How JobKeeper impacts the R&D tax offset

The JobKeeper subsidy will impact businesses that claim research and development (R&D) offset benefits which has been further explored under a draft ruling from the Australian Taxation Office.

Many businesses who access the R&D grant will often find that the wage expense is one of the main contributing expense items where they receive the tax offset benefit.

The wage expense is often a key driver to other overhead expenses, which are claimed through the program.

R&D expenditure can be claimed as part of the tax offset program on the basis that it is ‘at risk’.

That means it is essential as a business that you are expending funds on developing something which you are unsure will work and you may not see a return on that money expended.

What does this mean for business owners on JobKeeper?

With JobKeeper payments, businesses are effectively receiving a return on the money they have expended on wages.

Therefore, the wage expense is no longer considered ‘at risk’ and will not be eligible for the R&D offset.

Business owners will need to carefully monitor when employees are engaging in R&D activities to determine if their remuneration has been supplemented by the JobKeeper program while they were engaged in these activities.

If so, an adjustment to your R&D claim for the 2019-2020 and 2020-2021 financial years will be required.

The R&D offset will be partially reduced for employees who are engaged in R&D activities during the fortnights that they receive JobKeeper payments.

That means your R&D offset is partially reduced by the portion of JobKeeper payment as in proportion with the time the employee spends on R&D activities during that fortnight.

Get the right tax advice

Tracking the time employees spend on R&D activities has become more and more crucial over the past few years, with the ATO increasingly focusing on support for the wages being claimed under the offset.

This ‘at risk’ JobKeeper issue is another reason why good record keeping is so crucial to successfully benefiting from the R&D program.

These proposed changes will only mean more headaches for time-poor entrepreneurs and other small businesses, which often use the R&D tax offsets.

If you need help understanding what the ATO’s draft ruling means for your business, then the team at LDB can help.

Our experienced tax specialists can help you navigate these changes, while our company secretarial and support team can assist seamless business administration and record keeping services.

To speak to one of our trusted financial advisors, call us on (03) 9875 2900 or send us a message via our contact form below.