A T O home
Legal Database
Search   
for 
 
Access the database 
Browse database
Searches  
View last document
Quick access 
View legislation
View a document
Email Cross Reference Material Previous/Next Section Contents Previous/Next Result
Printable version
Printable
version

ATO Interpretative Decision

ATO ID 2004/569 (Withdrawn)

Income Tax
Research and Development: application of clawback against other and core technology expenditure incurred on unregistered research and development activities

Attention This ATO ID is withdrawn because it concerns provisions of the Income Tax Assessment Act 1936 (ITAA 1936) that do not apply after the 2011 income year. Section 73D of the ITAA 1936 was repealed on 14 September 2006 and sections 73B and 73C were repealed on 30 June 2011. Despite its withdrawal, this ATO ID continues to be a precedential ATO view in respect of decisions for income years up to, and including, the 2011 income year.
Attention This document has changed over time. View its history.
FOI status: may be released
Status of this decision: Decision withdrawn 3 March 2017.

CautionCAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.


Issue

Can expenditure incurred by an eligible company on 'research and development activities', for which registration has not been obtained with the Industry, Research and Development Board, be 'relevant expenditure' for the purposes of section 73C of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision

Yes. Expenditure incurred by an eligible company on 'research and development' activities that formed or form part of a particular project carried on by or on behalf of the eligible company, will be 'relevant expenditure' for the purposes of section 73C of the ITAA 1936.

Facts

The taxpayer is an 'eligible company' as defined in subsection 73B(1) of the ITAA 1936. The company commenced a project of 'research and development activities' (as defined in subsection 73B(1) of the ITAA 1936) in the 2000 year of income and incurred expenditure on these activities, including core technology and other expenditure.

The company did not obtain registration with the Industry, Research and Development Board for the 'research and development activities' undertaken in the 2000 year of income. The company made no claim for the research and development tax concession in this year.

The company continued with the project in the 2001 year of income, and registered the 'research and development activities' for this year, with the Industry, Research and Development Board. Expenditure was also incurred on these activities in that year.

In the 2001 year of income, the company applied for and was awarded a grant in relation to the project. Grant instalment payments were received during the 2001 year of income.

Note that the rule in sub-subparagraph 73C(7)(c)(i)(A) of the ITAA 1936 means that the initial clawback amount, calculated as twice the amount of the grant, is applied firstly to the company's relevant expenditure in the 2001 year of income, being the year ('the receipt or entitlement to receipt year') in which the company first either received, or became entitled to receive, the underlying grant amount. After applying this rule, there is part of the initial clawback amount still remaining.

Sub-subparagraph 73C(7)(c)(i)(B) of the ITAA 1936 and subparagraph 73C(7)(c)(iii) of the ITAA 1936 then require that any remaining part of the company's initial clawback amount, be next applied to relevant expenditure the company has incurred in the year of income before the 'receipt or entitlement to receipt year'. In this case, that year of income is the 2000 year of income.

Reasons for Decision

Section 73C of the ITAA 1936 deals with situations where an eligible company has received, or become entitled to receive, a recoupment of, or a grant in respect of, expenditure it has incurred on research and development activities that formed or form part of a particular project carried on by or on behalf of the company. In subsection 73C(2) of the ITAA 1936 this expenditure is referred to as 'relevant expenditure'.

Under section 73C of the ITAA 1936 the company needs to take account of the amount of the recoupment or grant in calculating the amount of certain deductions it may be able to claim at concessional rates, under section 73B of the ITAA 1936.

Under paragraph 73C(3)(b) of the ITAA 1936, the amount of the recoupment or grant is doubled to produce what is called 'the initial clawback amount'. The precise application of the initial clawback amount in reducing the amount of the company's expenditure on research and development activities that is able to be claimed at a concessional rate (for example, at a 125% under subsection 73B(14) of the ITAA 1936), depends on whether this expenditure was incurred partly before and partly on or after 21 November 1987, or wholly on or after 21 November 1987, as in this case.

The company incurred expenditure during the 2000 year of income on core technology and other expenditure. This expenditure was incurred in relation to 'research and development activities' as defined in subsection 73B(1) of the ITAA 1936, which formed part of a project. In this regard, refer Taxation Determination TD 98/1.

Although the purpose of section 73C of the ITAA 1936 is to apply amounts of recoupment or grants in reducing an eligible company's expenditure on research and development activities able to be claimed at concessional rates (refer subsections 73C(8) and 73C(9) of the ITAA 1936), there is no requirement that 'relevant expenditure', in this case being core technology and other expenditure, has to give rise to deductible amounts or be deductible at a concessional rate.

Accordingly, notwithstanding that the company did not obtain registration with the Industry, Research and Development Board in respect of its activities in the 2000 year of income, as those activities form part of the same project as is being undertaken in the 2001 year of income, expenditure on those activities in the 2000 year of income also qualifies as 'relevant expenditure'. Therefore, any remaining clawback amount after application against relevant expenditure in the 2001 year of income shall be applied against the company's expenditure in the 2000 year of income even though, as no concessional deductions have been claimed in the 2000 year of income, the application of this remaining clawback amount, of itself, results in no reduction in deductions.

Date of decision: 17 June 2004

Year of income:Year ended 30 June 2000
 Year ended 30 June 2001

Legislative references:
Income Tax Assessment Act 1936
   section 73B
   subsection 73B(1)
   subsection 73B(14)
   subsection 73B(10)
   section 73C
   section 73C(2)
   section 73C(3)
   paragraph 73C(3)(b)
   subsection 73C(7)
   subparagraph 73C(7)(c)(iii)
   sub-subparagraph 73C(7)(i)(A)
   sub-subparagraph 73C(7)(i)(B)
   subsection 73C(8)
   subsection 73C(9)

Related Public Rulings (including Determinations)
Taxation Determination TD 98/1

Related ATO Interpretative Decisions
ATO ID 2004/567
ATO ID 2004/568

Keywords
Research & development expenditure recoupment

Siebel/TDMS reference number: 3265207; 1-9N72KXS

Business line: Public Groups and International

Date of publication: 9 July 2004

ISSN: 1445-2782

ATO ID 2004/569 (Withdrawn) history   Top  
   Date   Version 
   17 June 2004   Original statement   
 You are here ®   3 March 2017   Withdrawn   


 


Top of page
More information on page