Supplementary Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)General outline and financial impact
Amendments to the Taxation Laws Amendment (Research and Development) Bill 2001
The amendments to the Taxation Laws Amendment (Research and Development) Bill 2001:
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- remove the provision that treats trading stock as plant while it is subject to research and development activities;
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- remove the concurrent plant use provisions; and
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- ensure that an eligible company which is unregistered but receives an R&D Start grant can establish a 3 year history for the incremental concession.
Date of effect: Amendments 1 to 6 and 8 to 10 omit the relevant provisions from the date of effect of those provisions. Amendment 7 applies to assessments for the income year in which 1 July 2001 occurs and for later income years. Amendments 11 and 12 apply to expenditure incurred in the first income year starting after 30 June 2001.
Proposal announced: The amendments have not previously been announced.
Financial impact: The amendments will result in a cost to the revenue as set out in the following table.
| 2001-2002 | 2002-2003 | 2003-2004 | 2004-2005 | 2005-2006 |
|---|---|---|---|---|
| $1m | $2m | $2m | $2m | $3m |
Compliance cost impact: The amendments are not expected to result in any additional compliance costs.
Chapter 1 - Amendments to the Taxation Laws Amendment (Research and Development) Bill 2001
Overview
1.1 The Taxation Laws Amendment (Research and Development) Bill 2001 (R&D Bill) contains changes and additions to the research and development (R&D) tax concession. The R&D Bill amends the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997, the Taxation (Interest on Overpayments and Early Payments) Act 1983 and the Industry Research and Development Act 1986.
Summary of the amendments
1.2 The amendments remove the provision that treats trading stock as plant while it is subject to R&D activities, remove the concurrent plant use provisions and ensure that an eligible company which is unregistered but receives an R&D Start grant can establish a 3 year history for the incremental concession.
Explanation of the amendments
1.3 This amendment removes proposed subsection 73BH(4) (a provision relating to trading stock) and subsection 73BH(5) (a provision covering concurrent use of plant). Under the first proposed subsection, an eligible company that uses an item of trading stock for R&D activities is taken not to hold the item as an item of trading stock. The amendment has the effect that where an eligible company uses an item of trading stock in R&D activities, that item is always considered as trading stock.
1.4 The second amendment removes a provision which operated to reduce the depreciation deduction on plant that was used in both R&D activities and production. As a result, plant used in both R&D activities and production will attract the additional 25% concession on the depreciation deduction irrespective of the value of output produced.
1.5 These amendments are consequential on the omission of proposed subsection 73BH(5). The amendments remove the definitions of eligible feedstock percentage, eligible feedstock profit, feedstock input, feedstock output and research and development activities.
1.6 Amendment 4 will remove trading stock from the proposed definition of plant for the purposes of the R&D plant deduction provisions. Amendment 5 is consequential on that removal.
1.7 This amendment removes proposed subsection 73BA(5) (a provision relating to trading stock) and subsection 73BA(6) (a provision covering concurrent use of plant). Under the first proposed subsection, an eligible company that uses an item of trading stock for R&D activities is taken not to hold the item as an item of trading stock. The amendment has the effect that where an eligible company uses an item of trading stock in R&D activities, that item is always considered as trading stock.
1.8 The second amendment removes a provision which operated to reduce the depreciation deduction on plant that was used in both R&D activities and production. As a result, plant used in both R&D activities and production will attract the additional 25% concession on the depreciation deduction irrespective of the value of output produced.
1.9 These amendments are consequential on the omission of proposed subsection 73BA(5). The amendments remove the definitions of eligible feedstock percentage, eligible feedstock profit, feedstock input and feedstock output.
1.10 Amendment 8 corrects an incorrect section reference in the definition of notional Division 40 deduction.
1.11 Amendment 9 will remove trading stock from the proposed definition of depreciating asset for the purposes of the R&D depreciating asset deduction provisions. Amendment 10 is consequential on that removal.
1.12 Amendments 11 and 12 ensure that an eligible company which is unregistered for the R&D tax concession but receives an R&D Start grant can establish a 3 year history for the incremental concession. Amendment 11 introduces the new definition of start grant.
1.13 This amendment allows an eligible company or any of its group members, which receives a start grant but is not registered for the R&D tax concession, to have its incremental expenditure counted towards its eligibility for the incremental concession as if the incremental expenditure had been deductible.