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R&D expenditure to associates
conducted for
aggregated turnover
overseas expenditure
expenditure not at risk
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R&D expenditure to associates
R&D expenditure to associates can only be claimed in the year they’re paid, unless the R&D entity makes an irrevocable election.
ATO regards the following arrangements as not resulting in the expenditure being paid to the associate:
The amount owed to the associate is converted to a loan. This is not payment, and we consider the amount unpaid.
The R&D entity and the associate enter a licencing agreement where the licence fee payable by the associate is offset against the amount the R&D entity owes the associate for R&D services. In other non-arm’s length arrangements, the amount being transacted is often more than market value.
Circular, round robin type transactions that are artificial in nature and contrived to receive a taxation benefit.
For these arrangements, the R&D entity can’t claim an R&D notional deduction.
Conducted for
To claim R&D notional deductions, the R&D activity must also be conducted for the R&D entity that has registered the R&D activities. Expenditure on R&D activities can’t be notionally deducted if they’re either:
not conducted for the R&D entity
conducted ‘to a significant extent’ for another entity.
To determine if the conducted for rule is satisfied, ATO makes an ‘on balance’ assessment of which entity:
benefits from the R&D activities and requires consideration of who bears the financial risk
has effective ownership of the results of the R&D activities
has control over the conduct of the R&D activities.
Aggregated turnover
To be entitled to the refundable R&D tax offset, the R&D entity’s aggregated turnover must be less than $20 million. If it’s $20 million or more, they’re entitled to the non-refundable R&D tax offset.
R&D entities that are 50% controlled by exempt entities, regardless of their aggregated turnover, are entitled to the non-refundable R&D tax offset.
Overseas expenditure
This expenditure can only be claimed for activities conducted overseas where the entity has an overseas finding External Link from the Department Industry, Science and Resources (DISR). Without one, claimants must demonstrate the work was carried out in Australia and not subcontracted out or otherwise performed overseas.
Expenditure not at risk
Use Form 388 online for financial statements and reports. If you lodge with ASX, NSX, SIM VSE, or SSX, you don’t need to file with ASIC.
For online lodgement with ASIC, use the officeholder, registered agent, and auditor portals. Register for access first.
Ensure timely lodgement by registering and setting up your online account early.
With SBR-enabled software, lodge via the Standard Business Reporting (SBR) Program.
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Important: This summary is for general understanding and not a substitute for professional advice. If you have any questions or need further clarification. Feel free to contact us, and our team will assist!