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

12   After section 40-290

Insert:

40-292 Balancing adjustment - assets used for both general tax purposes and 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:

(i) the R&D entity can deduct, for an income year, an amount under section 40-25 of the Income Tax Assessment Act 1997 (the new Act ), as that section applies apart from Division 355 of that Act and former section 73BC of the Income Tax Assessment Act 1936 (the old Act ); or

(ii) the R&D entity could have deducted, for an income year, an amount as described in subparagraph (i) if it had used the asset; and

(b) 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.

Note: 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 under section 355-305 of that Act for the asset.

Section 40-290 to be applied as if use for carrying on R&D activities were use for a taxable purpose

(2) In applying section 40-290 of the new Act (including references in that section to the reduction of deductions under section 40-25 of that Act) in relation to the asset, assume that using the asset for a taxable purpose includes using it for:

(a) the purpose of the carrying on, by or on behalf of the R&D entity, of the research and development activities (within the meaning of former section 73B of the old Act) to which the old law deductions relate; or

(b) 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 - the purpose of conducting the R&D activities to which the new law deductions relate.

Increase in amounts deductible or assessable under section 40-285

(3) Any amount (the section 40-285 amount ):

(a) that the R&D entity can deduct for the asset under section 40-285 of the new Act (after applying subsection (2) of this section) for the event year; or

(b) that is included in the R&D entity’s assessable income for the asset under section 40-285 of the new Act (after applying subsection (2) of this section) for the event year;

is taken to be increased under section 40-292 of the new Act by the following amount:

where:

adjusted section 40-285 amount means:

(a) if the section 40-285 amount is a deduction - the amount of the deduction; or

(b) if the section 40-285 amount is an amount included in the R&D entity’s assessable income - 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 cost of the asset less its adjustable value.

Normal rules do not apply for the asset and the event

(4) Neither of the following sections:

(a) section 40-292 of the new Act (as amended by the Tax Laws Amendment (Research and Development) Act 2011);

(b) section 40-292 of the new 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: The section 40-292 of the new Act mentioned in paragraph (a) would otherwise apply for the event in a case where the R&D entity had new law deductions.

Note 2: The section 40-292 of the new Act mentioned in paragraph (b) would otherwise apply for the event in respect of the old law deductions.

40-293 Balancing adjustment - partnership assets used for both general tax purposes and R&D activities

Partners have old law R&D decline in value deductions

(1) This section applies to an R&D partnership 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 partnership and:

(i) the R&D partnership can deduct, for an income year, an amount under section 40-25 of the Income Tax Assessment Act 1997 (the new Act ), as that section applies apart from Division 355 of that Act and former section 73BC of the Income Tax Assessment Act 1936 (the old Act ); or

(ii) the R&D partnership could have deducted, for an income year, an amount as described in subparagraph (i) if it had used the asset; and

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

(i) one or more partners of the R&D partnership can deduct (the old law deductions ) under former section 73BA or 73BH of the old Act amounts for one or more income years for the asset;

(ii) one or more partners of the R&D partnership choose 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.

Note: This section applies even if the partners are entitled under section 355-100 of the new Act to tax offsets for one or more income years for deductions under section 355-520 of that Act for the asset.

Section 40-290 to be applied as if use for carrying on R&D activities were use for a taxable purpose

(2) In applying section 40-290 of the new Act (including references in that section to the reduction of deductions under section 40-25 of that Act) in relation to the asset, assume that using the asset for a taxable purpose includes using it for:

(a) the purpose of the carrying on, by or on behalf of the R&D partnership, of the research and development activities (within the meaning of former section 73B of the old Act) to which the old law deductions relate; or

(b) if one or more partners of the R&D partnership are 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 - the purpose of conducting the R&D activities to which the new law deductions relate.

Increase in amounts deductible or assessable under section 40-285

(3) Any amount (the section 40-285 amount ):

(a) that the R&D partnership can deduct for the asset under section 40-285 of the new Act (after applying subsection (2) of this section) for the event year; or

(b) that is included in the R&D partnership’s assessable income for the asset under section 40-285 of the new Act (after applying subsection (2) of this section) for the event year;

is taken to be increased under section 40-293 of the new Act by the following amount:

where:

adjusted section 40-285 amount means:

(a) if the section 40-285 amount is a deduction - the amount of the deduction; or

(b) if the section 40-285 amount is an amount included in the R&D partnership’s assessable income - 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 partners’ 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 cost of the asset less its adjustable value.

Normal rules do not apply for the asset and the event

(4) Section 40-293 of the new Act, to the extent that it would otherwise apply apart from this section to the R&D partnership or its partners for the event, does not so apply to the R&D partnership and the partners for the event.

Note: Section 40-293 of the new Act would otherwise apply for the event in a case where the partners had new law deductions.