Under subsection 355-225 (1) (b) of the ITAA 1997 expenditure included in the cost of a tangible depreciating asset for the purposes of Division 40 cannot be notionally deducted under section 355-205 of the ITAA 1997. However, under section 355-305 of the ITAA 1997, an R&D entity can obtain a notional deduction for the decline in value of a tangible depreciating asset which is held during an income year and which is used for the purpose of conducting one or more R&D activities.
The determination of whether expenditure should be included in the cost of a depreciating asset rests solely on the determination of whether a depreciating asset exists, as defined at subsection 40-30 (1) of the ITAA 1997. It is important that tax payers accessing the R&D Tax Incentive identify the appropriate treatment methodology according to the nature and type of expenditure incurred.
KPMG is able to assist you to do this.