R&D tax offset for 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. If you don't pay the amount until a later income year, you can choose to do either of the following:
- claim a deduction under a normal income tax provision if that provision applies – for example, the general deduction provision, section 8-1 of the ITAA 1997, for the income year in which the amount was incurred
- claim a notional R&D deduction in the income year you make the payment.
This choice must be made by the time you lodge your income tax return for the most recent income year before the income year in which the payment is made.
If you claim a deduction for this expenditure under the first choice you will no longer be entitled to claim a notional R&D deduction for that deducted expenditure in the income year you make the payment. This can't be reversed, for example, you can't claim the notional R&D deduction by requesting an amendment of the assessment to disallow the deduction you previously claimed. In addition to claiming this amount as a deduction in the Company tax return 2024, you will also need to record this expenditure that you have claimed under other income tax provisions in Part C item 3.
If you wish to claim the expenditure under the second choice, you will need to show it at Part C item 5 R&D expenditure incurred to associates to be carried forward. If you have included the amount of R&D expenditure incurred to associates to be carried forward in item 6 Calculation of total profit or loss in the Company tax return 2024, add this amount back at item D Preliminary calculation to ensure you don't also claim this amount as a deduction under the normal income tax provisions.
You make payment when you pay the amount in cash or cash equivalent, for example, a bank transfer of money for the amount you owe. You also make payment if you transfer money to someone else at the direction of the person you are paying. You also make payment if you agree with the other person to set off the amount you owe against an existing amount the other person owes to you. Without more, the mere treatment of an invoice as having been paid in your accounts, for example by recording the amount as a loan you now owe, is not the payment of that amount. Converting or reclassifying an amount you owe into a loan is not payment of the liability.
For more information, see: Taxpayer Alert TA 2023/4: Research and development activities delivered by associated entities.
Item E1 R&D expenditure to associates incurred in prior year
Write at item E1 R&D expenditure to associates incurred in prior year, not paid, not claimed (carried forward) the total amount of R&D expenditure you have incurred to your associates in earlier income years starting on or after 1 July 2011 that has not yet been paid or claimed. This amount is carried forward from earlier income years.
Item E2 Current year R&D expenditure incurred to associates
Write at item E2 Current year R&D expenditure incurred to associates the total amount of R&D expenditure you have incurred to your associates in 2023–24, including amounts that have not yet been paid.
Item E3 Current year R&D expenditure incurred to associates – other provisions
Write at item E3 Current year R&D expenditure incurred to associates claimed under other provisions the total amount of R&D expenditure you have incurred to your associates in 2023–24, but claimed under other provisions of the ITAA 1936 or ITAA 1997 where the amount was not paid in 2023–24.
If you claim a deduction for this expenditure under another provision of the ITAA 1936 or ITAA 1997, you will no longer be entitled to claim a notional R&D deduction in the year you make the payment. This choice can't be reversed, for example, you can't later ask for an amendment of the assessment to disallow the deduction you claimed.
If you choose to claim your associate expenditure under another provision of the ITAA 1936 or ITAA 1997, don't add this expenditure back at item D Preliminary calculation on page 1 of the Research and development tax incentive schedule 2024 or item 7 Accounting expenditure in item 6 subject to R&D tax incentive – label D in the Company tax return 2024. Expenditure to your associate claimed under another provision of the ITAA 1936 or ITAA 1997 should be treated the same as other expenditure claimed under that provision within the Company tax return 2024.
Item E4 R&D expenditure paid to associates in the current year
Write at item E4 R&D expenditure paid to associates in the current year (to be included in Part A at item 6) the total amount of R&D expenditure you have paid to your associates in 2023–24. This could include amounts you have incurred in 2023–24, or amounts you have incurred in earlier income years starting on or after 1 July 2011, that have been paid in 2023–24 and that you have not previously claimed as a deduction under other provisions of the ITAA 1936 or ITAA 1997. The amount at item E4 should be equal to the amount you have shown at Part A item 6 R&D expenditure – Paid to associates in the current year.
Item 5 R&D expenditure incurred to associates – carried forward
If you have incurred expenditure to an associate during 2023–24 or in earlier income years starting on or after 1 July 2011, you will be entitled to carry the amount forward and claim it as a notional R&D deduction in the year you make the payment to your associate if you have not either:
- paid the amount
- claimed it under another provision of the ITAA 1936 or ITAA 1997.
Work out the amount you write at item 5 R&D expenditure incurred to associates to be carried forward – label E using Worksheet 1.
Row | Calculation element | Amount |
|---|---|---|
E1 | R&D expenditure incurred to associates in prior years not paid, not claimed (carried forward) | $ |
E2 | Current year R&D expenditure incurred to associates | $ |
E3 | Current year R&D expenditure incurred to associates claimed under other provisions | $ |
E4 | R&D expenditure paid to associates in the current year (to be included in Part A at item 6) | $ |
E | E1 + E2 − E3 − E4 = E R&D expenditure incurred to associates to be carried forward | $ |
Write the total from E on Worksheet 1 above in Part C item 5 label E R&D expenditure incurred to associates to be carried forward.
If you have already included this expenditure incurred to associates to be carried forward in item 6 Calculation of total profit or loss in the Company tax return 2024, include this amount also in item D Preliminary calculation.
Continue to: Part D – Aggregated turnover