned R&D column
Show in this column all amounts that you (an R&D entity) incurred for another company that is both:
- a foreign corporation
- a resident of a country with which Australia has a comprehensive double tax agreement.
The activities must be conducted under a written agreement between you and the other company.
Additionally, show amounts in this column for amounts incurred if the R&D entity is a foreign corporation carrying on business through a permanent establishment in Australia that can be claimed under the R&D tax incentive.
If you are claiming amounts in this column, you will also need to consider other taxation implications in regard to your related-party international dealings. For more information, see International dealings schedule instructions 2022 and the taxation rulings referred to within that publication.
If an R&D entity is entitled under section 355-100 of the ITAA 1997 to an R&D tax offset for an income year for expenditure it can notionally deduct under sections 355-205, 355-480 or 355-580 of the ITAA 1997, that expenditure:
- cannot be taken into account by any entity in working out a deduction under any provision for any income year, and
- cannot be taken into account by any entity in working out another tax offset under any provision for any income year.
If an R&D entity is entitled under section 355-100 of the ITAA 1997 to an R&D tax offset for an income year for the decline in value under sections 355-305, 355-315, 355-520 or 355-525 of the ITAA 1997, that decline in value (to the extent that the asset is used for the purpose of conducting R&D activities):
- cannot be taken into account by any entity in working out a deduction under any other provision (other than section 40-292 or 40-293 of the ITAA 1997) for any income year, and
- cannot be taken into account by any entity in working out another tax offset under any other provision for any income year.
Do not include any amounts at Part A for:
- building expenditure
- interest expenditure
- core technology expenditure
- non-arm's length amounts
- not-at-risk amounts
- group mark-up amounts
- expenditure incurred, but not paid, to associates.
Item 1 R&D expenditure – Research service provider (RSP)
Show at item 1 R&D expenditure – Research service provider (RSP) the expenditure you incurred to an RSP, to the extent that it has been incurred on R&D activities.
Apportion your expenditure between R&D activities and other activities that you undertake and show expenditure on R&D activities only at this item.
Split the expenditure at item 1 between Australian owned R&D activities (A) and foreign owned R&D activities (B).
In most circumstances, expenditure to an RSP is not subject to the $20,000 notional deduction threshold. You will therefore be able to claim an R&D tax offset for this expenditure, regardless of the amount. However, these rules will only apply where:
- the RSP is not an associate of the R&D entity
- the R&D activities are within a research field for which the RSP is registered under the IR&D Act.
Item 2 R&D expenditure – Contract expenditure (not RSP)
Show at item 2 R&D expenditure – Contract expenditure (not RSP) the amount of expenditure you incurred under a contract to another party (other than an RSP), to the extent that it has been incurred on R&D activities.
Apportion your expenditure between R&D activities and other activities that you undertake. Show expenditure on R&D activities only at this item.
Split the expenditure at item 2 between Australian owned R&D activities (C) and foreign owned R&D activities (D).
Do not show any amount at this item for expenditure incurred to an associate. If you have entered into a contract with your associate, you are only eligible to claim the amount incurred in the income year to the extent it is paid. Show amounts paid to an associate at Part A, item 6. You also need to provide further details of expenditure to your associates in Part C – R&D expenditure to associates.
To claim this type of expenditure on R&D activities, your total notional deduction amount must be at least $20,000.
For more information, see Expenditure you incur under contract to other parties.
Item 3 R&D expenditure – Salary expenditure
Show at item 3 R&D expenditure – Salary expenditure the amount of salary expenditure you incurred – for all your employees, to the extent that it has been incurred on R&D activities.
The amounts you show at this item include expenditure on salary and wages (and associated on costs) of:
- researchers
- technical employees
- other employees directly working on your R&D activities
- supervisors and managers of the above staff.
Apportion your expenditure between R&D activities and other activities that you undertake. Show expenditure on R&D activities only at this item.
Split the expenditure at item 3 between Australian owned R&D activities (E) and foreign owned R&D activities (F).
Do not show any amount at this item for expenditure incurred to an associate. If you incurred expenditure to your associate, you are only eligible to claim the amount incurred in the income year to the extent it is paid. Amounts paid to an associate are shown at Part A, item 6. You also need to provide further details of expenditure to your associates in Part C – R&D expenditure to associates.
To claim this type of expenditure on R&D activities, your total notional deduction amount must be at least $20,000.
For more information, see:
Item 4 R&D expenditure – Other
Show at item 4 R&D expenditure – Other the expenditure, to the extent that it was incurred on R&D activities, that you are not required to show at any other item of Part A. Types of expenditure to be shown at this item may include:
- administrative costs and overheads incurred on R&D activities
- expenditure on overseas activities that are covered by a finding made by Industry Innovation and Science Australia under section 28C of the IR&D Act.
Apportion your expenditure between R&D activities and other activities that you undertake. Show expenditure on R&D activities only at this item.
Split the expenditure at item 4 between Australian owned R&D activities (G) and foreign owned R&D activities (H).
Do not show any amount at this item for expenditure incurred to an associate. If you incurred expenditure to your associate, you are only eligible to claim the amount incurred in the income year to the extent it is paid. Amounts paid to an associate are shown at Part A Item 6 R&D expenditure – Paid to associates in the current year. You also need to provide further details of expenditure to your associates in Part C – R&D expenditure to associates.
To claim this type of expenditure on R&D activities, your total notional deduction amount must be at least $20,000.
For more information, see:
Item 5 R&D expenditure – Feedstock input expenditure
Show at item 5 R&D expenditure – Feedstock input expenditure the total amount of R&D expenditure incurred in the income year on acquiring or producing feedstock inputs that are transformed or processed during R&D activities in producing one or more tangible products (feedstock outputs).
Feedstock input expenditure also includes both:
- the total cost of 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.
Split your expenditure at item 5 into Australian owned R&D activities (I) and foreign owned R&D activities (J).
To claim this type of expenditure on R&D activities, your total notional deduction amount must be at least $20,000.
An amount you include in Feedstock input expenditure must not be included elsewhere in Part A.
The amount you show at this item may not form part of any feedstock adjustment in 2021–22. However, it will represent expenditure on feedstock inputs and should be recorded separately from the other expenditure types in Part A. It may be expenditure to be taken into account to work out the amount of feedstock adjustment in the current or a future income year (see Part B – Clawback amounts – Feedstock).
For more information, see:
Item 6 R&D expenditure – Paid to associates in the current year
Show at item 6 R&D expenditure – Paid to associates in the current year the total amount of expenditure you have paid to your associates in 2021–22, to the extent that it has been incurred on R&D activities. You could include expenditure you have paid to associates in the current year that was either:
- incurred in 2021–22
- incurred in earlier income years commencing on or after 1 July 2011
provided you have not claimed this expenditure under other provisions of the ITAA 1936 or ITAA 1997.
Apportion your expenditure between R&D activities and other activities that you undertake. Show expenditure on R&D activities only at this item.
Transfer this amount to Part C item E4 R&D expenditure paid to associates in the current year.
Split the expenditure at item 6 into Australian owned R&D activities (K) and foreign owned R&D activities (L).
To claim this type of expenditure on R&D activities, your total notional deduction amount must be at least $20,000.
If you have incurred expenditure to your associate, but it is not paid in 2021–22, do not include that amount at K or L. For more information about how you treat this expenditure that is incurred but not yet paid, see Preliminary calculation – Add back of research and development (R&D) accounting expenditure and Part C – R&D expenditure to associates.
For more information about what amounts may be claimed as 'Expenditure paid to associates in the current year', see:
- Part C – R&D expenditure to associates
- Salary expenditure to your associate
- Payment to your associate in your claim year
- Your notional deduction
Item 7 R&D assets – Decline in value
Show at item 7 R&D assets – Decline in value the decline in value amount notionally deductible under subdivision 355-E and section 355-520 of the ITAA 1997 for depreciating assets used in R&D activities.
Split your decline in value amount at item 7 into Australian owned R&D activities (M) and foreign owned R&D activities (N).
To claim these amounts on R&D activities, your total notional deduction amount must be at least $20,000.
For more information about what amounts may be claimed for 'Decline in value' under the R&D tax incentive, see Decline in value of assets.
Item 8 R&D assets – Balancing adjustment losses
Only early balancing companies with a substituted accounting period commencing prior to 1 July 2021 should consider this item.
Other companies do not complete this item, as you no longer include balancing adjustment losses to work out the R&D tax offset. See the Company tax return instructions 2022 to claim balancing adjustment losses as a deduction instead.
Show at item 8 R&D assets – Balancing adjustment losses the amount of balancing adjustment losses you are eligible to notionally deduct under sections 355-315 or 355-525 of the ITAA 1997, for assets used only for R&D activities.
Split the amount shown at item 8 into Australian owned R&D activities (O) and foreign owned R&D activities (P).
To claim these amounts on R&D activities, your total notional deduction amount must be at least $20,000.
Balancing adjustment losses for assets used for both R&D and non-R&D activities are deductible under sections 40-285, 40-292 or 40-293 of the ITAA 1997 and do not qualify as notional deductions for the purposes of claiming an R&D tax offset.
Show at X item 7 Other deductible expenses in the Company tax return 2022 your deduction for balancing adjustment losses if the assets have been used for both R&D and non-R&D activities.
If you are otherwise eligible for an R&D tax offset under section 355-100 of the ITAA 1997 in the current year, the amount shown at X item 7 Other deductible expenses in the Company tax return 2022 is calculated and claimed at an uplifted percentage under sections 40-292 or 40-293 of the ITAA 1997.
If you are not otherwise eligible for an R&D tax offset under section 355-100 of the ITAA 1997, the balancing adjustment losses for assets used on both R&D and non-R&D activities, as calculated under section 40-285 of the ITAA 1997, are included at X item 7 Other deductible expenses in the Company tax return 2022. This amount is not eligible to be uplifted and is therefore claimed at 100%.
Assessable balancing adjustment amounts (as a result of balancing adjustment profits) for assets used in R&D activities are included at B item 7 Other assessable income in the Company tax return 2022.
If the asset has only been used for R&D activities, the assessable amount to be included at this label is uplifted by one third (as per subsection 355-315(3) of the ITAA 1997).
If the asset has been used partly for R&D activities, under subsection 40-292(5) or 40-293(3) of the ITAA 1997, the amount included and uplifted by one third is the proportion of the assessable balancing adjustment amount that relates to notional deductions claimed under the R&D tax incentive.
Item 9 Cooperative Research Centre (CRC) contributions
Show at item 9 Cooperative Research Centre (CRC) contributions the amount of expenditure you have incurred as a monetary contribution under the CRC program that you spent on registered R&D activities.
Split the incurred expenditure into Australian owned R&D activities (Q) and foreign owned R&D activities (R).
Expenditure you incurred as a monetary contribution under the CRC program is not subject to the $20,000 notional deduction threshold. You can therefore claim an R&D tax offset for this expenditure, regardless of the amount.
For more information, see Contributions under the CRC program.
Item 10 Total of allocated notional deductions
Show at X item 10 Total of allocated notional deductions the sum of the amounts you show at items 1 to 9 in the Australian owned R&D column.
Show at Y item 10 Total of allocated notional deductions the sum of the amounts you show at items 1 to 9 in the Foreign owned R&D column.
Item 11 Total notional R&D deduction (X plus Y)
Show at Z item 11 Total notional R&D deductions (X plus Y) the sum of the amounts you show at X and Y in item 10 Total of allocated notional deductions.
If the amount you show at Z is less than $20,000, you will only be able to claim an R&D tax offset for amounts you show at:
- item 1 R&D expenditure – Research service provider (RSP)
- item 9 Cooperative Research Centre (CRC) contributions.
Continue to: Part B – Clawback amounts