Tax Laws Amendment (Research and Development) Act 2011 (93 of 2011)

Schedule 4   Application, savings and transitional provisions

Part 3   Transitional provisions appearing as amendments of other Acts

Income Tax (Transitional Provisions) Act 1997

15   After Division 328

Insert:

Division 355 - Research and Development

Table of Subdivisions

355-D Registration for activities before 2011-12 income year

355-E Balancing adjustments for decline in value deductions for assets used in R&D activities

355-F Integrity rules

355-K Modified application of the old R&D law

355-M Undeducted core technology expenditure

Subdivision 355-D - Registration for activities before 2011-12 income year

Table of sections

355-200 Registration for activities before 2011-12 income year

355-200 Registration for activities before 2011-12 income year

A reference in each of the following provisions of the Income Tax Assessment Act 1997 to a registration under section 27A of the Industry Research and Development Act 1986 includes a reference to a registration under former section 39J of that Act:

(a) paragraph 43-35(a);

(b) subparagraph 355-205(1)(a)(i);

(c) subparagraph 355-215(b)(ii);

(d) subparagraph 355-220(1)(b)(ii);

(e) subparagraph 355-480(1)(a)(i);

(f) paragraph 355-580(1)(b).

Subdivision 355-E - Balancing adjustments for decline in value deductions for assets used in R&D activities

Table of sections

355-320 Balancing adjustment - assets only used for R&D activities

355-325 Balancing adjustment - R&D partnership assets only used for R&D activities

355-320 Balancing adjustment - assets only used for R&D activities

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

(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

(b) the R&D entity cannot deduct an amount under section 40-25 of the Income Tax Assessment Act 1997 (the new Act ), as that section applies apart from:

(i) Division 355 of that Act; and

(ii) former section 73BC of the Income Tax Assessment Act 1936 (the old Act );

for the asset for an income year; and

(c) 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; and

(d) the R&D entity is registered under section 27A of the Industry Research and Development Act 1986 for one or more R&D activities for the event year; and

(e) if Division 40 of the new Act applied as described in subsection (2) of this section:

(i) the R&D entity could deduct for the event year an amount under subsection 40-285(2) of that Act for the asset and the balancing adjustment event; or

(ii) an amount would be included in the R&D entity’s assessable income for the event year under subsection 40-285(1) of that Act for the asset and the balancing adjustment event.

Note 1: 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 (the new law deductions ) under section 355-305 of that Act for the asset.

Note 2: Section 40-292 of this Act may apply if paragraph (c), but not paragraph (b), of this subsection is satisfied.

Changed application of Division 40

(2) For the purposes of paragraph (1)(e), assume that Division 40 of the new Act applied with the changes described in section 355-310 of that Act, but with these changes to that section:

Notional deduction

(3) If the R&D entity could deduct for the event year an amount under subsection 40-285(2) of the new Act for:

(a) the asset; and

(b) the event;

if Division 40 of that Act applied as described in subsection (2) of this section, the R&D entity is taken to be able to deduct under subsection 355-315(2) of the new Act that amount for the event year.

Note: The R&D entity may be entitled to a tax offset under section 355-100 (about R&D) of the new Act for the deduction.

Amount to be included in assessable income

(4) If an amount (the section 40-285 amount ) would be included in the R&D entity’s assessable income for the event year under subsection 40-285(1) of the new Act for the asset and the event if Division 40 of that Act applied as described in subsection (2) of this section, the sum of:

(a) that amount; and

(b) the following amount;

is taken to be included in the R&D entity’s assessable income for the event year under subsection 355-315(3) of the new Act:

where:

adjusted section 40-285 amount means 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 asset’s cost, less its adjustable value, worked out under Division 40 of the new Act as it applies as described in subsection (2).

Normal rules do not apply for the asset and the event

(5) Neither of the following sections:

(a) section 355-315 of the new Act;

(b) former section 73BF of the old 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: Section 355-315 of the new Act would otherwise apply for the event in a case where the R&D entity had new law deductions.

Note 2: Former section 73BF of the old Act would otherwise apply for the event in respect of the old law deductions.

355-325 Balancing adjustment - R&D partnership assets only used for R&D activities

Partner has old law R&D decline in value deductions

(1) This section applies to an R&D entity (the partner ) 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 an R&D partnership; and

(b) the R&D partnership cannot deduct an amount under section 40-25, as that section applies apart from:

(i) Division 355 of the Income Tax Assessment Act 1997 (the new Act ); and

(ii) former section 73BC of the Income Tax Assessment Act 1936 (the old Act );

for the asset for an income year; and

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

(i) the partner 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 partner 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; and

(d) the partner is registered under section 27A of the Industry Research and Development Act 1986 for one or more R&D activities for the event year; and

(e) if Division 40 of the new Act applied as described in subsection (2) of this section:

(i) the R&D partnership could deduct for the event year an amount under subsection 40-285(2) of that Act for the asset and the balancing adjustment event; or

(ii) an amount would be included in the R&D partnership’s assessable income for the event year under subsection 40-285(1) of that Act for the asset and the balancing adjustment event.

Note 1: This section applies even if the partner 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 355-520 of that Act for the asset.

Note 2: Section 40-293 of this Act may apply if paragraph (c), but not paragraph (b), of this subsection is satisfied.

Changed application of Division 40

(2) For the purposes of paragraph (1)(e), assume that Division 40 of the new Act applied with the changes described in section 355-310 of that Act, but with these changes to that section:

Notional deduction

(3) If the R&D partnership could deduct for the event year an amount under subsection 40-285(2) of the new Act for:

(a) the asset; and

(b) the event;

if Division 40 of that Act applied as described in subsection (2) of this section, the partner is taken to be able to deduct under subsection 355-525(2) of the new Act the partner’s proportion of that amount for the event year.

Note: The partner may be entitled to a tax offset under section 355-100 (about R&D) of the new Act for the deduction.

Amount to be included in assessable income

(4) If an amount (the section 40-285 amount ) would be included in the R&D partnership’s assessable income for the event year under subsection 40-285(1) of the new Act for the asset and the event if Division 40 of that Act applied as described in subsection (2) of this section, the sum of:

(a) the partner’s proportion of that amount; and

(b) the following amount;

is taken to be included in the partner’s assessable income for the event year under subsection 355-525(3) of the new Act:

where:

adjusted section 40-285 amount means 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 partner’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 asset’s cost, less its adjustable value, worked out under Division 40 of the new Act as it applies as described in subsection (2).

Normal rules do not apply for the asset and the event

(5) Neither of the following sections:

(a) section 355-525 of the new Act;

(b) former section 73BF of the old 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 partner for the event, do so apply to the partner for the event.

Note 1: Section 355-525 of the new Act would otherwise apply for the event in a case where the partner had new law deductions.

Note 2: Former section 73BF of the old Act may otherwise apply for the event in respect of the old law deductions.

355-340 Balancing adjustment - tax exempt entities that become taxable

Item 7 of the table in subsection 57-110(2) in Schedule 2D to the Income Tax Assessment Act 1936 applies as if the deduction rules set out in the final column of that item also included former sections 73BA and 73BH of the Income Tax Assessment Act 1936.

Subdivision 355-F - Integrity rules

Table of sections

355-415 Expenditure reduced to reflect group mark-ups

355-415 Expenditure reduced to reflect group mark-ups

For the purposes of step 1 of the method statement in subsection 355-415(2) of the Income Tax Assessment Act 1997, also disregard amounts that have already been taken into account under former subsection 73B(14AA) of the Income Tax Assessment Act 1936 for the R&D entity, the grouped entity and the R&D activities for an earlier income year.

Subdivision 355-K - Modified application of the old R&D law

Table of sections

355-550 Prepayments of R&D expenditure extending into the 2011-12 income year

355-550 Prepayments of R&D expenditure extending into the 2011-12 income year

Advance R and D expenditure

(1) This section applies if, apart from former paragraph 73B(10)(a) of the Income Tax Assessment Act 1936, an eligible company could deduct advance R and D expenditure in one or more income years commencing on or after 1 July 2011.

Note: That deduction would be under former section 73B of that Act as that former section applies because of Part 2 of Schedule 4 to the Tax Laws Amendment (Research and Development) Act 2011.

Other prepayments of R&D expenditure

(2) This section also applies if:

(a) apart from Subdivision H (prepaid expenditure) of Division 3 of Part III of the Income Tax Assessment Act 1936, an eligible company can deduct an amount under former section 73B, 73BA, 73BH, 73QA, 73QB or 73Y of that Act for an income year commencing before 1 July 2011; and

(b) that Subdivision applies to the calculation of that amount; and

(c) apart from former paragraph 73B(10)(a) of that Act, the eligible company could deduct an amount, as a result of that application of that Subdivision, for an income year commencing on or after 1 July 2011.

Note: That deduction would be under that Act as it applies because of Part 2 of Schedule 4 to the Tax Laws Amendment (Research and Development) Act 2011.

Changed registration requirement

(3) Former paragraph 73B(10)(a) of that Act is taken to apply to those income years commencing on or after 1 July 2011 as if the reference in that former paragraph to section 39J of the Industry Research and Development Act 1986 were a reference to section 27A of that Act.

Meaning of expressions

(4) An expression used in this section that is also used in former section 73B of the Income Tax Assessment Act 1936 has the same meaning in this section as it has in that former section.

Subdivision 355-M - Undeducted core technology expenditure

Table of sections

355-600 Scope

355-605 Core technology that is a depreciating asset

355-610 Core technology that is not a depreciating asset

355-600 Scope

This Subdivision applies to core technology (within the meaning of former section 73B of the Income Tax Assessment Act 1936) if:

(a) you incurred core technology expenditure (within the meaning of that former section) in an income year commencing before 1 July 2011 in relation to the core technology under one or more contracts entered into at or after the time referred to in former subsection 73B(12) of that Act; and

(b) that expenditure (the undeducted expenditure ) cannot be deducted for the last income year commencing before 1 July 2011.

355-605 Core technology that is a depreciating asset

This section only applies for deductions under Division 40

(1) This section applies for the purposes of Division 40 of the Income Tax Assessment Act 1997, other than sections 40-292 and 40-293 of that Act, if the core technology (the asset ) is a depreciating asset.

(2) Disregard this section, including its effect on the amount you can deduct under section 40-25 of that Act for the asset, for the purposes of working out:

(a) a deduction under any other Division of that Act for any income year; and

(b) a tax offset under any other Division of that Act for any income year.

Changes made by this section

(3) The asset’s opening adjustable value for the first income year that commences on or after 1 July 2011 (the first new income year ) is equal to the amount of the undeducted expenditure.

(4) Subsection 40-75(2) of the Income Tax Assessment Act 1997 applies to the asset as if the first new income year were a change year (within the meaning of that subsection).

355-610 Core technology that is not a depreciating asset

If the core technology is not a depreciating asset, you can deduct the undeducted expenditure in equal proportions over a period of 5 income years starting in the first income year commencing on or after 1 July 2011.