Plant and pilot plant deductions - pre 29 January 2001 (including disposal losses)
(relevant to Australian owned R&D only)
Item 7 includes plant and pilot plant deductions and balancing loss adjustments for a unit of plant that was 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 write them at the appropriate labels. If the company has a balancing profit under paragraph 73B(23)(f), 73B(24)(g) or 73B(24B)(f) of the ITAA 1936, include this profit amount at item 8. Each of the types of deduction under this heading is considered separately in the following paragraphs.
If your aggregate research and development amount is less than or equal to $20,000, you cannot claim the additional 25% deduction in respect of this expenditure.
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 73B(5) of the 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 research and development activities, for at least an initial period. (Plant expenditure is defined in subsections 73B(1) and 73B(1C) of the ITAA 1936.) The company must also have satisfied the actual exclusive-use tests contained in subsections 73B(4) and 73B(5) of the ITAA 1936. The company cannot claim an amount as qualifying plant expenditure if research and development activities ceased during the year of income (subsection 73B(5) of the 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 the ITAA 1936).
Note: If another person uses the unit of plant exclusively for research and development activities, and that person has paid or must pay a consideration to the owner of the unit of plant, reduce the qualifying plant expenditure deduction by one-half of the consideration received (subsection 73B(15A) of the ITAA 1936).
If the company can claim plant expenditure under subsection 73B(15) of the ITAA 1936, and the tax cost is 'set' for that plant asset because the company joins a consolidated group (see sections 701-10 and 701-55 of the ITAA 1997), you may need to make an adjustment to any deduction allowable for the decline in value of that asset. (See section 73BAF of the ITAA 1936.)
At A include one-third of qualifying plant expenditure on Australian owned R&D, if a deduction for that expenditure is allowable under subsection 73B(15) of the ITAA 1936.
At B include that part of the amount at A claimable at 100%.
At C include that part of the amount at A claimable at 125%.
The total of the amounts at B and C must equal the base amount at A.
Deductions for pilot plant expenditure
Post 23 July 1996 pilot plant is:
- an experimental model of other plant for use in research and development activities or for use in commercial production, being 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 July 1996 and before 29 January 2001: and
- plant acquired or constructed for use by the company exclusively for the purpose of carrying on research and development activities (subsections 73B(1) and 73B(4C) of the ITAA 1936).
You can claim a deduction for expenditure in acquiring or constructing such an item of pilot plant only if the unit of pilot plant is used exclusively for carrying on research and development 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 73B(4E) of the ITAA 1936.
The annual deduction percentage is 100% (as per subsection 73B(4G) of the 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 the ITAA 1936.
Note: To determine 'useful life' for the purposes of applying this table, Subdivision 40-B of the ITAA 1997 applies (see subsection 73B(4J) of the ITAA 1936).
For pilot plant acquired or constructed after 29 January 2001, see item 9.
At A include the qualifying annual deduction percentage of pilot plant expenditure on Australian owned R&D.
At B include the annual deduction percentage of pilot plant expenditure claimable at 100%.
At C include the annual deduction percentage of pilot plant expenditure claimable at 125%.
The total of the amounts at B and C must equal the base amount at A.
Note: The sum of all post 23 July 1996 pilot plant deductions allowable to a company for such pilot plant (for all years) must not exceed the qualifying pilot plant expenditure multiplied by 1.25 (subsection 73B(15AB) of the ITAA 1936).
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 the ITAA 1936 are disposed of, lost or destroyed after being used exclusively for carrying on research and development activities, provided no deduction is allowable to the company for depreciation under the former Division 42 of the ITAA 1997. Such balancing adjustments are covered under subsections 73B(23), 73B(24) and 73B(24B) of the 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 the ITAA 1936). If this balancing adjustment is a loss, record it at this item.
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(24B)(e) of the ITAA 1936). If the pilot plant was acquired before 23 July 1996, refer to subsection 73B(24) of the ITAA 1936 to calculate the amount that can be deducted as a balancing adjustment loss (if applicable).
At A include the amount of any eligible balancing adjustment loss.
At B include the amount of any balancing adjustment (deduction) claimable at 100%.
At C include the amount of any balancing adjustment (deduction) claimable at 125%.
The total of the amounts at B and C must equal the base amount at A.
For more information, see:
- subsections 73B(1), 73B(1C), 73B(4), 73B(4A), 73B(4B) to 73B(4J), 73B(5), 73B(5AA), 73B(5AB), 73B(15), 73B(15A), 73B(15AA), 73B(15AB), 73B(18), 73B(20), 73B(21A), 73B(23), 73B(24), 73B(24A), 73B(24B) and section 73BAF of the ITAA 1936
- Subdivision 42-C and section 42-18 of the ITAA 1997
- Taxation Ruling TR 2002/1
- Research and development tax concession.