Income Tax (Transitional Provisions) Act 1997

CHAPTER 2 - LIABILITY RULES OF GENERAL APPLICATION  

PART 2-10 - CAPITAL ALLOWANCES: RULES ABOUT DEDUCTIBILITY OF CAPITAL EXPENDITURE  

Division 40 - Capital allowances  

Subdivision 40-D - Balancing adjustments  

SECTION 40-292   Balancing adjustment - assets used for both general tax purposes and R & D activities  

R & D entity has old law R & D decline in value deductions

40-292(1)    
This section applies to an R & D entity if:

(a)    a balancing adjustment event happens in an income year (the event year ) commencing on or after 1 July 2011 for an asset held by the R & D entity and:

(i) the R & D entity can deduct, for an income year, an amount under section 40-25 of the Income Tax Assessment Act 1997 (the new Act ), as that section applies apart from Division 355 of that Act and former section 73BC of the Income Tax Assessment Act 1936 (the old Act ); or

(ii) the R & D entity could have deducted, for an income year, an amount as described in subparagraph (i) if it had used the asset; and

(b)    either or both of the following subparagraphs apply:

(i) the R & D entity can deduct (the old law deductions ) under former section 73BA or 73BH of the old Act an amount for one or more income years for the asset;

(ii) the R & D entity chooses tax offsets under former section 73I of the old Act instead of deductions (also the old law deductions ) under those former sections for one or more income years for the asset.

Note:

This section applies even if the R & D entity is entitled under section 355-100 of the new Act to tax offsets for one or more income years for deductions under section 355-305 of that Act for the asset.

Section 40-290 to be applied as if use for carrying on R & D activities were use for a taxable purpose

40-292(2)    
In applying section 40-290 of the new Act (including references in that section to the reduction of deductions under section 40-25 of that Act) in relation to the asset, assume that using the asset for a taxable purpose includes using it for:

(a)    the purpose of the carrying on, by or on behalf of the R & D entity, of the research and development activities (within the meaning of former section 73B of the old Act) to which the old law deductions relate; or

(b)    if the R & D entity is entitled under section 355-100 of the new Act to tax offsets for one or more income years for deductions (the new law deductions ) under section 355-305 of that Act for the asset - the purpose of conducting the R & D activities to which the new law deductions relate.

Increase in amounts deductible or assessable under section 40-285

40-292(3)    

Any amount (the section 40-285 amount ):

(a)    that the R & D entity can deduct for the asset under section 40-285 of the new Act (after applying subsection (2) of this section) for the event year; or

(b)    that is included in the R & D entity ' s assessable income for the asset under section 40-285 of the new Act (after applying subsection (2) of this section) for the event year;

is taken to be increased under section 40-292 of the new Act by the following amount:

where:

adjusted section 40-285 amount
means:

(a) if the section 40-285 amount is a deduction - the amount of the deduction; or

(b) if the section 40-285 amount is an amount included in the R & D entity's assessable income - so much of the section 40-285 amount as does not exceed the total decline in value.

old law 1.25 rate deductions
means the sum of the R & D entity's notional Division 40 deductions, and notional Division 42 deductions, (if any) for the asset that were multiplied by 1.25 in working out the old law deductions.

total decline in value
means the cost of the asset less its adjustable value.

Application of Division 355

40-292(3A)    

In applying Division 355 of the new Act in relation to the asset for the income year, the R & D entity is taken to have:

(a)    if the section 40-285 amount is an amount included in the R & D entity ' s assessable income - a clawback amount under section 355-447 of the new Act for the income year; or

(b)    if the section 40-285 amount is a deduction - a catch up amount under section 355-466 of the new Act for the income year;

equal to the following amount:

Adjusted section 40-285 amount	×	Sum of new law deductions
		Total decline in value

where:

adjusted section 40-285 amount
means:

(a) if the section 40-285 amount is a deduction - the amount of the deduction; or

(b) if the section 40-285 amount is an amount included in the R & D entity ' s assessable income - so much of the section 40-285 amount as does not exceed the total decline in value.

total decline in value
means the cost of the asset less its adjustable value.

Normal rules do not apply for the asset and the event

40-292(4)    
Neither of the following sections:

(a)    section 40-292 of the new Act (as amended by the Tax Laws Amendment (Research and Development) Act 2011 );

(b)    section 40-292 of the new Act (as that section applies because of Part 2 of Schedule 4 to the Tax Laws Amendment (Research and Development) Act 2011 );

to the extent that they would otherwise apply apart from this section to the R & D entity for the event, do so apply to the R & D entity for the event.

Note 1:

The section 40-292 of the new Act mentioned in paragraph (a) would otherwise apply for the event in a case where the R & D entity had new law deductions.

Note 2:

The section 40-292 of the new Act mentioned in paragraph (b) would otherwise apply for the event in respect of the old law deductions.