Item 7 Plant/pilot plant deductions - pre-29 January 2001 (including disposal losses)

Item 7 includes plant and pilot plant deductions and balancing loss adjustments for a unit of plant acquired under a contract entered into, or that commenced construction, before midday Australian Eastern Standard Time on 29 January 2001.

Add the relevant amounts together, as explained below, and enter them at the appropriate labels. If the company has a balancing profit under paragraphs 73B(23)(f) or 73B(24)(g) or 73B(24B)(f) of ITAA 1936, include this profit amount at item 8.

Each of these types of deduction is considered separately in the following paragraphs and the amounts are to be added together.

Deductions for plant expenditure

Include at item 7 one-third of the amount of 'qualifying plant expenditure' for the year of income (subsections 73B(4) and (5) of ITAA 1936). To have an amount of qualifying plant expenditure, the company must, at the time it incurred the expenditure on the unit of plant, have intended to use the unit of plant exclusively for R&D activities, for at least an initial period. (Plant expenditure is defined in subsection 73B(1) of ITAA 1936). The company must also have satisfied the actual exclusive-use tests contained in subsections 73B(4) and (5) of ITAA 1936. The company cannot claim an amount as qualifying plant expenditure if R&D activities ceased during the year of income (subsection 73B(5) of ITAA 1936).

If these conditions are satisfied, one-third of the amount of qualifying plant expenditure forms the basis of the deduction allowable (subsection 73B(15) of ITAA 1936).

At A enter one-third of qualifying plant expenditure, if a deduction for that expenditure is allowable under subsection 73B(15) of ITAA 1936 (the base amount).

At B enter that part of the amount at A claimable at 100%.

At C enter that part of the amount at A claimable at 125%.

At D enter that part of the amount at A claimable at 150%.

Deductions for pilot plant expenditure

Post-23 July 1996 pilot plant is:

• an experimental model of other plant for use in R&D activities or for use in commercial production, one that is not for use in commercial production, but that has all of the intended characteristics of the other plant it is modelled on
• plant acquired after 23 uly 1996 (and before 29 January 2001), and
• plant acquired or constructed for use by the company to use exclusively for the purpose of carrying on R&D activities (subsections 73B(1) and 73B(4C) of ITAA 1936).

You can claim a deduction for expenditure in acquiring or constructing such an item of pilot plant if the unit of pilot plant is used exclusively for carrying on R&D activities during the year of income.

The base amount at this item is the annual deduction percentage of the qualifying pilot plant expenditure for such items, as calculated under subsection 73B(4D) or (4E) of ITAA 1936.

The annual deduction percentage is 100% (as per subsection 73B(4G) of ITAA 1936) if:

• the qualifying pilot plant expenditure is $300 or less, or
• the useful life of the qualifying pilot plant is less than three years.

Otherwise, determine the annual deduction percentage to be used in calculating the amount eligible for deduction as two-thirds of the percentage shown in the table in subsection 73B(4H) of ITAA 1936.

At A enter the annual deduction percentage of pilot plant expenditure (the base amount).

At B enter the annual deduction percentage of pilot plant expenditure claimable at 100%.

At C enter the annual deduction percentage of pilot plant expenditure claimable at 125%.

The total of the amounts at B and C must equal the amounts included in the base amount otherwise, a warning message 'Your claim does not balance' will display in the Excel spreadsheet.

Balancing adjustments (loss) on the disposal of plant and pilot plant

Balancing adjustments may be needed if items of plant and pilot plant for which expenditure has been deducted under subsections 73B(15) and 73B(15AA) of ITAA 1936 are disposed of, lost or destroyed after being used exclusively for carrying on R&D activities, provided no deduction is allowable to the company for depreciation under the former Division 42 of ITAA 1997.

Such balancing adjustments are covered under subsections 73B(23), 73B(24) and 73B(24B) of ITAA 1936. The consideration received for the plant at the time of disposal may vary from the written-down value (the original cost of the item less deductions for qualifying plant expenditure as calculated in accordance with subsections 73B(4A) and 73B(4B) of ITAA 1936). If this balancing adjustment is a loss, record it at this item. If the pilot plant was acquired before 23 July 1996, refer to subsection 73B(24) of ITAA 1936 to calculate the amount that can be deducted as a balancing adjustment loss (if applicable).

If the consideration receivable for the disposal, loss or destruction of the unit of R&D plant or unit of post 23 July 1996 pilot plant is less than the written-down value, you can claim the amount of this difference (paragraphs 73B(23)(e) and 73B(24)(e) of ITAA 1936).

At A enter the amount of any balancing adjustment loss, (the base amount).

At B enter the amount of any balancing adjustment (deduction) amounts claimable at 100%.

At C enter the amount of any balancing adjustment (deduction) amounts claimable at 125%.

More information

For more information, see:

• subsections 73B(1), (1C), (4), (4A), (4B) to (4J), (5), (5AA), (5AB), (15), (15A) (15AA), (15AB), (18), (20), (21A) and (24A) and (24B) of ITAA 1936
• Subdivision 42-C and section 42-18 of ITAA 1997
• Taxation Ruling TR 2002/1
• Guide to the R&D tax concession