July 28th, 2020
As had been anticipated, the ATO will be requiring adjustments to R&D claims that contain salaries reimbursed by the JobKeeper Scheme.
Companies lodging FY20 R&D claims who have also received the JobKeeper stimulus must carefully review and adjust R&D claims where necessary.
The basis of this need for adjustment is the ATO’s position that companies are not deemed to incur salary expenditure at their own financial risk where such costs are being reimbursed by the Job Keeper Scheme.
Draft Taxation Determination TD 2020/D1 (Income tax: notional deductions for research and development activities subsidised by JobKeeper payments) was released by the ATO on 27 July. Notable extracts from the draft TD include:
- If you receive a JobKeeper payment:
- for your paid employees (under Division 2 of the Payments and Benefits Rules), you trigger the at-risk rule. You cannot notionally deduct the portion of your wage expenditure incurred on R&D activities that has attracted the JobKeeper payment;
- based on business participation (under Division 3 of the Payments and Benefits Rules), you do not trigger the at-risk rule. You are, therefore, not prevented from notionally deducting expenditure for having received a JobKeeper payment;
- If you receive a JobKeeper payment for an eligible employee who is wholly engaged in R&D activities during a fortnight, you cannot notionally deduct so much of your wage expenditure paid to that employee as is equal to the $1,500 JobKeeper payment;
- If you receive a JobKeeper payment for an eligible employee who is partially engaged in R&D activities during a fortnight, your notional deduction is partially reduced. Your notional deduction is reduced by that portion of the JobKeeper payment as is in proportion with the time the employee spends on R&D activities during that fortnight;
- Expenditure you incur on R&D activities that cannot be notionally deducted does not give rise to a tax offset under section 355-100. Therefore, for the portion of JobKeeper payments you receive that trigger the at-risk rule, no extra income tax is payable under the R&D clawback rules.
This treatment from the ATO seems reasonable, and in accordance with our expectations.
Should you require any assistance with the relevant adjustments, please contact our office on 1800 792 676.