Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon. P.J. Keating, M.P.)MAIN FEATURES
The Bill will implement the proposal, announced on 29 May 1985, to provide a more generous income tax concession for research and development expenditure by Australian companies. Broadly, the new concession will provide a deduction of up to 150% of expenditure (other than expenditure on buildings) incurred on or after 1 July 1985 and before 1 July 1991 in respect of research and development activities that are carried on in Australia and do not otherwise attract government assistance. To be eligible for the concession, a company must be registered with the Australian Industrial Research and Development Incentives Board or the proposed new Industry Research and Development Board.
Research and development activities are defined in the Bill to mean systematic, investigative or experimental activities involving technical risk that are carried on for the purpose of acquiring new knowledge or creating new or improved materials, products, devices, processes or services, as well as directly related activities. Specifically excluded from the meaning of research and development activities is a range of activities such as marketing and quality control.
Except for expenditure on research and development activities contracted out to an approved research institute or funded through the Coal Research Trust Account, the 150% rate of deduction will be available only where the amount of the expenditure for the purposes of the concession is $50,000 or more in respect of the year of income. Where annual expenditure is less than $50,000 but more than S20,000, a deduction will be available at a phased-in rate of between 100% and 150%. Expenditure in respect of research and development activities on behalf of an eligible company that are carried out by an approved research institute or are funded by the Coal Research Trust Account will attract the 150% rate of deduction irrespective of the level of that expenditure.
Expenditure on plant used exclusively in research and development activities (including up to $10 million of expenditure on a unit of pilot plant) is to be deductible at the relevant increased rate over 3 years, with one-third of such expenditure being taken into account in determining the level of total qualifying research and development expenditure in each year and thus the relevant rate of deduction. Also to be taken into account for this purpose is one-third of expenditure on buildings, or building extensions, alterations or improvements, used exclusively in research and development activities, although such expenditure will itself continue to be deductible at the rate of 100% over 3 years.
A more detailed explanation of the provisions of the Bill is contained in the following notes.