R&D Tax Incentive – Licensing Fees
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R&D Tax Incentive – Licensing Fees: Can You Claim Them?
Licensing fees—it sounds so simple, right? Pay to use someone else’s tech and roll it into your R&D tax incentive claim. Well, as with most things related to the R&D tax incentive, there’s a bit more to it. Licensing fees can be tricky, and the ATO has some firm rules on what’s in and what’s out.
So, can you claim licensing fees? Let’s dive into the legislation, core technology expenditure exclusions, and whether there are any workarounds worth exploring.
Legislation Overview: Where Do Licensing Fees Stand?
Under Division 355 of the Income Tax Assessment Act 1997 (ITAA 1997), the R&D tax incentive allows businesses to claim for eligible R&D activities. However, the ATO has specific exclusions that can make claiming licensing fees a little complex.
Licensing fees may be eligible if the licensed technology is directly connected to your R&D activities. But the ATO’s stance becomes clear when we look at section 355-225 of the ITAA 1997, which excludes core technology expenditure from being claimed. This includes the cost of acquiring technology that was developed for purposes other than your current R&D activities.
Licensing Fees and Core Technology: The Exclusion Zone
So, what exactly is core technology, and why is it excluded? Core technology refers to any existing technology that forms the foundation of your R&D activities, but that was not developed by your company. If you’re licensing technology to conduct further R&D, the ATO will likely consider it core technology—which means it’s not claimable.
For a full breakdown on core technology exclusions, check out our detailed guide here: R&D Tax Incentive – Core Technology Expenditures.
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Can You Get Around the Exclusion?
While claiming licensing fees for core technology is generally off the table, there may be some ways to work within the rules:
- Link Licensing Fees to New R&D – If the licensed technology is being used to create new innovations or is just one piece of a larger R&D puzzle, there might be a case for claiming part of the costs. You’ll need to demonstrate that the licensing fees are directly connected to R&D activities, and not just for using pre-existing tech.
- Separate Licensing for R&D Activities – If you’re licensing a piece of technology specifically for use in your R&D project (and not for commercial operations), you may be able to allocate a portion of the licensing fees to R&D. This requires clear documentation to show the distinction.
- Break Down the Costs – Some businesses have found success by breaking down licensing fees into smaller components. For example, if part of the license covers technical support or access to proprietary data for R&D, you may be able to claim that portion while excluding the core tech fee.
Documentation Is Key
To have any chance of claiming licensing fees, your documentation needs to be airtight. Here’s what you’ll need:
- Licensing Agreements – clearly showing the purpose of the fees and any technical support that may be R&D-related.
- R&D Project Documentation – demonstrating how the licensed technology is being used for core R&D activities.
- Cost Allocations – showing how you’ve separated R&D-related licensing fees from any non-R&D usage.
What the ATO Thinks (And Why You Should Care)
The ATO is always skeptical about claims involving licensing fees, especially if they relate to core technology. Even if you can make a claim, you’ll need to prove that the licensing fees are an essential part of your R&D process—and not just a general business expense.
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A Word of Warning
So, you’re thinking of claiming licensing fees in your R&D tax incentive? Good on you! But remember, navigating this territory is like walking through a maze. One wrong turn, and you could end up on the ATO’s audit list.
If you’d rather not risk it, why not let us handle it? At Bulletpoint, we’ve seen our fair share of R&D claims gone wrong—and we know exactly how to get them right.
Book a consultation today for just $295 and let our experts guide you through the maze.
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Need Help Navigating the R&D Tax Incentive? We’re Here to Help
At Bulletpoint, we’ve seen first-hand how easily companies can fall into the trap of using terms like “trial and error” in their R&D applications, leading to red flags from AusIndustry and potential audits from the ATO. With over 10 years of experience and more than 500 successful R&D lodgements, we understand the intricacies of the R&D tax incentive better than anyone.
We’ve successfully defended clients against both AusIndustry and ATO reviews and audits, ensuring their claims stand up to scrutiny. Our expertise means we know how to craft applications that can withstand intense reviews—we don’t just submit claims, we defend them.
If you want to make sure your next R&D claim is bulletproof, reach out to us today. With a 4.8-star rating from over 250 Google reviews, you can trust Bulletpoint to get it right the first time.
Check out our Google reviews, or better yet, book a meeting with us today! You can also call us at 1300 658 508 or send a message—we’re here to help you maximise your R&D tax incentive without the hassle of audits or reviews..
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