13 April 2021
This Bulletin sets out recent key developments and highlights the forthcoming deadline, relevant for companies seeking to access the R&D Tax Incentive for the year ended 30 June 2020 and later income years.
30 April lodgment deadline
Companies wishing to register R&D activities carried out during the financial year ended 30 June 2020 must do so by 30 April 2021. This deadline can only be extended in exceptional circumstances, and in accordance with new law, will now be capped to a maximum period of three months.
If you are considering submitting an R&D claim for the first time, it is important to seek advice as soon as possible. This also applies to companies that typically prepare their R&D claims internally but may be unsure about how to apply AusIndustry’s recently updated guidance.
Recap on the recent R&D program changes
The legislation that recently reformed the application of the R&D tax incentive (enacted in December 2020) will first take effect from 1 July 2021 for June balancing companies.
It is important for companies to be aware of these changes as they start the process of preparing budgets and mapping cash flows for the next financial year. The key legislative changes made to the R&D program are summarised below.
| Current law | New law applicable to income years commencing on or after 1 July 2021 |
| Total claimable R&D costs are effectively capped at $100 million. | A $150 million R&D expenditure threshold will apply. |
| Claimants with an aggregated turnover of less than $20 million are entitled to a 43.5% refundable R&D tax offset. | Claimants with an aggregated turnover of less than $20 million are entitled to a refundable R&D tax offset equivalent to their company tax rate plus an 18.5% premium. |
| Claimants with an aggregated turnover of $20 million or more are entitled to a 38.5% non-refundable R&D tax offset. | Claimants with an aggregated turnover of $20 million or more are entitled to a non-refundable R&D tax offset equivalent to their company tax rate plus a premium based on their R&D intensity: • 16.5% for R&D expenditure greater than 2% of the R&D intensity of the company. A claimant’s R&D intensity will be based on the relationship between the company’s R&D expenditure and total expenditure (i.e. as reported in the income tax return). |
A number of other changes were also introduced, including provisions to simplify the treatment of clawback and feedstock adjustments and to streamline the rules in relation to balancing adjustments.
Furthermore, to implement the transparency reforms that require the Australian Taxation Office (ATO) to publicly disclose R&D claims, the ATO has confirmed that, as soon as practicable after a period of 24 months following the end of the relevant financial year that corresponds to the R&D entity’s income year, it will publish the details of individual claimants (including R&D expenditure claimed).
Interactions with temporary full expensing provisions
In response to the COVID-19 pandemic, one of the government’s stimulus measures is to enable certain businesses to claim an immediate deduction for the cost of an eligible depreciating asset in the year it is first installed and made ready for use. These measures include changes to the simplified instant asset write-off rules that apply to small business entities (under Subdivision 328-D of the Income Tax Assessment Act 1997 (ITAA 1997)); and modifications to the Division 40 depreciating claim under the new temporary full expensing provisions (in Subdivision 40-BB of the Income Tax (Transitional Provisions) Act 1997 (ITTPA 1997)).
Where a company accesses the small business instant asset write-off in section 328-180 of the ITAA 1997, there is a specific provision preventing a notional deduction for that asset under the R&D provisions. However, there is no such limitation for depreciation claimed under Division 40 of the ITAA 1997, so it is permissible to access the temporary full expensing provisions together with an R&D claim.
The ATO has released guidance on the application of the temporary full expensing provisions where the asset is used for R&D stating ‘when you work out the R&D tax offset amount for your R&D use you must subtract any non-R&D use including the taxable purpose portion and private use portion.’ Applying the ATO’s guidance means that a company must anticipate its proportion of R&D use of the asset over its lifetime and claim this percentage as an R&D notional deduction.
A new application form will be used from 5 July 2021
A new, online registration form will be implemented from 5 July 2021. It will be structured differently to the current form, with some questions rewritten and the help box text updated. The most significant changes are to the core and supporting R&D activity questions, designed to assist companies to provide the right information to demonstrate the eligibility of their R&D activities. The language used and the format require specific detail at the activity level, e.g. the form will ask applicants to explain at activity level why the outcome of the activity could not be known in advance.
Contact us
Sophia Varelas
PwC | Private | National Leader - R&D and Government Incentives, PwC Australia
Tel: +61 417 208 230
Director, R&D and Government Incentives, PwC Australia
Tel: +61 3 8603 0793