Australia

Details

  • Service: Tax, R&D Incentives
  • Type: Regulatory update
  • Date: 11/11/2013

Tax Insights

KPMG's analysis of tax issues and developments.

Paul Van Bergen

Paul Van Bergen
Partner, Tax

+61 2 9455 9373

pvanbergen@kpmg.com.au

R&D tax incentive interaction where grants received 

by Paul Van Bergen, R&D Incentives Specialist

Many government grants programs encourage companies to incur expenditure on new facilities, services or other initiatives. Examples include Cleantech Investment (to reduce carbon emissions) and employment / training or facilities expansion in regions with high unemployment.

Where companies aim to create new or improved products, processes, services etc, and develop technology to do so, they might also make a claim under the Research and Developments (R&D) tax incentive.

 

A project manager may overlook a claim for the R&D incentive perceiving that grants clawback wipes out any tax saving. Whilst that is often true, examination of the terms of the grant often results in some tax saving.

 

A company receiving a grant from government for R&D activities claimed as a tax offset must pay additional income tax of ten percent on that recoupment (referred to as clawback). Importantly section 355-450(3) sets a cap on extra income tax if the recoupment (in this case the grant) relates to a project such that the clawback is capped in proportion to the grant that relates to R&D expenditure over the total expenditure on the grant.

 

Example

Cleantech grant $2 million, project spend $1 million on R&D plus $4  million on plant expenditure.

Clawback = 10 percent of 1/5th of $2 million = $40,000.

The net tax saving for large taxpayer is $60,000 and for small taxpayer (<$20 million turnover) $110,000.

 

Companies with less than $20 million turnover should always claim a project even those subject to a grant because they receive a five percent permanent benefit even where clawback applies to the entire R&D claim.

 

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