Item 21 - Research and Development tax incentive
If you are claiming an R&D tax offset amount at item 21: label A Non-refundable R&D tax offset or label U Refundable R&D tax offset, you must complete and lodge via PLS a current year Research and development tax incentive (BY).
See the ATO website for further information on:
- Research and development tax incentive amendments
- Better targeting the Research and Development Tax Incentive
- Research and development tax incentive schedule.
The government has announced its intention to reform the Research and development (R&D) tax incentive to reward additional investment in R&D while ensuring the integrity and fiscal affordability of the incentive.
These changes are expected to apply from the first income year commencing on or after 1 July 2018. For information on the progress of these changes, see New legislation.
The ATO will accept tax returns as lodged during the period up until the proposed law change is passed by parliament. After the new law is enacted, you will need to review your position and, if required, seek an amendment.
An eligible company will be entitled to an R&D tax offset if its total notional deductions for an income year are 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 IR&D Act, where that RSP isn’t an associate of the R&D entity
- expenditure incurred as a monetary contribution under the Co-operative Research Centre (CRC) program.
You must use the R&D schedule (rd) and its worksheets for Feedstock and Claw Back—R&D recoupment tax to complete the labels at item 21.
If there was an amount of Non-refundable R&D offset unutilised in the previous year, that amount is pre-filled to this field on rollover.
If you claimed a non-refundable R&D tax offset in one or more earlier income years commencing on or after 1 July 2011 and did not apply all or part of the tax offset in those earlier income years, you may be able to carry forward and use those parts of the tax offset that were unapplied in the current income year. To work out whether you can carry forward and use all or part of the non-refundable R&D tax offset from an earlier income year to this year, see Division 65 of the ITAA 1997.
Use the Non-refundable R&D tax offset carried forward from previous year worksheet (rdc) to have the reduction calculated with regard to any Net exempt income adjustment and the company status: Base Rate entity 27.5% or other Company 30%.
Do not include an amount at label B if you are prevented from using the non-refundable R&D tax offset from the income year ending 30 June 2012 by Division 65 of the ITAA 1997.
For example, Division 65 states that before you can apply a tax offset brought forward from a prior year to reduce the amount of income tax that you will pay in a later year, you must apply it to reduce certain amounts of net exempt income.
If the company is a base rate entity for the year, net exempt income is reduced by $1 for each 27.5 cents of the tax offset; otherwise net exempt income is reduced by $1 for each 30 cents of the tax offset.
The amount at label B flows to the Calculation statement label D Non-Refundable carry forward tax offsets worksheet (ncf).
The amount to be shown at Item 21: label D—Non-refundable tax offset carried forward to next year is calculated by deducting the amount at label C—Non-refundable tax offset to be utilised in current year from the amount at label A—Non-refundable R&D tax offset.
You must complete the Research and development tax incentive (BY) to complete the item 21 labels and the Calculation statement labels.
For eligible notional deductions on R&D activities that are $100 million or less, the non-refundable R&D tax offset is equal to the amount of eligible notional deductions x 38.5%.
For eligible notional deductions on R&D activities which exceed $100 million, the non-refundable R&D tax offset is equal to the sum of eligible notional deductions for the first $100 million x 38.5%, and eligible notional deductions in excess of $100 million x the applicable company tax rate.
Any unused portion of the non-refundable R&D tax offset may be carried forward to future income years, subject to the tax offset carry-forward rules in Division 65 of the ITAA 1997.
we'll include this amount in your total at label E—Refundable tax offsets in the Calculation statement.
Click label U to open the schedule BY, refer to Research and development tax incentive (BY).
To claim a refundable R&D tax offset, an eligible company must:
Have an aggregated turnover of less than $100 million, and
Not be controlled by one or more income tax exempt entities.
The refundable R&D tax offset is equal to 43.5% of the first $100 million of eligible notional deductions on R&D activities, and 30% of eligible notional deductions on R&D activities which exceed $100 million.
For eligible notional deductions on R&D activities that are $100 million or less, the non-refundable R&D tax offset is equal to the amount of eligible notional deductions x 43.5%.
For eligible notional deductions on R&D activities which exceed $100 million, the refundable R&D tax offset is equal to the sum of eligible notional deductions for the first $100 million x 43.5%, and eligible notional deductions exceeding $100 million x the applicable company tax rate.
Due to the refundable tax offset rules in Division 67 of the ITAA 1997, the refundable R&D tax offset directly reduces basic income tax liability of a company (income tax). Where the amount of the refundable R&D tax offset exceeds the amount of tax that the company would otherwise have had to pay, then the excess is refundable (subject to any other tax debts owing).