As a result of a policy review, the R&D tax incentive has been extended to 31 December 2033. Additionally, some amendments to section 11D of the Income Tax Act will come into effect on 1 January 2024. The amendments to the legislation include the introduction of a six-month grace period and changes to the definition of “research and development”. These amendments are very important for R&D tax incentive applicants and stakeholders to understand.
Introduction of a 6-month grace period
The R&D tax incentive remains a pre-approval system. This means that prior to including a section 11D R&D tax incentive claim in a company’s tax return, preapproval for R&D projects should already have been obtained from the Minister of Higher Education, Science and Innovation. However, from 1 January 2024 a 6-month grace period which allows applicants to claim R&D expenses for approved activities performed during a six-month period prior to the date of application. To note is that this grace period cannot extend further back than 1 January 2024. Thus, if a project application is submitted to the Department of Science and Innovation (DSI) on 5 March 2024, eligible expenditure can only be claimed back from 1 January 2024, while if a project application is submitted on 10 October 2024, eligible expenditure can be claimed back from 10 April 2024, once the R&D project has been approved.
Changes to the definition of “research and development”
Refinements have been made to the definition of “research and development” to enhance the practical simplicity of applying and adjudicating the incentive:
- The amended definition has the term “scientific or technological” more prominent.
- The definition now indicates that “systematic investigative or systematic experimental activities” should be aimed at “resolving scientific or technological uncertainty”.
- The definition now has an explicit requirement for R&D activities not to be obvious as it excludes R&D activities “if the outcome of the uncertainty can be readily deduced by a person skilled in the relevant scientific or technological field”. To take this change into account, scientific or technological knowledge is now to be new, as the requirement for non-obvious is explicit.
- In terms of the purpose of conducting R&D activities, reference to various types of intellectual property has been deleted and replaced with a simplified purpose of “creating or developing new or significantly improved products, processes or services”.
- The exclusion of internal business processes has been deleted from the definition.
From 1 January 2024, an amended R&D tax incentive online form will be available to take the above amendments into account.
More information on the amendments, and in particular the reasoning behind the amendments, can be found here. Alternatively, contact us for more information.