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R&D Tax Offset Guidance Finalised By The ATO

Australian Taxation Office recently released its finalised ruling on the application of the ‘at risk’ rule and determination on notional deductions for R&D activities. Through this release, ATO has clarified its guidance on the type of expenses that can and can’t be claimed as part of the R&D Tax Incentive.

This R&D Tax Incentive provides details on the tax offsets and is designed to encourage more businesses and employing organizations to engage in R&D. Not only this, it also allows the companies to claim a tax offset for eligible expenditure they did on R&D via the annual income tax return filed by the company. If you own a small company, you may claim this tax incentive as a refundable tax offset.

What Exactly Is R&D ‘At Risk’ Rule?

The ‘at-risk’ rule refers to the exceptional circumstances that cause the R&D tax offset of a company to be denied or reduced as the expenditure involved is not at risk. Such claims may be denied or reduced when the expenditure amount doesn’t satisfy the at-risk rule or when the expenses are partially or fully reimbursed. 

Notional Deductions For R&D Activities Subsidised By JobKeeper

When it comes to applying the JobKeeper payments received or expected by an R&D entity, what sets out how the ‘at risk rule’ applies, include:

  • paid employees engaged partially or wholly in R&D activities
  • under the business participation entitlement

This clarifies when an R&D entity cannot notionally deduct all or part of its wage and would trigger the at-risk rule for having received a JobKeeper payment. The expenditure incurred on R&D activities doesn’t always give rise to an R&D tax offset.

To trigger the at-risk rule for the portion of JobKeeper payments the entity receives, no extra income tax is payable under the clawback rules.

For more information about R&D tax offset or notionally deduced amounts, feel free to contact our tax accountants at KPG Taxation. We will be more than happy to assist you.