Previously, tax benefits associated with the R&D tax concessions were always recognised as an income tax benefit under Australian Accounting Standards Board (AASB) Standard 112 Income Taxes. Now with the new R&D tax incentive in the form of a tax offset, it is necessary to consider whether the tax effect should be accounted for under AASB112 or under AASB120 Accounting for Government Grants and Disclosure of Government Assistance.
Where a company receives a 45 percent refundable tax offset, the total tax offset amount must be recognised under AASB120 as government grant income, thereby increasing the company’s profit before tax. Within the income tax expense reconciliation the grant income is non-assessable and R&D expenditure non-deductible.
Where a company receives a 40 percent non-refundable tax offset, an accounting policy choice exists to apply AASB112 or AASB120. Where AASB120 is applied, unlike the refundable 45 percent offset, only the additional 10 percent (the amount over and above the 30 percent tax rate) is recognised as government grant income. The important thing to note is that once the choice is made, the company needs to be consistent in its application.
Given this is likely to be the year in which most companies will be making their accounting policy choice regarding the accounting treatment associated with the R&D tax offset, the impact on the financial statements should be considered early to avoid any last minute tax effect changes!