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

34   Section 73Q

Repeal the section, substitute:

73QA Extra deduction for increase in expenditure on Australian owned research and development

Prerequisites for deduction

(1) An eligible company may deduct an amount for the Y0 year of income if:

(a) the company can deduct an amount for that year under subsection 73B(13) or (14) for incremental expenditure incurred in the company's group membership period; and

(b) for each of the Y-1, Y-2 and Y-3 years of income, any of the following conditions is met:

(i) the eligible company could deduct for the year of income an amount under subsection 73B(13) or (14) for expenditure incurred in its group membership period;

(ii) one of the eligible company's other group members could deduct for the year of income an amount under subsection 73B(13) or (14) for expenditure incurred in its group membership period;

(iii) the eligible company received a start grant or commercial ready grant in respect of the year of income;

(iv) one of the eligible company's other group members received a start grant or commercial ready grant in respect of the year of income;

(whether or not the same condition is met for 2 or more of those years, and whether or not a condition is met by the same company for 2 or more of those years); and

(c) the amount (the eligible company's share of the Australian owned part of the adjusted increase in expenditure on R&D by the group ) worked out under subsection (3) is more than zero.

Amount of deduction

(2) The amount of the eligible company's deduction for the Y0 year of income is 50% of the eligible company's share of the Australian owned part of the adjusted increase in expenditure on R&D by the group.

(3) The eligible company's share of the Australian owned part of the adjusted increase in expenditure on R&D by the group is the amount worked out using the formula:

where:

adjusted increase in expenditure on R&D by the group means the amount worked out under section 73RE.

increase in expenditure on Australian owned R&D by the eligible company means the amount worked out under subsection 73RA(1).

net increase in expenditure on Australian owned R&D by the group means the amount worked out under section 73RC.

net increase in expenditure on foreign owned R&D by the group means the amount worked out under section 73RD.

total increase in expenditure on Australian owned R&D by the eligible companies in the group means the amount worked out under subsection 73RA(2).

Note: The amount worked out using the formula will not be more than zero if at least one of the following is zero:

(a) the increase in expenditure on Australian owned R&D by the eligible company;

(b) the net increase in expenditure on Australian owned R&D by the group;

(c) the adjusted increase in expenditure on R&D by the group.

Solitary company may be able to deduct under subsection (1)

(4) To avoid doubt, an eligible company for which there are no other group members may be able to deduct an amount under subsection (1).

Note: For an eligible company for which there are no other group members, the values of the following components of the formula in subsection (3) will all be the same:

(a) the increase in expenditure on Australian owned R&D by the eligible company;

(b) the total increase in expenditure on Australian owned R&D by the eligible companies in the group;

(c) the net increase in expenditure on Australian owned R&D by the group.

73QB Extra deduction for increase in expenditure on foreign owned research and development

Prerequisites for deduction

(1) An eligible company may deduct an amount for the Y0 year of income if:

(a) the company can deduct an amount for that year under subsection 73B(14C) for expenditure incurred in the company's group membership period; and

(b) for each of the Y-1, Y-2 and Y-3 years of income, any of the following conditions is met:

(i) the eligible company could deduct for the year of income an amount under subsection 73B(14C) for expenditure in its group membership period;

(ii) one of the eligible company's other group members could deduct for the year of income an amount under subsection 73B(14C) for expenditure in its group membership period;

(iii) the year of income is one (a nil expenditure year ) for which both the conditions in subsection (2) are met;

(whether or not the same condition in this paragraph is met for 2 or more of those years, and whether or not such a condition is met by the same company for 2 or more of those years); and

(c) the amount (the eligible company's share of the foreign owned part of the adjusted increase in expenditure on R&D by the group ) worked out under subsection (4) is more than zero.

(2) For the purposes of subparagraph (1)(b)(iii), the conditions for a nil expenditure year are as follows:

(a) neither the eligible company nor any other group member (determined under section 73R) of the eligible company existed at any time in the nil expenditure year or the 10 immediately preceding years of income;

(b) at no time in the nil expenditure year or the 10 immediately preceding years of income did any of the following carry on business in Australia:

(i) a foreign company that was grouped under section 73L with the eligible company at any time in the Y0, Y-1, Y-2 or Y-3 year of income;

(ii) a foreign company that was grouped under section 73L with another group member (under section 73R) of the eligible company at any time during the other group member's group membership period (under section 73R);

(iii) a person who was grouped under section 73L with a foreign company described in subparagraph (i) or (ii) at any time in the nil expenditure year or the 10 immediately preceding years of income.

Note: Section 73R provides for:

(a) primary group members to be determined on the basis of the relationship between companies at the end of the Y0 year of income; and

(b) secondary group members to be determined on the basis of the relationship between a company and a primary group member during the primary group member's group membership period (which ends at the end of the Y0 year of income and starts at or after the start of the Y-3 year of income).

Amount of deduction

(3) The eligible company may deduct an amount for the Y0 year of income equal to 75% of the eligible company's share of the foreign owned part of the adjusted increase in expenditure on R&D by the group.

(4) The eligible company's share of the foreign owned part of the adjusted increase in expenditure on R&D by the group is the amount worked out using the formula:

where:

adjusted increase in expenditure on R&D by the group means the amount worked out under section 73RE.

increase in expenditure on foreign owned R&D by the eligible company means the amount worked out under subsection 73RB(1).

net increase in expenditure on Australian owned R&D by the group means the amount worked out under section 73RC.

net increase in expenditure on foreign owned R&D by the group means the amount worked out under section 73RD.

total increase in expenditure on foreign owned R&D by the eligible companies in the group means the amount worked out under subsection 73RB(2).

Note: The amount worked out using the formula will not be more than zero if at least one of the following is zero:

(a) the increase in expenditure on foreign owned R&D by the eligible company;

(b) the net increase in expenditure on foreign owned R&D by the group;

(c) the adjusted increase in expenditure on R&D by the group.

Solitary company may be able to deduct under subsection (1)

(5) To avoid doubt, an eligible company for which there are no other group members may be able to deduct an amount under subsection (1).

Note: For an eligible company for which there are no other group members, the values of the following components of the formula in subsection (4) will all be the same:

(a) the increase in expenditure on foreign owned R&D by the eligible company;

(b) the total increase in expenditure on foreign owned R&D by the eligible companies in the group;

(c) the net increase in expenditure on foreign owned R&D by the group.