Here’s the official letter from Kringle Accountants on why Santa is on the R&D naughty list.
But don’t let it make you feel less Santa-mental about Christmas.
Mr S Claus
Chief Gift Officer
Rebel Without a Claus Pty Ltd
25 Candy Street
CHRISTMAS HILLS VIC 3775
Dear Mr Claus
Re: Rebel Without a Claus Pty Ltd 2021-22 R&D Tax Incentive Claim
I write to you with respect to the R&D Tax Incentive claim for Rebel Without a Claus Pty Ltd (“You”, the “R&D Entity”).
We note the R&D Entity is incorporated under Australian law and therefore meets the requirements as being eligible as an entity to access the R&D Tax Incentive. As you give away all gifts, your turnover is $0, and you are therefore entitled to a refundable tax offset of your corporate tax rate plus 18.5% for expenses incurred in relation to eligible R&D activities.
After preparing the claim for the 2021-22 financial year, there are several items we would like to highlight for your information.
Associate entities
We understand one of the contractors engaged to undertake R&D on your behalf, Crumbelievable Bakeries Pty Ltd (the “Contractor”), is wholly owned by your spouse, Mrs Claus. This Contractor is therefore deemed to be an associate entity of the R&D Entity. R&D entities are only eligible for a R&D Tax offset for R&D expenditure incurred with respect to an associate entity if the expenditure has been paid during the claim period.
We understand that instead of paying the Contractor for R&D activity, you promised to take her on an around the World trip in one night. As no payment was made for the services prior to the end of the financial year, expenses related to the Contractor cannot be included as part of the 2021-22 claim. Furthermore, as the trip does not constitute payment, amounts related to the Contractor won’t be able to be claimed at all. But we do hope you and Mrs Claus enjoy your adventures.
Feedstock adjustments
We note that you had a question around feedstock, and whether an adjustment needed to be made for carrots fed to your reindeer. Where you are claiming the R&D Tax Incentive, and the R&D activities associated with your claim result in products that provide a material benefit in the form of marketable products or products for your own use, then a feedstock adjustment is required.
However, it is our understanding that even though the Reindeer were involved in R&D activity, anything produced by the Reindeer as a result of the feedstock inputs did not result in a material benefit to the R&D Entity and therefore a feedstock adjustment does not need to be made.
Grant recoupment tax
We understand that the R&D Entity received grant funding for the development of your Merry Automated Gift Inventory Creator (MAGIC) through the Federal Government’s Manufacturing Modernisation Fund (the “Grant”). Where an R&D Entity receives government funding for expenses that are also claimed under the R&D Tax Incentive, it is necessary to clawback the R&D expenditure that relates to the government funding received.
Because the Grant was received in relation to expenses being claimed under the R&D Tax Incentive, a grant recoupment tax which is calculated as 10% of the relevant R&D expenditure, will be applied. This includes Elf salaries and on-costs as well as the purchase or decline in value of equipment that was used for R&D activity to develop the MAGIC manufacturing process.
Please don’t hesitate to contact us should you require any further information.
Kind Regards,
Rudolph Noelle
Partner – R&D Tax Incentives
Kringle Accountants
