Tax Laws Amendment (2007 Measures No. 5) Act 2007 (164 of 2007)
Schedule 11 Research and development
Part 1 Amendment of the Income Tax Assessment Act 1936
37 After section 73R
Insert:
73RA Increases in expenditure on Australian owned R&D by eligible companies
(1) For the purposes of section 73QA, work out the increase in expenditure on Australian owned R&D by the eligible company as follows:
Method statement
Step 1. For each of the Y0, Y-1, Y-2 and Y-3 years of income, work out the eligible company's incremental expenditure incurred in its group membership period.
Step 2. For each of the Y0, Y-1, Y-2 and Y-3 years of income, work out how much (if any) of the initial clawback amount (if any) under section 73C relating to expenditure incurred by the eligible company is attributable to incremental expenditure incurred in the eligible company's group membership period.
Step 3. For each of those years of income, reduce (but not below zero) the result of step 1 for the year of income by the result of step 2 for the year of income. The result is the reduced expenditure on Australian owned R&D by the eligible company in its group membership period for the year of income.
Step 4. Add up:
(a) the reduced expenditure on Australian owned R&D by the eligible company in its group membership period for the Y-1 year of income; and
(b) the reduced expenditure on Australian owned R&D by the eligible company in its group membership period for the Y-2 year of income; and
(c) the reduced expenditure on Australian owned R&D by the eligible company in its group membership period for the Y-3 year of income.
Step 5. Divide the result of step 4 by 3.
Step 6. Subtract the result of step 5 from the reduced expenditure on Australian owned R&D by the eligible company in its group membership period for the Y0 year of income (see step 3). The result is the change in expenditure on Australian owned R&D by the eligible company .
Note: The change in expenditure on Australian owned R&D by the eligible company may be a positive or negative number or zero.
Step 7. The increase in expenditure on Australian owned R&D by the eligible company is:
(a) the change in expenditure on Australian owned R&D by the eligible company; or
(b) zero, if the change in expenditure on Australian owned R&D by the eligible company is a negative number.
(2) For the purposes of section 73QA, work out the total increase in expenditure on Australian owned R&D by the eligible companies in the group as follows:
Method statement
Step 1. For each group member that is an eligible company, work out the increase in expenditure on Australian owned R&D by the eligible company under subsection (1) of this section.
Step 2. Total the results of step 1.
73RB Increases in expenditure on foreign owned R&D by eligible companies
(1) For the purposes of section 73QB, work out the increase in expenditure on foreign owned R&D by the eligible company as follows:
Method statement
Step 1. For the Y0 year of income, work out the amount of the expenditure on foreign owned R&D by the eligible company for the year of income (see subsections 73B(14C) and (14D)) that was incurred by the company in its group membership period. The result is the expenditure on foreign owned R&D by the eligible company in its group membership period for the year of income.
Step 2. For the Y0 year of income, work out how much (if any) of the initial clawback amount (if any) under section 73C relating to expenditure incurred by the eligible company is attributable to the expenditure on foreign owned R&D by the eligible company in its group membership period for the year of income.
Step 3. Reduce (but not below zero) the result of step 1 for the year of income by the result of step 2 for the year of income. The result is the reduced expenditure on foreign owned R&D by the eligible company in its group membership period for the Y0 year of income.
Step 4. For each of the Y-1, Y-2 and Y-3 years of income, work out the amount (the notional expenditure on foreign owned R&D by the eligible company in its group membership period for the year of income) of expenditure that:
(a) was incurred by the company in its group membership period; and
(b) would have been expenditure on foreign owned R&D by the eligible company for the year of income (see subsections 73B(14C) and (14D)) if subsection 73B(2BA) had not been enacted.
Note 1: This requires counting of expenditure relating to all activities that would have been research and development activities had they been carried on in accordance with a plan described in subsection 73B(2BA) (whether or not they were carried on in that way).
Note 2: If all relevant activities were carried on in accordance with such a plan, and the eligible company's group membership period includes the whole of the year of income, the notional expenditure on foreign owned R&D by the eligible company in its group membership period for the year of income is the same as the expenditure on foreign owned R&D by the company for the year of income.
Step 5. For each of the Y-1, Y-2 and Y-3 years of income, work out what would have been the amount of the eligible company's initial clawback amount (if any) under section 73C attributable to the notional expenditure on foreign owned R&D by the eligible company in its group membership period for the year of income if subsection 73B(2BA) had not been enacted.
Note: This requires counting of grants and recoupments described in section 73C relating to expenditure on projects involving activities that would have been research and development activities had they been carried on in accordance with a plan described in subsection 73B(2BA) (whether or not they were carried on in that way).
Step 6. For each of the Y-1, Y-2 and Y-3 years of income, reduce (but not below zero) the result of step 4 for the year of income by the result of step 5 for the year of income. The result is the reduced notional expenditure on foreign owned R&D by the eligible company in its group membership period for the year of income.
Step 7. Add up:
(a) the reduced notional expenditure on foreign owned R&D by the eligible company in its group membership period for the Y-1 year of income; and
(b) the reduced notional expenditure on foreign owned R&D by the eligible company in its group membership period for the Y-2 year of income; and
(c) the reduced notional expenditure on foreign owned R&D by the eligible company in its group membership period for the Y-3 year of income.
Step 8. Divide the result of step 7 by 3.
Step 9. Subtract the result of step 8 from the reduced expenditure on foreign owned R&D by the eligible company for the Y0 year of income (see step 3). The result is the change in expenditure on foreign owned R&D by the eligible company .
Note: The change in expenditure on foreign owned R&D by the eligible company may be a positive or negative number or zero.
Step 10. The increase in expenditure on foreign owned R&D by the eligible company is:
(a) the change in expenditure on foreign owned R&D by the eligible company; or
(b) zero, if the change in expenditure on foreign owned R&D by the eligible company is a negative number.
(2) For the purposes of section 73QB, work out the total increase in expenditure on foreign owned R&D by the eligible companies in the group as follows:
Method statement
Step 1. For each group member that is an eligible company, work out the increase in expenditure on foreign owned R&D by the eligible company under subsection (1) of this section.
Step 2. Total the results of step 1.
73RC Net increase in expenditure on Australian owned R&D by the group
For the purposes of sections 73QA and 73QB, work out the net increase in expenditure on Australian owned R&D by the group as follows:
Method statement
Step 1. For each eligible company that was a group member, work out under steps 1 to 6 (inclusive) of the method statement in subsection 73RA(1) the change in expenditure on Australian owned R&D by the eligible company.
Step 2. Total the results of step 1. If the result is a negative number, the net increase in expenditure on Australian owned R&D by the group is zero instead.
73RD Net increase in expenditure on foreign owned R&D by the group
For the purposes of sections 73QA and 73QB, work out the net increase in expenditure on foreign owned R&D by the group as follows:
Method statement
Step 1. For each eligible company that was a group member, work out under steps 1 to 9 (inclusive) of the method statement in subsection 73RB(1) the change in expenditure on foreign owned R&D by the eligible company.
Step 2. Total the results of step 1. If the result is a negative number, the net increase in expenditure on foreign owned R&D by the group is zero instead.
73RE Adjusted increase in expenditure on R&D by the group
Work out the adjusted increase in expenditure on R&D by the group as follows:
Method statement
Step 1. For each eligible company that was a group member, work out under steps 1 to 6 (inclusive) of the method statement in subsection 73RA(1) the change in expenditure on Australian owned R&D by the eligible company.
Step 2. For each eligible company that was a group member, work out under steps 1 to 9 (inclusive) of the method statement in subsection 73RB(1) the change in expenditure on foreign owned R&D by the eligible company.
Step 3. Add up all the results of steps 1 and 2.
Note: If the sum is a negative number, the adjusted increase in expenditure on R&D by the group will be zero.
Step 4. Subtract the adjustment balance worked out under section 73V from the result of step 3. If the result is a negative number, the adjusted increase in expenditure on R&D by the group is zero instead.