Taxation Laws Amendment (Research and Development) Act 2001 (170 of 2001)
Schedule 2 Plant etc.
Part 3 Effective life basis for deduction
Division 2 Amendments commencing immediately after the New Business Tax System (Capital Allowances) Act 2001
Income Tax Assessment Act 1936
54 After section 73B
Insert:
73BA Deduction for certain assets etc. used for the purpose of carrying on research and development activities
Object
(1) The object of this section is to provide a tax incentive, in the form of a deduction, to make eligible companies more internationally competitive by:
(a) encouraging the development by eligible companies of innovative products, processes and services; and
(b) increasing investment by eligible companies in defined research and development activities; and
(c) promoting the technological advancement of eligible companies through a focus on innovation and high technical risk in defined research and development activities; and
(d) encouraging the use by eligible companies of strategic research and development planning; and
(e) creating an environment that is conducive to increased commercialisation of new processes and product technologies developed by eligible companies.
The benefits of the tax incentive are targeted by being limited to particular expenditure on certain defined activities.
Entitlement to deduction
(2) If an eligible company has a notional Division 40 deduction for a section 73BA depreciating asset for a year of income, the company is entitled to a deduction under this section for the asset for the year of income.
Amount of deduction
(3) If the eligible company's aggregate research and development amount for the year of income is more than $20,000, the deduction is equal to the notional Division 40 deduction multiplied by 1.25. If not, it equals the notional Division 40 deduction.
No deduction if earlier STS or Division 40 low-value pool deductions allowable
(4) An eligible company is not entitled to a deduction under this section for a section 73BA depreciating asset for any period if the company was entitled to:
(a) a deduction for the asset for any earlier period under Subdivision 328-D (about STS taxpayers) of the Income Tax Assessment Act 1997; or
(b) a deduction for the asset for any earlier period under Division 40 of that Act, in a case to which section 40-440 (about low-value pools) of that Act applied.
Expenditure deductible etc. under this section not deductible under other provisions
(7) If the whole or a part of an amount of expenditure incurred by an eligible company:
(a) has been allowed or is or may become allowable as a deduction under this section; or
(b) would have been so allowed or become so allowable if the company had not chosen a tax offset under section 73I;
that whole or part is not an allowable deduction, and is not to be taken into account in working out the amount of an allowable deduction, from the assessable income of the company of any year of income under any other provision of this Act.
Definitions
(8) In this section:
aggregate research and development amount has the same meaning as in section 73B.
eligible company has the same meaning as in section 73B.
notional Division 40 deduction has the meaning given by section 73BC.
research and development activities has the same meaning as in section 73B.
section 73BA depreciating asset has the meaning given by section 73BB.
73BB Meaning of section 73BA depreciating asset
(1) A section 73BA depreciating asset of an eligible company is an asset for which the eligible company could (ignoring section 73BA) deduct an amount under section 40-25 of the Income Tax Assessment Act 1997 if the following assumptions were made:
(b) contrary to paragraph 40-30(1)(c) and subsection 40-30(2) of that Act, all intangible assets were excluded from the definition of depreciating asset in section 40-30 of that Act;
(c) subsection 40-45(2) of that Act did not, except in the case of buildings, prevent that Division from applying to capital works to which Division 43 of the Income Tax Assessment Act 1997 applies, or to which that Division would apply but for expenditure being incurred, or capital works being started, before a particular day;
(d) the eligible company satisfied any relevant requirement for deductibility under that Division.
(2) In this section:
eligible company has the same meaning as in section 73B.
73BC Meaning of notional Division 40 deduction
(1) An eligible company has a notional Division 40 deduction for a section 73BA depreciating asset for a year of income if it would be entitled to a deduction under section 40-25 of the Income Tax Assessment Act 1997 for the asset for the year of income assuming the changes set out in this section were made.
First change: replacement of references to use or installation ready for use for purpose of producing assessable income or for taxable purpose
(2) The first change is that references in Division 40 of the Income Tax Assessment Act 1997 (other than for the purposes of sections 40-100, 40-105 and 40-110) to using the asset, or having it installed ready for use:
(a) for the purpose of producing assessable income; or
(b) for a taxable purpose;
are instead references to using the asset for the purpose of the carrying on by or on behalf of the eligible company of research and development activities.
Note: Section 73BG modifies sections 40-100, 40-105 and 40-110 (about effective life) so that a reference to the research and development purpose is added to the existing references, rather than replacing them.
Second change: method for working out decline in value where previous Division 40 deduction
(3) The second change is that, if the eligible company was actually entitled to a deduction under Division 40 of the Income Tax Assessment Act 1997 for the section 73BA depreciating asset for any period before the start of the first period for which the company will be entitled to a deduction for the asset under this subsection, the same method for working out the decline in value as the company was using for the asset for the earlier period is used.
Third change: treatment of expenditure to which section 73BD or 73BE applies
(4) The third change is that, in working out the cost of the section 73BA depreciating asset, any amount of expenditure ( section 73BA depreciating asset expenditure ) that would otherwise form part of that cost is to be ignored or treated in some other way if section 73BD or 73BE so provides for the purposes of this section.
Fourth change: certain provisions to be ignored
(5) The fourth change is that Division 40 of the Income Tax Assessment Act 1997 applies as if section 73BA of this Act, and section 40-425 and Subdivision 328-D of that Act, had not been enacted.
(6) In this section:
eligible company has the same meaning as in section 73B.
research and development activities has the same meaning as in section 73B.
section 73BA depreciating asset has the meaning given by section 73BB.
73BD Treatment of certain expenditure for the purposes of section 73BC etc.
Requirement for registration under Industry Research and Development Act
(1) Section 73BA depreciating asset expenditure incurred by an eligible company in a year of income in relation to research and development activities is ignored for the purposes of section 73BC unless:
(a) the company is registered, in relation to the year of income and in relation to those activities, under section 39J of the Industry Research and Development Act 1986; or
(b) the company is registered, in relation to the year of income and in relation to a project comprising or including those activities, under section 39P of that Act.
Non-arm's length expenditure
(2) If:
(a) an eligible company has incurred an amount of section 73BA depreciating asset expenditure; and
(b) the Commissioner is satisfied that:
(i) having regard to any connection between the company and the person to whom the expenditure was incurred and to any other relevant circumstances, the company and that other person were not dealing with each other at arm's length in relation to the incurring of that expenditure; and
(ii) the amount of that expenditure would have been less if the company and that other person had dealt with each other at arm's length in relation to the incurring of that expenditure;
so much only of that expenditure is to be taken into account for the purposes of section 73BC as the Commissioner considers reasonable having regard to:
(c) the connection between the company and that other person; and
(d) the amount of the expenditure that would, in the opinion of the Commissioner, have been incurred by the company if the company and that other person had dealt with each other at arm's length in relation to the incurring of that expenditure; and
(e) such other matters as the Commissioner considers relevant.
Effect of certificate under section 39M or 39MA of Industry Research and Development Act
(3) Subject to subsection (8), if the Board gives to the Commissioner a certificate under section 39M or 39MA of the Industry Research and Development Act 1986 in respect of particular activities in respect of which section 73BA depreciating asset expenditure has been incurred by an eligible company, the expenditure is ignored for the purposes of section 73BC.
Effect of certificate under section 39N of Industry Research and Development Act
(4) Subject to subsection (8), if the Board gives to the Commissioner a certificate stating that a company has failed to comply with a notice under section 39N of the Industry Research and Development Act 1986 in respect of particular activities in respect of which section 73BA depreciating asset expenditure has been incurred by an eligible company, the expenditure is ignored for the purposes of section 73BC.
Effect of certificate under subsection 39P(4) of Industry Research and Development Act
(5) Subject to subsection (8), if the Board gives to the Commissioner a certificate in relation to a company or companies under subsection 39P(4) of the Industry Research and Development Act 1986, section 73BA depreciating asset expenditure in relation to research and development activities referred to in the certificate that is incurred by that company or any of those companies after the day on which notice was given to the company concerned under paragraph 39P(5)(a) is ignored for the purposes of section 73BC.
Effect of certificate under subsection 39PB(6) of Industry Research and Development Act
(6) Subject to subsections (7) and (8), if the Board gives to the Commissioner a certificate in relation to a company or companies under subsection 39PB(6) of the Industry Research and Development Act 1986, section 73BA depreciating asset expenditure in relation to research and development activities referred to in the certificate that is incurred by that company or any of those companies after the day stated in the certificate is ignored for the purposes of section 73BC.
(7) Subsection (6) of this section does not apply to section 73BA depreciating asset expenditure in relation to research and development activities in respect of which a company is registered under section 39J of the Industry Research and Development Act 1986.
Effect of revocation of certificates mentioned above
(8) If a certificate mentioned in subsection (3), (4), (5) or (6) is revoked, this section applies, and is taken to have applied, as if the certificate had not been given.
Expenditure on overseas research and development activities
(9) Section 73BA depreciating asset expenditure incurred by an eligible company on overseas research and development activities is ignored for the purposes of section 73BC unless the Board gave a provisional certificate in respect of the expenditure under section 39ED of the Industry Research and Development Act 1986 before the expenditure was incurred.
Expenditure incurred on behalf of another person
(10) Section 73BA depreciating asset expenditure incurred by an eligible company for the purpose of carrying on research and development activities on behalf of any other person is ignored for the purposes of section 73BC to the company.
(11) Subsection (10) does not apply in relation to expenditure incurred on behalf of a partnership by a partner in the partnership in that partner's capacity as such a partner.
Definitions
(12) In this section:
Board means the Industry Research and Development Board established by the Industry Research and Development Act 1986.
eligible company has the same meaning as in section 73B.
research and development activities has the same meaning as in section 73B.
section 73BA depreciating asset has the meaning given by section 73BB.
section 73BA depreciating asset expenditure has the meaning given by subsection 73BC(4).
73BE Treatment of certain partnership expenditure for the purposes of section 73BC etc.
When section applies
(1) If section 73BA depreciating asset expenditure has been incurred by a partnership in which, when the expenditure was incurred:
(a) at least one partner was an eligible company; and
(b) either:
(i) each other partner was an eligible company or was a body corporate that was, or is taken to have been, registered under section 39F of the Industry Research and Development Act 1986 as a research agency in respect of the class of research and development activities on which the expenditure was incurred; or
(ii) the partnership was designated as a Co-operative Research Centre under the program known as the Co-operative Research Centres Program;
the following provisions have effect.
Contributions by partners
(2) Each partner is taken, for the purposes of sections 73BC, 73C and 73CA of this Act, and Subdivision 20-A of the Income Tax Assessment Act 1997, to have incurred so much (if any) of the expenditure as was incurred out of money contributed by the partner (otherwise than by way of loan), whether in the year of income in which the expenditure was incurred or a previous year of income.
Recoupments or grants
(3) If the partnership has, whether before or after the commencement of this subsection, received, or become entitled to receive, a recoupment of, or a grant in respect of, the whole or any part of the expenditure, each partner is to be taken, for the purposes of sections 73BC, 73C and 73CA of this Act, and Subdivision 20-A of the Income Tax Assessment Act 1997, to have received, or become entitled to receive, so much (if any) of the recoupment or grant as is worked out in accordance with the formula:
where:
partner's contribution means the total contribution made (otherwise than by way of loan) by the partner to the funds of the partnership as at the time when the recoupment or grant was received or the entitlement to the recoupment or grant arose, as the case may be.
total contribution means the total of the contributions made (otherwise than by way of loan) by all the partners to the funds of the partnership as at the time when the recoupment or grant was received or the entitlement to the recoupment or grant arose, as the case may be.
Exception to subsections (2) and (3)
(4) If the partnership is not designated as a Co-operative Research Centre under the program known as the Co-operative Research Centres Program, subsection 73C(2A) does not apply in relation to the expenditure that a partner is taken to have incurred by subsection (2) or (3) of this section.
Effect on net income and partnership loss calculation
(5) Any expenditure that a partner is taken to have incurred by subsection (2) or (3) of this subsection, and any recoupment or grant that a partner is taken to have received or become entitled to receive, is not to be taken into account in determining the net income of the partnership or any partnership loss, as the case may be, of the year of income.
Provisions to apply to each partner, not partnership
(6) Subject to subsections (2) to (5) of this section, sections 73BC, 73C and 73CA of this Act, and Subdivision 20-A of the Income Tax Assessment Act 1997, apply in relation to each such partner that is an eligible company as if that partner, and not the partnership, were, or had been, carrying on the relevant project and activities, but so apply with such modifications to those sections as are appropriate having regard to the partner's interest in the partnership.
Definitions
(7) In this section:
Board means the Industry Research and Development Board established by the Industry Research and Development Act 1986.
eligible company has the same meaning as in section 73B.
research and development activities has the same meaning as in section 73B.
section 73BA depreciating asset has the meaning given by section 73BB.
section 73BA depreciating asset expenditure has the meaning given by subsection 73BC(4).
73BF Balancing adjustments: section 73BA depreciating assets
(1) If:
(a) a balancing adjustment event (within the meaning of section 40-295 of the Income Tax Assessment Act 1997) happens in relation to a section 73BA depreciating asset of an eligible company; and
(b) one or more deductions have been allowed or are allowable to the eligible company under section 73BA or 73BH for the asset for a year or years of income, or would have been so allowed or allowable if the company had not chosen a tax offset under section 73BI; and
(c) no deduction:
(i) is allowable to the eligible company under section 40-25 of the Income Tax Assessment Act 1997 for the asset for any year of income; or
(ii) was allowable to the eligible company under section 42-15 of the Income Tax Assessment Act 1997, as in force before its repeal by the New Business Tax System (Capital Allowances) Act 2001, for the asset for any year of income; and
(d) a deduction would be allowable to the eligible company, or an amount would be included in the eligible company's assessable income, in respect of the balancing adjustment event under Subdivision 40-D of that Act if:
(i) the changes set out in section 73BC were made; and
(ii) section 40-292 of the Income Tax Assessment Act 1997 and this section (other than this paragraph) had not been enacted;
then the deduction mentioned in paragraph (d) is allowable to the eligible company, or the amount mentioned in paragraph (d) is included in the eligible company's assessable income, under this section for the year of income in which the balancing adjustment event occurs.
Note: If deductions have been allowed etc. under both section 73BA or 73BH of this Act and section 40-25 of the Income Tax Assessment Act 1997 for a section 73BA depreciating asset, the balancing adjustment provisions of Division 40 of that Act apply in a modified way: see section 40-292 of that Act.
Increase in deduction or assessable amount where section 73BA deductions allowable at 1.25 rate
(2) However, if at least one of the deductions mentioned in paragraph (1)(b) was worked out by multiplying a notional Division 40 deduction or a notional Division 42 deduction by 1.25, subsection (3) applies.
(3) Any amount (the subsection (1) amount ) allowable as a deduction to, or included in the assessable income of, the eligible company under subsection (1) of this section for the section 73BA depreciating asset is increased by the amount worked out using the formula:
where:
adjusted subsection (1) amount means:
(a) if the subsection (1) amount is a deduction - the amount of the deduction; or
(b) if the subsection (1) amount is an amount included in the eligible company's assessable income - so much of the subsection (1) amount as does not exceed the formula component total decline in value .
sum of all 1.25 rate notional Division 40/42 deductions means the sum of all notional Division 40 deductions or notional Division 42 deductions that were multiplied by 1.25 in working out the deductions mentioned in paragraph (1)(b) for the section 73BA depreciating asset.
total decline in value means the cost of the section 73BA depreciating asset, less its adjustable value, just before the balancing adjustment event, where that cost and adjustable value are the amounts taken into account in applying Subdivision 40-D of the Income Tax Assessment Act 1997 in accordance with paragraph (1)(d) for the purpose of working out the subsection (1) amount.
Assessability of amounts received in respect of results etc. of research and development activities
(4) Subject to subsections (5) and (6), if:
(a) an eligible company has incurred any expenditure in respect of which:
(i) a deduction under section 73BA or 73BH has been allowed or is allowable to the company, or would have been so allowed or allowable if the company had not chosen a tax offset under section 73I; or
(ii) in the case of a company whose income was exempt from tax when the expenditure was incurred - a deduction under section 73BA or 73BH would have been allowable if the company's income had not been so exempt from tax; and
(b) the eligible company receives or is entitled to receive:
(i) an amount in respect of the results of any of the research and development activities in relation to which the expenditure was incurred; or
(ii) an amount attributable to the company having incurred the expenditure, including an amount that it is entitled to receive irrespective of the results of the activities;
that amount is included in the company's assessable income of the year of income in which the company received or became entitled to receive it.
(5) The reference in subsection (4) to a company receiving or being entitled to receive an amount in respect of the results of any research and development activities includes a reference to:
(a) the company receiving or being entitled to receive an amount from the grant of access to, or the grant of a right to use, any of those results; and
(b) the company receiving or being entitled to receive an amount from the disposal of, or of an interest in, any section 73BA depreciating asset or from the grant of a right to use any section 73BA depreciating asset where, as a result of the disposal or grant, another person has acquired a right of access to, or a right to use, any of those results;
but does not include a reference to the company receiving or being entitled to receive an amount in consequence of the use by the company of any of those results.
(6) If a company receives or is entitled to receive an amount as mentioned in paragraph (5)(b), the amount to be included in the company's assessable income under subsection (4) is only so much (if any) of the amount mentioned in that paragraph as exceeds the cost to the company of acquiring or constructing the section 73BA depreciating asset concerned.
Definitions
(7) In this section:
eligible company has the same meaning as in section 73B.
notional Division 40 deduction has the meaning given by section 73BC.
notional Division 42 deduction has the meaning given by section 73BJ.
research and development activities has the same meaning as in section 73B.
section 73BA depreciating asset has the meaning given by section 73BB.
73BG Effective life calculation under Division 40 of Income Tax Assessment Act 1997 to take into account use for purpose of carrying on research and development activities
(1) This section has effect for the purposes of working out, under sections 40-100, 40-105 and 40-110 of the Income Tax Assessment Act 1997 (whether in their application for the purposes of section 73BA of this Act or otherwise), the effective life of a depreciating asset of an eligible company.
(2) If, at the time at which the effective life is worked out, it is reasonably likely that the depreciating asset will be used at some time by any eligible company for the purpose of the carrying on by or on behalf of the eligible company of research and development activities:
(a) the references in:
(i) item 1.1 of the table in section 40-10 of the Income Tax Assessment Act 1997 to the period the asset can be used to produce income; and
(ii) sections 40-100, 40-105 and 40-110 of that Act to the period the asset can be used by any entity for a taxable purpose or for the purpose of producing exempt income;
include a reference to the period the asset can be used by any eligible company for the purpose of the carrying on by or on behalf of the eligible company of research and development activities; and
(b) in applying paragraph 40-100(4)(c) and subsection 40-105(2) of the Income Tax Assessment Act 1997, it is to be concluded that no eligible company that can use the asset for the purpose of the carrying on by or on behalf of the eligible company of research and development activities will scrap the asset, will sell it for scrap value or less or will abandon it, for reasons attributable to technical risk in the carrying on of those activities.
(3) In this section:
depreciating asset has the same meaning as in Division 40 of the Income Tax Assessment Act 1997 .
eligible company has the same meaning as in section 73B.
research and development activities has the same meaning as in section 73B of this Act.