The 2023-24 financial year end is fast approaching, and there are important considerations for Australian taxpayers claiming the Research & Development Tax Incentive (R&DTI).
Key considerations for the 2024 EOFY include:
- Instant Asset Write-Off
- Associate Payments
- Overseas Activities
- Record Keeping
Improved Instant Asset Write-off
Temporary Full Expensing (TFE) ended on June 30, 2023, and replaced with an improved Instant Asset Write-Off (IAWO) allowing write-off assets up to $20,000. The bill has yet to be passed by the senate, but the IAWO is expected to be implemented in section 328-D of the ITAA. This would disallow the written-off amount to be claimed as a notional deduction under the R&DTI.
If you intend to claim asset depreciation in the R&DTI, you should consider the following before June 30, 2024:
- Determine whether the Instant Asset Write-Off provisions or Division 40Â depreciation rules apply
- Maintain records that evidence how the asset was used in R&D activities, and how the decline in value of the asset is attributable to those activities.
Associate Payments
Following a recent review of 200 R&D Tax registrations, the ATO has flagged associate payments as a significant area of focus. To claim R&D expenditure incurred to associated entities as a notional deduction in your 2024 Company Tax Return, you must take the following steps:
- Pay all expenses to associates before June 30, 2024, by making a cash payment to the associate before June 30.
- We recommend companies initiate the payment a few days before the year-end to account for potential payment processing delays.
- Maintain annotated records of the invoices establishing the nexus to R&D and records of the cash transaction.
- Ensure appropriate records demonstrate the contractual arrangements and that actual services were provided.
Unpaid amounts can be carried forward but won’t be refundable in the 2024 Company Tax Return.
Overseas Activities
Ordinarily, expenditure on overseas activities is ineligible for deduction under the R&DTI. If you wish to claim expenditure on overseas R&D activities in FY24 you must take the following steps:
- Submit an Advance/Overseas Finding by June 30, 2024, explaining the need to conduct the activity abroad. The four permitted reasons for overseas activities include:
- Access to facilities or expertise not available in Australia
- Access to a population not available in Australia
- Activities that would breach the Biosecurity Act 2015
- Access to a geological characteristic not available in Australia
- Receive a finding approving the eligibility of the overseas activities for registration.
- Maintain records that evidence the R&D activities were carried out, and that the expenditure is attributable to those activities.
For applicants with associated overseas entities involved in the Overseas Finding process, careful evaluation is required to ensure the “on-own-behalf” provisions are met. In the absence of an Advance/Overseas Finding, expenditure on overseas activities is ineligible for deduction under the R&DTI.
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Record KeepingÂ
R&DTI claimants must retain contemporaneous documentation to validate the registered activities were carried out, and show the costs claimed were associated with those activities.
As the financial year concludes, it’s a prime time to collect the documents generated throughout the year’s R&D activities, ensuring solid substantiation for present and future applications.
Now is a great time to take stock of the year that was and identify opportunities to improve record-keeping practices moving forward.
If you would like to discuss any of the above issues or anything else R&D-related, please get in touch with our expert R&D Tax Consultants for a consultation.
