Specific activities are excluded from the R&D Tax Incentive, because they –
- are not within the scope of eligible R&D as defined in section 11D(1) of the Income Tax Act (ITA);
- are excluded in terms of the Regulations as gazetted by National Treasury, issued in terms of sections 11D(1) of the ITA;
- constitute post-R&D activities;
- are conducted outside the Republic of South Africa, even if funded from within the country; or
- are excluded in the proviso of section 11D(1).
In terms of section 11D(1), expenditure incurred on the following activities are not eligible for the R&D tax incentive:
- Routine testing, analysis, collection of information and quality control in the normal course of business.
- Development of internal business processes, unless such processes are mainly intended for sale or for granting the use or right of use or permission to the use thereof to parties unconnected to the company undertaking the R&D.
- Market research, market testing or sales promotion.
- Social science research, including the arts and humanities.
- Oil and gas or mineral exploration or prospecting, except R&D that develops technology that is used for such exploration or prospecting.
- Creation or development of financial instruments or financial products.
- Creation or enhancement of trademarks or goodwill.
- Immovable property, machinery, plant, implements, utensils or articles (with the exception for pilot plants and prototypes used solely for R&D).
- Any expenditure contemplated in section 11(gB) or (gC).
- Administration, financing, compliance and similar overheads.
Exclusions in respect of deduction for R&D in terms of clinical trials:
- A phase IV clinical trial, as defined in Appendix F to the Guidelines other than a clinical trial conducted for the purpose of developing new indications, developing new methods of administration or developing new combinations of pharmaceutical products;
- Post-marketing research;
- Cost-effectiveness research;
- An activity undertaken solely for the purpose of compliance with regulatory requirements;
- A product familiarization program;
- Research carried on for statistical purposes (meta-analysis);
- Epidemiological research; or
- Research activities undertaken in preparation for the registration of a clinical trial.
Where a company is due to receive or has received any amount of funds from the government, public entity or a municipal entity towards R&D, an amount equal to such a grant will be excluded when the R&D tax deduction is calculated.
Deductions are excluded in respect of expenditure incurred in respect of immovable property, machinery, plant, implements, utensils or articles, excluding any prototype or pilot plant created solely for the purpose of the process of R&D and that prototype or pilot plant is not intended to be utilised or is not utilised for production purposes after that R&D is completed; and
Deductions are also excluded in respect of financing, administration, compliance and similar costs.
Refer to the R&D Tax Incentive Guidelines for Applicants for additional information.