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The Australian Taxation Office (ATO) has recently announced the finalization of R&D tax offset guidance as Taxation Ruling (TR) 2021/5 Income tax: research and development tax offsets - the 'at risk' rule. The ATO has also finalized Taxation Determination (TD) 2021/9 Income tax: JobKeeper payments received or expected as a result of research and development expenditure.

TR 2021/5 and TD 2021/9 are both dated 22 December 2021 and generally apply both before and after their date of issue, although they will not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue.

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R&D tax offset guidance finalized

We've clarified our guidance on what expenses can and can't be claimed as part of the R&D Tax Incentive with the release of our finalised Ruling on the application of the 'at risk' rule and a Determination on notional deductions for R&D activities subsidised by JobKeeper payments.

The R&D Tax Incentive provides tax offsets, designed to encourage more companies to engage in R&D. It allows companies to claim a tax offset for eligible R&D expenditure via their annual company income tax return. Smaller companies may claim the R&D tax incentive as a refundable tax offset.

The R&D 'at risk' rule

TR 2021/5 Income tax: research and development tax offsets: the 'at-risk' rule explains the circumstances in which a company's R&D tax offset will be denied or reduced, because their R&D expenditure is not 'at risk'.

Claims for R&D tax offsets may be denied or reduced where the R&D expenditure doesn't satisfy the at-risk rule, such as where the expenses are fully or partly reimbursed. The Ruling provides practical examples of situations where the at-risk rule will and won't apply.

Notional deductions for R&D activities subsidised by JobKeeper

TD 2021/9 Income tax: JobKeeper payments received or expected as a result of research and development expenditure sets out how the 'at risk rule' applies to JobKeeper payments received by a R&D entity:

  • for paid employees who are wholly or partially engaged in R&D activities
  • under the business participation entitlement.

It clarifies when an R&D entity would trigger the at-risk rule and cannot notionally deduct all or part of its wage expenditure for having received a JobKeeper payment.

Expenditure the entity incurs on R&D activities that cannot be notionally deducted doesn't give rise to an R&D tax offset. For the portion of JobKeeper payments the entity receives that trigger the at-risk rule, no extra income tax is payable under the R&D clawback rules.

For more information about amounts you cannot notionally deduct for the R&D tax incentive, see Ineligible expenditure under the R&D tax incentive.