How making a profit impacts your imputation credits
Cashing out a research and development (R&D) loss tax credit creates a debit in your imputation credit account (ICA).
Until the R&D tax loss credits have been repaid, you:
- will not get a refund of overpaid income tax
- cannot attach imputation credits to dividends paid to your shareholders.
If you make a profit after you've repaid your R&D tax loss credit balance, you'll get ICA credits when you pay income tax. When you have ICA credits you can get income tax refunds and impute dividends (up to the total ICA credit).
The refund rule does not apply to amounts of tax deducted or credited from other sources, for example, resident withholding tax (RWT). We can refund RWT as it is not classified as income tax paid.
Working out the debit to your imputation credit account
When you cash out an R&D tax loss credit, the debit to your ICA at the end of the year is the lesser of the:
- imputation credits received for the income tax paid in the current year
- total amount of the R&D loss tax credit cashed out for the current and previous years, minus the total R&D loss tax credit or ICA debits already accounted for.
Repaying the R&D loss tax credit claimed
You repay the R&D loss tax credit when your company starts making a profit. The income tax you pay on the profit creates a credit in your ICA, with the debit amount worked out as above. This reduces or clears the balance of the tax credit to be repaid.
R&D repayment tax payments following a loss recovery event also go to repaying the debit balance.
Every year you need to file the R&D application form to track your R&D loss tax credit balance until it has been repaid, even if you are not claiming R&D loss tax credit.
Payment is paid and due in the same way as income tax.
If you are filing the application without claiming R&D
In the R&D application, please select “No” for “Claiming R&D?” and complete the next section on Tax Credit Calculations, including any Loss Reinstatements.