Australia

Details

  • Service: Tax, R&D Incentives
  • Type: Regulatory update
  • Date: 25/06/2014

Tax Insights

KPMG's analysis of tax issues and developments.

Helen Gilfedder

Helen Gilfedder
Director, Tax

+61 3 9288 6179

hgilfedder@kpmg.com.au

Design R&D Expenditure 

by Helen Gilfedder, Director, R&D Incentives

On 11 June 2014, the Australian Taxation Office (ATO) released Tax Determination TD2014/15 regarding Design Expenditure incurred as part of a Research and Development (R&D) project.

The Commissioner’s position is that where an entity incurs expenditure on various stages of design activities, this Design Expenditure will be included in the cost of a depreciating asset if it forms part of the final shape, feature and performance of the particular completed asset.

 

Where expenditure is part of the cost of a depreciating asset, the expenditure is not able to be claimed as R&D expenditure in the year incurred, but will only be able to be claimed as part of the depreciation of the asset during the time it is used for R&D activities.

 

The Commissioner acknowledges that in some instances it may take a company several years to complete the construction of the asset(s) connected with the Design Expenditure. As such re-evaluation of R&D claims may be required upon completion of the construction of the asset(s).

 

Key considerations from this determination include:

 

  • the requirement for a direct connection whereby Design Expenditure is ‘directed to and results in’ the R&D entity beginning to hold the resultant asset. The entity must determine how the asset comes into existence and evaluate the role of Design Expenditure in that process
  • Design Expenditure that may be part of a project ‘directed to’ the creation of an asset but does not ‘result in’ that asset coming into existence will be excluded from the cost of the asset
  • the extent of the connection between the Design Expenditure and the asset is a question a fact and degree.

 

Capital expenditure can still be claimed as R&D expenditure, however R&D claimants that design, build, construct or purchase assets (in part or whole) should review their projects within the context of the Determination.

 

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