Top Tip: Regulations in terms of paragraph (e) of definition of “research and development” in section 11D(1) on criteria for clinical trials in respect or deduction for research and development. Read more here.
The main aim of this incentive is to encourage South African companies to invest in scientific or technological research and development.
The section 11D Research and Development Incentive (R&D) was introduced into the Income Tax Act, in 2006 to replace the previous research and development rule that existed in terms of section 11B.
Section 11D allows:
- A deduction equal to 150% of expenditure incurred directly for Research & Development and
- An accelerated depreciation deduction (that is, 50:30:20) for capital expenditure incurred on machinery or plant used for R&D.
Structure of the R&D Adjudication Committee
The R&D adjudication committee is made up of–
- Three people employed by the Department of Science and Technology, and appointed by the Minister of Science and Technology
- One person employed by National Treasury, who is appointed by the Minister of Finance
- Three people employed by SARS, who are appointed by the Minister of Finance.
The role of the R&D Adjudication Committee
The role of the R&D Adjudication Committee includes:
- Reviewing and making recommendations for approval or non-approval of R&D applications to the Minister of Science and Technology.
- Reviewing of an annual progress report which is submitted by taxpayers claiming the incentive as set by the legislation.
SARS’s role in managing section 11D
SARS will allow a deduction when:
- The R&D was pre-approved by the R&D Adjudication Committee
- The taxpayer has an approval letter issued by the Department of Science and Technology
- The expenditure has incurred:
- Directly for research and development
- In the production of income and
- In the carrying on of trade.
Top Tip: Even if the taxpayer has received pre-approval of an R&D project, SARS will still retain its audit oversight role.
SARS will work out whether the claimed expenditure is within the boundaries of the expenditure approved by the pre-approval committee. The expenditure is actually incurred in the production of income and in the carrying on of trade.
Other matters relevant to SARS
- Provisional Tax: when calculating Provisional Tax, it is important not to assume that the Minister of Science and Technology will approve the application, as this is subject to penalties.
- Assessments: where approval is received after an assessment has been finalised, a Request For Correct (RFC)can be made to include the R&D expenditure approved by the R&D pre-approval committee.
For more information on the R&D incentive, see the Department of Science & Technology.