Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Act 2020 (92 of 2020)

Schedule 5   Enhancing the integrity of the R&D Tax Incentive

Part 2   R&D clawback and catch up amounts

Income Tax Assessment Act 1997

29   Subdivisions 355-G and 355-H

Repeal the Subdivisions, substitute:

Subdivision 355-G - Clawback of R &D recoupments, feedstock adjustments and balancing adjustments

Guide to Subdivision 355-G

355-430 What this Subdivision is about

An amount is included in an R&D entity's assessable income if:

(a) the R&D entity receives a recoupment from government of expenditure on R&D activities for which it has obtained tax offsets under this Division; or

(b) the R&D entity can deduct under this Division expenditure on goods, materials or energy used during R&D activities to produce marketable products or products applied to the R&D entity's own use; or

(c) a balancing adjustment event happens for an asset held by the R&D entity (or an R&D partnership in which the R&D entity is a partner) for which tax offsets have been obtained under this Division and for which an amount is otherwise included in the R&D entity's (or R&D partnership's) assessable income.

Table of sections

Operative provisions

355-435 When this Subdivision applies

355-440 R&D recoupments

355-445 Feedstock adjustments

355-446 Balancing adjustments for assets only used for R&D activities

355-447 Balancing adjustments for assets partially used for R&D activities

355-448 Balancing adjustments for R&D partnership assets only used for R&D activities

355-449 Balancing adjustments for R&D partnership assets partially used for R&D activities

355-450 Amount to be included in assessable income

Operative provisions

355-435 When this Subdivision applies

This Subdivision applies to an *R&D entity for an income year (the present year ) if:

(a) the R&D entity has an amount (a clawback amount ) under section 355-440, 355-445, 355-446, 355-447, 355-448 or 355-449 for the present year; and

(b) the R&D entity has received, or is entitled to receive, a *tax offset under section 355-100 for one or more income years (each an offset year ) in relation to that clawback amount.

355-440 R &D recoupments

(1) The *R&D entity has an amount under this section if:

(a) the entity, or another entity mentioned in subsection (5), receives or becomes entitled to receive a *recoupment from either of the following (otherwise than under the *CRC program):

(i) an *Australian government agency;

(ii) an STB (within the meaning of Division 1AB of Part III of the Income Tax Assessment Act 1936); and

(b) the recoupment is received, or the entitlement to receive the recoupment arises, during the present year; and

(c) either:

(i) the recoupment is of expenditure incurred on or in relation to certain activities; or

(ii) the recoupment requires expenditure (the project expenditure ) to have been incurred, or to be incurred, on certain activities.

Note: Paragraph (c) includes expenditure incurred in purchasing a tangible depreciating asset to be used when conducting R&D activities.

(2) The amount is equal to the sum of:

(a) so much of the expenditure referred to in subsection (1) that is deducted under this Division; and

(b) for each asset (if any) for which expenditure referred to in subsection (1) is included in the asset's *cost - each amount (if any) equal to the asset's decline in value that is deducted under this Division;

that is taken into account in working out *tax offsets under section 355-100 obtained by the *R&D entity for one or more income years.

Note: Paragraphs (a) and (b) of this subsection refer to amounts notionally deducted under this Division (see section 355-105).

Amount is reduced by any repayments of the recoupment

(3) For the purposes of subsection (2), reduce the expenditure referred to in subparagraph (1)(c)(i) by any repayments of the *recoupment during an income year.

Cap on extra income tax if recoupment relates to a project

(4) Despite subsection (2), if the *recoupment is covered by subparagraph (1)(c)(ii), the amount mentioned in subsection (2) for the present year cannot exceed the amount worked out using the following formula:

where:

net amount of the recoupment means the total amount of the *recoupment, less any repayments of the recoupment during an income year.

R &D expenditure means the amount mentioned in subsection (2), disregarding subsection (3).

Related entities

(5) The other entities for the purposes of paragraph (1)(a) are as follows:

(a) an entity *connected with the *R&D entity;

(b) an *affiliate of the R&D entity or an entity of which the R&D entity is an affiliate.

355-445 Feedstock adjustments

(1) The *R&D entity has an amount under this section if:

(a) it incurs expenditure in one or more income years in acquiring or producing goods, or materials, (the feedstock inputs ) transformed or processed during *R&D activities in producing one or more tangible products (the feedstock outputs ); and

(b) it obtains under section 355-100 *tax offsets for one or more income years (each an offset year ) for deductions under this Division:

(i) for the expenditure; or

(ii) for expenditure it incurs on any energy input directly into the transformation or processing; or

(iii) for the decline in value of assets used in acquiring or producing the feedstock inputs; and

(c) during the present year, a feedstock output, or a transformed feedstock output, (the marketable product ), is:

(i) *supplied by the R&D entity to another entity; or

(ii) applied by the R&D entity to the R&D entity's own use, other than use for the purpose of transforming that product for supply.

(2) The amount is equal to the lesser of:

(a) the *feedstock revenue for the feedstock output; and

(b) so much of the total of the amounts deducted as described in paragraph (1)(b) as is reasonably attributable to the production of the feedstock output.

(3) Subsection (2) does not apply to the feedstock output if:

(a) it becomes, or is transformed into, a feedstock input; or

(b) that subsection already applies to the feedstock output because of the application of paragraph (1)(c) to:

(i) an earlier time during the present year; or

(ii) an earlier income year.

(4) The feedstock revenue , for the feedstock output, is worked out using the following formula:

where:

market value of the marketable product means the marketable product's *market value at the time it is:

(a) *supplied by the *R&D entity to the other entity; or

(b) first applied by the R&D entity to the R&D entity's own use, other than use for the purpose of transforming that product for supply.

(5) This section applies to a *supply or use of the marketable product by:

(a) an entity *connected with the *R&D entity; or

(b) an *affiliate of the R&D entity or an entity of which the R&D entity is an affiliate;

as if it were by the R&D entity.

355-446 Balancing adjustments for assets only used for R &D activities

(1) The *R&D entity has an amount under this section if:

(a) a *balancing adjustment event happens in the present year for an asset *held by the R&D entity; and

(b) the R&D entity cannot deduct, for the asset for an income year, an amount under section 40-25 as that section applies apart from:

(i) this Division; and

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

(c) the R&D entity is entitled under section 355-100 to *tax offsets for one or more income years for deductions under section 355-305 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 present year; and

(e) an amount (the section 40-285 amount ) is included in the R&D entity's assessable income for the present year under subsection 355-315(3) for the asset and the balancing adjustment event.

Note 1: This section applies in a modified way if the entity also has deductions for the asset under former section 73BA or 73BH of the Income Tax Assessment Act 1936 (see section 355-320 of the Income Tax (Transitional Provisions) Act 1997).

Note 2: Section 40-292 applies if the entity can deduct an amount under section 40-25, as that section applies apart from this Division and former section 73BC of the Income Tax Assessment Act 1936.

(2) The amount is so much of an amount equal to the section 40-285 amount as does not exceed the difference between:

(a) the asset's *cost; and

(b) the asset's *adjustable value, worked out under Division 40 as if that Division applied with the changes described in section 355-310.

355-447 Balancing adjustments for assets partially used for R &D activities

(1) The *R&D entity has an amount under this section if:

(a) a *balancing adjustment event happens in the present year for an asset *held by the R&D entity and for which:

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

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

(b) the R&D entity is entitled under section 355-100 to *tax offsets for one or more income years for deductions (the R &D deductions ) under section 355-305 for the asset; and

(c) an amount (the section 40-285 amount ) is included in the R&D entity's assessable income for the asset under section 40-285 (after applying subsection 40-292(2)) for the present year.

Note: This section applies in a modified way if you have deductions for the asset under former section 73BA or 73BH of the Income Tax Assessment Act 1936 (see section 40-292 of the Income Tax (Transitional Provisions) Act 1997).

(2) The amount is worked out as follows:

where:

adjusted section 40-285 amount means so much of an amount equal to the section 40-285 amount as does not exceed the total decline in value.

total decline in value means the *cost of the asset less its *adjustable value.

355-448 Balancing adjustments for R &D partnership assets only used for R &D activities

(1) The *R&D entity (the partner ) has an amount under this section if:

(a) the partner is a partner in an *R&D partnership; and

(b) a *balancing adjustment event happens in the present year for an asset *held by the R&D partnership; and

(c) the R&D partnership cannot deduct, for the asset for an income year, an amount under section 40-25, as that section applies apart from:

(i) this Division; and

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

(d) the partner is entitled under section 355-100 to *tax offsets for one or more income years for deductions under section 355-520 for the asset; and

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

(f) an amount (the section 40-285 amount ) would, as mentioned in subsection 355-525(3), be included in the R&D partnership's assessable income for the present year for the asset and the balancing adjustment event.

Note 1: This section applies in a modified way if the partner has deductions for the asset under former section 73BA or 73BH of the Income Tax Assessment Act 1936 (see section 355-325 of the Income Tax (Transitional Provisions) Act 1997).

Note 2: Section 40-293 applies if the R&D partnership can deduct an amount under section 40-25, as that section applies apart from this Division and former section 73BC of the Income Tax Assessment Act 1936.

(2) The amount is the partner's proportion of the amount that is so much of an amount equal to the section 40-285 amount as does not exceed the difference between:

(a) the asset's *cost; and

(b) the asset's *adjustable value, worked out under Division 40 as if that Division applied with the changes described in section 355-310.

355-449 Balancing adjustments for R &D partnership assets partially used for R &D activities

(1) The *R&D entity (the partner ) has an amount under this section if:

(a) the partner is a partner in an *R&D partnership; and

(b) a *balancing adjustment event happens in the present year for a *depreciating asset *held by the R&D partnership and for which:

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

(c) one or more partners (including the partner) in the R&D partnership are entitled under section 355-100 to *tax offsets for one or more income years for deductions under section 355-520 for the asset; and

(d) an amount (the section 40-285 amount ) is included in the R&D partnership's assessable income for the asset under section 40-285 (after applying subsection 40-293(2)) for the present year.

(2) The amount is the partner's proportion of the amount worked out as follows:

where:

adjusted section 40-285 amount means so much of an amount equal to the section 40-285 amount as does not exceed the total decline in value.

total decline in value means the *cost of the asset less its *adjustable value.

total R &D deductions means the sum of each partner's deductions mentioned in paragraph (1)(c) of this section.

355-450 Amount to be included in assessable income

(1) The *R&D entity must include, in the entity's assessable income for the present year, the sum of the following amounts for each offset year relating to the clawback amount:

where:

adjusted offset means the *tax offset the R&D entity would have received under section 355-100 for the offset year if the total amount mentioned in subsection 355-100(1) for that tax offset were reduced by the portion of the clawback amount that is attributable to the offset year.

deduction amount means the portion of the clawback amount that is attributable to the offset year, multiplied by the R&D entity's *corporate tax rate for the offset year.

starting offset means the amount of the *tax offset the R&D entity has received, or is entitled to receive, under section 355-100 for the offset year.

(2) However, if this section, or section 355-475, has previously applied (whether in the present year or an earlier income year) in relation to another clawback amount, or catch up amount, the *R&D entity has that relates to the offset year, subsection (1) of this section applies as if:

(a) the starting offset were the *tax offset the R&D entity would have received under section 355-100 for the offset year if the total amount mentioned in subsection 355-100(1) were:

(i) decreased by the sum of the portions of any such other clawback amounts that are attributable to the offset year; and

(ii) increased by the sum of the portions of any such other catch up amounts that are attributable to the offset year; and

(b) the reference to the "total amount" in the definition of adjusted offset were a reference to that amount as so adjusted.

Subdivision 355-H - Catch up deductions for balancing adjustment events for assets used for R &D activities

Guide to Subdivision 355-H

355-455 What this Subdivision is about

An R&D entity can deduct an amount under this Subdivision if:

(a) a balancing adjustment event happens for an asset held by the R&D entity (or an R&D partnership in which the R&D entity is a partner); and

(b) tax offsets have been obtained under this Division for deductions for the asset; and

(c) the R&D entity (or the R&D partnership) can otherwise deduct an amount for the asset and the balancing adjustment event.

Table of sections

Operative provisions

355-460 When this Subdivision applies

355-465 Assets only used for R&D activities

355-466 Assets partially used for R&D activities

355-467 R&D partnership assets only used for R&D activities

355-468 R&D partnership assets partially used for R&D activities

355-475 Amount that can be deducted

Operative provisions

355-460 When this Subdivision applies

This Subdivision applies to an *R&D entity for an income year (the present year ) if:

(a) the R&D entity has an amount (a catch up amount ) under section 355-465, 355-466, 355-467 or 355-468 for an asset for the present year; and

(b) the R&D entity has received, or is entitled to receive, a *tax offset under section 355-100 for one or more income years (each an offset year ) in relation to the asset.

355-465 Assets only used for R &D activities

(1) The *R&D entity has an amount under this section if:

(a) a *balancing adjustment event happens in the present year for an asset *held by the R&D entity; and

(b) the R&D entity cannot deduct, for the asset for an income year, an amount under section 40-25 as that section applies apart from:

(i) this Division; and

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

(c) the R&D entity is entitled under section 355-100 to *tax offsets for one or more income years for deductions under section 355-305 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 present year; and

(e) the R&D entity can deduct, for the present year, an amount under subsection 355-315(2) for the asset and the balancing adjustment event.

Note 1: This section applies in a modified way if the entity also has deductions for the asset under former section 73BA or 73BH of the Income Tax Assessment Act 1936 (see section 355-320 of the Income Tax (Transitional Provisions) Act 1997).

Note 2: Section 40-292 applies if the entity can deduct an amount under section 40-25, as that section applies apart from this Division and former section 73BC of the Income Tax Assessment Act 1936.

(2) The amount is an amount equal to the amount mentioned in paragraph (1)(e).

355-466 Assets partially used for R &D activities

(1) The *R&D entity has an amount under this section if:

(a) a *balancing adjustment event happens in the present year for an asset *held by the R&D entity for which:

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

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

(b) the R&D entity is entitled under section 355-100 to *tax offsets for one or more income years for deductions (the R &D deductions ) under section 355-305 for the asset; and

(c) the R&D entity can deduct an amount (the section 40-285 amount ) for the asset under section 40-285(after applying subsection 40-292(2)) for the present year.

Note: This section applies in a modified way if you have deductions for the asset under former section 73BA or 73BH of the Income Tax Assessment Act 1936 (see section 40-292 of the Income Tax (Transitional Provisions) Act 1997).

(2) The amount is worked out as follows:

where:

total decline in value means the *cost of the asset less its *adjustable value.

355-467 R &D partnership assets only used for R &D activities

(1) The *R&D entity (the partner ) has an amount under this section if:

(a) the partner is a partner in an *R&D partnership; and

(b) a *balancing adjustment event happens in the present year for an asset *held by the *R&D partnership; and

(c) the R&D partnership cannot deduct, for the asset for an income year, an amount under section 40-25, as that section applies apart from:

(i) this Division; and

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

(d) the partner is entitled under section 355-100 to *tax offsets for one or more income years for deductions under section 355-520 for the asset; and

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

(f) the partner can deduct an amount under subsection 355-525(2) for the present year for the asset and the balancing adjustment event.

(2) The amount is an amount equal to the amount mentioned in paragraph (1)(f).

355-468 R &D partnership assets partially used for R &D activities

(1) The *R&D entity (the partner ) has an amount under this section if:

(a) the partner is a partner in an *R&D partnership; and

(b) a *balancing adjustment event happens in the present year for a *depreciating asset *held by the R&D partnership and for which:

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

(c) one or more partners (including the partner) in the R&D partnership are entitled under section 355-100 to *tax offsets for one or more income years for deductions under section 355-520 for the asset; and

(d) the R&D partnership can deduct an amount (the section 40-285 amount ) for the asset under section 40-285 (after applying subsection 40-293(2)) for the present year.

Note: This section applies in a modified way if the partners have deductions for the asset under former section 73BA or 73BH of the Income Tax Assessment Act 1936 (see section 40-293 of the Income Tax (Transitional Provisions) Act 1997).

(2) The amount is the partner's proportion of the amount worked out as follows:

where:

total decline in value means the *cost of the asset less its *adjustable value.

total R &D deductions means the sum of each partner's deductions mentioned in paragraph (1)(c) of this section.

355-475 Amount that can be deducted

(1) The *R&D entity can deduct, for the present year, the sum of the following amounts for each offset year relating to the catch up amount:

where:

adjusted offset means the *tax offset the R&D entity would have received under section 355-100 for the offset year if the total amount mentioned in subsection 355-100(1) for that tax offset were increased by the portion of the catch up amount that is attributable to the offset year.

deduction amount means the portion of the catch up amount that is attributable to the offset year, multiplied by the R&D entity's *corporate tax rate for the offset year.

starting offset means the amount of the *tax offset the R&D entity has received, or is entitled to receive, under section 355-100 for the offset year.

Note: A deduction under this subsection is not a notional deduction: see subsection 355-105(2).

(2) However, if this section, or section 355-450, has previously applied (whether in the present year or an earlier income year) in relation to another catch up amount, or clawback amount, the *R&D entity has that relates to the offset year, subsection (1) of this section applies as if:

(a) the starting offset were the *tax offset the R&D entity would have received under section 355-100 for the offset year if the total amount mentioned in subsection 355-100(1) were:

(i) increased by the sum of the portions of any such other catch up amounts that are attributable to the offset year; and

(ii) decreased by the sum of the portions of any such other clawback amounts that are attributable to the offset year; and

(b) the reference to the "total amount" in the definition of adjusted offset were a reference to that amount as so adjusted.