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Tax reduction on your research: What you should know about research and development incentives

Tax reduction on your research: What you should know about research and development incentives

As a South African registered entity, if you plan on undertaking Research and Development (R&D), you can qualify for a 150% tax deduction for operational R&D expenditure. This means that if you invest resources in the development or improvements of your products, processes and techniques, you may qualify for considerable income tax deductions.

The 150% tax deduction is made up as follows:

In addition to the 100% normal tax deduction allowance for R&D activities, you can qualify for an additional 50% tax deduction on eligible R&D expenditure by submitting an application to the Department of Science and Technology (DST).

Once you have received acknowledgement of your application from the DST, you can proceed with your R&D expenditure. On approval, you will receive a letter for your company on behalf of the DST, who will forward the relevant information to the SARS commissioner, meaning that you will be eligible for a 14c tax deduction on every R1 you spend on R&D.

Aside from the tax deduction, you will also qualify for an accelerated wear and tear allowance on qualifying equipment (first year of assessment in which the machinery was brought into use will qualify for a 50% deduction, 30% the following year of assessment and 20% the year thereafter).

What expenditure and activities qualify?

  • Allowable operating expenditure:

o   Salaries/Total cost to company for employees directly engaged in R&D,

o   Materials,

o   Overheads, and

o   Contractors (South African).

  • Allowable capital expenditure:

o   Buildings (can be apportioned), and

o   Machines/plant/equipment/implements and utensils, dedicated to R&D only.

  • Prototypes and pilot plants created solely for purposes of the R&D are also eligible.
  • Other qualifying examples, among others, include:

o   Developing new or improved products, production and assembly techniques,

o   Developing new techniques and methods to improve yields, reduce waste and reduce production time,

o   Creating software solutions for improved production and process control, and

o   Automation of manual processes.


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