Taxation Laws Amendment (Research and Development) Act 2001 (170 of 2001)
Schedule 4 Incremental tax incentive
Income Tax Assessment Act 1936
5 Before section 74
Insert:
73P Interpretation
(1) For the purposes of interpretation, this section and sections 73Q to 73Z (inclusive) are to be read and construed as if they were part of sections 73B, 73BA and 73BH.
(2) In sections 73Q to 73Z (inclusive):
AA0 means a group's adjustment amount for the Y0 year of income.
AA-1 means a group's adjustment amount for the Y-1 year of income.
adjustment amount has the meaning given by section 73T.
adjustment balance has the meaning given by section 73V.
group member means a primary group member or a secondary group member.
group membership period of an eligible company has the meaning given by section 73R.
incremental expenditure means expenditure that is research and development expenditure except:
(a) expenditure to lease or hire plant; and
(b) expenditure under a contract to the extent that it is, in substance, for the acquisition of plant and not for the receipt of services.
person has the same meaning as in section 73H.
premium amount has the meaning given by section 73W.
primary group member has the meaning given by section 73R.
R&D spend of an eligible company for a year of income means the sum of:
(a) the incremental expenditure of the eligible company for the year of income incurred during its group membership period; and
(b) the incremental expenditure of each group member of the eligible company for the year of income incurred during its group membership period.
RA0 means a group's running average for the Y0 year of income.
RA-1 means a group's running average for the Y-1 year of income.
running average for a particular year of income is worked out under section 73U.
secondary group member has the meaning given by section 73R.
start grant means a subsidy or grant paid to an eligible company:
(a) under an agreement between the company and the Board entered into under the program known as the R&D Start Program; and
(b) in respect of a year of income in relation to which the company is not registered as mentioned in subsection 73B(10).
viable business has the meaning given by section 73R.
(3) For the purposes of the definition of incremental expenditure in subsection (2), where expenditure under a contract is both for the acquisition of plant and for the provision of services, the expenditure must be apportioned on a reasonable basis between them.
(4) None of the expenditure referred to in subsection (3) can be incremental expenditure if a reasonable apportionment is not possible.
(5) A company's incremental expenditure for a year of income excludes the total group markup of the company for that expenditure (as worked out under subsection 73B(14AC)).
(6) In this section and in sections 73Q, 73R, 73S, 73T, 73U, 73V, 73W, 73X and 73Y, particular years of income are identified by the letter "Y" with a further identifier. Under that system:
(a) Y0 is the year of income for which an eligible company is working out its assessable income and deductions; and
(b) Y-1 means the year of income before the Y0 year of income; and
(c) Y-2 means the year of income 2 years before the Y0 year of income; and
(d) Y-3 means the year of income 3 years before the Y0 year of income.
73Q Eligibility to claim additional deduction
(1) An eligible company is eligible to claim an additional deduction under section 73Y for a year of income (the deduction year ) if the company:
(a) can deduct an amount for incremental expenditure under subsection 73B(13) or (14) for the deduction year; and
(b) has deducted or can deduct an amount for incremental expenditure under that subsection for each of the preceding 3 years of income.
(2) For the purposes of paragraph (1)(b), the eligible company is treated as if it had deducted or can deduct an amount for incremental expenditure under that subsection for each of the preceding 3 years of income if any group member of the eligible company has deducted or can deduct an amount for expenditure of that kind incurred during its group membership period under that subsection for each of those years.
(3) For the purposes of paragraph (1)(b), subsection (2) of this section and subsection 73R(1), the eligible company or any of its group members is treated as if it had deducted or can deduct an amount for incremental expenditure under subsection 73B(13) or (14) for a year of income if the company received a start grant in respect of that year of income.
73R Group members
(1) This section sets out rules for determining whether an eligible company that has deducted or can deduct an amount under subsection 73B(13) or (14) is a group member in relation to another company that has deducted or can deduct such an amount. In applying this section, use section 73L to determine whether companies are grouped.
(2) Work out the group members of the eligible company and their group membership periods in this way:
Method statement
Step 1. Work out, as at the last day of the Y0 year of income, which companies are grouped with the eligible company. The eligible company and these grouped companies are the primary group members .
Step 2. Work out the day before the last day of the Y0 year of income, or the first day of the Y-3 year of income, whichever is the later, when a company that is a primary group member:
(a) was controlled, as mentioned in section 73L, by a person other than a person who controlled it as at the last day of the Y0 year of income; or
(b) acted, or could be expected to act, in accordance with the directions or wishes of a person other than a person in accordance with whose directions or wishes it acted, or could be expected to act, as at the last day of the Y0 year of income.
The period between this day and the last day of the Y0 year of income is that company's group membership period .
Step 3. Any other company that was grouped with a primary group member at a time during the member's group membership period is a secondary group member .
Step 4. Work out the day before the last day of the Y0 year of income when a secondary group member became grouped with the primary group member as mentioned in step 3, or the first day of the Y-3 year of income, whichever is the later.
Step 5. Work out the day before the last day of the Y0 year of income when the secondary group member was not so grouped with the primary group member. The period between that day and the day worked out under step 4 is the secondary group member's group membership period .
Exception: secondary member leaving with a viable business
(3) The period that would be a secondary group member's group membership period is treated as never having existed if, at the end of that period when the secondary group member stops being grouped with a primary group member, the secondary group member has a viable business.
Exception: extending group membership period
(4) The group membership period of a group member of a particular group (the current group ) is extended to include its history period with its former group (see subsection (5)) if, when the company became a group member of the current group, it did so with a viable business.
Viable business
(5) A company stops being or starts being a group member of a group with a viable business if:
(a) sufficient assets (including assets that have been used in carrying on research and development activities) are transferred under the transactions involved in the change of control to allow the continued operation of a business; and
(b) the person or persons that disposed of control of the company agree in writing with the person or persons that gain control that this subsection should apply; and
(c) the person or persons that disposed of control of the company provide written details of incremental expenditure incurred by the company during the period (its history period ) it was a group member of its former group.
Note: The definition of person includes trusts, partnerships and other entities as well as companies: see section 73H.
(6) The written agreement referred to in paragraph (5)(b) must be made, and the written details referred to in paragraph (5)(c) must be provided:
(a) for a change of control occurring before 1 July 2002 - by 30 June 2002; or
(b) otherwise - by the end of the year of income in which the change of control occurs; or
(c) within a further time allowed by the Commissioner.
73S Calculating the amounts relevant to the additional deduction
If a negative result is obtained from a calculation in section 73T or 73V, that result is taken to be zero.
73T Adjustment amounts
(1) The adjustment amount for an eligible company and its group members for the Y0 year of income is:
(2) The adjustment amount for an eligible company and its group members for the Y-1 year of income is:
Exceptions
(3) AA0 is zero if:
(a) the eligible company or any of its group members was eligible to claim an additional deduction under section 73Y for the Y-1 year of income; and
(b) there has been no change in the control of the eligible company or any of its group members for the Y0 year of income resulting in:
(i) a company entering or leaving the group with a viable business; and
(ii) a change to the R&D spend of the eligible company for the Y-1, Y-2 or Y-3 year of income.
(4) AA-1 is zero if:
(a) the eligible company or any of its group members was eligible to claim an additional deduction under section 73Y for the Y-2 year of income; and
(b) there has been no change in the control of the eligible company or any of its group members for the Y0 or Y-1 year of income resulting in:
(i) a company entering or leaving the group with a viable business; and
(ii) a change to the R&D spend of the eligible company for the Y-1, Y-2 or Y-3 year of income.
73U Running averages
(1) The running average for the Y0 year of income is one-third of the sum of the R&D spend of the eligible company for each of the Y-1, Y-2, and Y-3 years of income.
(2) The running average for the Y-1 year of income is one-half of the sum of the R&D spend of the eligible company for each of the 2 years of income before the year for which RA-1 is worked out.
73V Adjustment balance
(1) The adjustment balance is, if the R&D spend of the eligible company for the Y-1 year of income is less than or equal to RA-1:
(2) Otherwise, the adjustment balance is:
reduced by the R&D spend of the eligible company for the Y-1 year of income.
(3) The adjustment balance is zero if:
(a) the eligible company or any of its group members was eligible to claim an additional deduction under section 73Y for the Y-1 year of income; and
(b) there has been no change in the control of the eligible company or any of its group members for the Y0 year of income resulting in:
(i) a company entering or leaving the group with a viable business; and
(ii) a change to the R&D spend of the eligible company for the Y-1, Y-2 or Y-3 year of income.
73W Premium amount
The premium amount of the eligible company, together with each group member for the Y0 year of income, is the R&D spend of the eligible company for the Y0 year of income less:
(a) the running average for the Y0 year of income; and
(b) the adjustment balance.
73X Apportionment between group members
(1) The premium amount is distributed between each of the group members (the increasing members ) that increased its incremental expenditure incurred during its group membership period for the Y0 year of income over its incremental expenditure incurred during its group membership period for the Y-1 year of income.
(2) The amount distributed to each of the increasing members is the percentage of the premium amount represented by that increasing member's increase in incremental expenditure incurred during its group membership period for the Y0 year of income compared to the total amount of increase in incremental expenditure incurred in that year by all of the increasing members during their group membership periods.
(3) If there is only one increasing member for the Y0 year of income, all of the premium amount is distributed to that company.
73Y Additional deduction
(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.
(2) Each of the companies that have all or part of the premium amount distributed to it can deduct the lesser of:
(a) 50% of that amount for the year of income for which it is distributed; or
(b) 50% of the amount of incremental expenditure incurred by the company in the Y0 year of income that is eligible for a deduction under section 73B at the rate of 125%.
Note: The paragraph (2)(b) amount may be less than the paragraph (2)(a) amount because of sections 73C, 73CA or 73CB.
73Z Anti-avoidance
(1) This section applies to a company if:
(a) the company requests an amendment to an assessment for a year of income to reduce the amount of its research and development expenditure for a year of income; and
(b) the Commissioner is of the opinion that the purpose of the proposed amendment is to increase the company's entitlement to a deduction under section 73Y for any year of income.
(2) The amount of that reduction is ignored in working out the company's incremental expenditure for any year of income.