Creating an asset for the company

Under sub-section 355-255 “Expenditure that cannot be notionally deducted”, (1) (b) states that ‘expenditure included in the cost of a tangible depreciating asset for the purposes of Division 40’ is one of those categories that cannot therefore be claimed. 

Whilst it’s clear that purchase of a depreciable asset is excluded, the wording also means that if an R&D project is creating a tangible asset (a prototype machine for example) which will be depreciated over time under Division 40, then the costs cannot be claimed. 

If the project is creating an intangible asset (software development for a SAAS business), then the costs can be claimed as capitalised costs.