Decline in Value

The use of an asset (or a collection of assets such as a production line consisting of multiple machine elements) during an R&D activity is captured as an R&D expenditure through a proportional inclusion of the depreciation of those assets during the year in question.

If the asset depreciation is $10,000 in the year (as recorded on a fixed asset register prepared for tax purposes), and the asset is used for 6 weeks in an eligible R&D activity, then the eligible decline in value expenditure would be (6/52)* 10,000 = $1,153 (cents are rounded off).

Note that some companies may use different depreciation rates for accounting and tax purposes. The R&DTI is a tax deduction, so the tax rate must be used.

If an asset is later sold which results in a value different to the residual asset value (the value after depreciation), then this means the depreciation was incorrect, and the R&DTI decline in value needs to be recalculated retrospectively and a balancing adjustment made. This adjustment may be positive (if the asset is sold for less than its residual value) or negative (if the asset is sold for more than its residual value).

This is particularly important when considering accelerated depreciation and instant asset write-off treatments for assets that are used for R&D purposes, and which may be sold at some point.

It will be necessary to keep track of the R&DTI claims across multiple years, and there is no mechanism within the R&D schedule to do that, so keeping good records of how R&D expenditure calculations have been prepared, and keeping us informed about the sale of assets is very important.