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ATO Interpretative Decision

ATO ID 2006/122 (Withdrawn)

Income Tax
Assessable income: derivation of Commonwealth funding - Cooperative Research Centres (CRC) Programme

Attention This ATO ID is withdrawn. The view, and authority relied upon in the ATO ID are current. Taxation Ruling TR 2006/3 Income tax: government payments to industry to assist entities (including individuals) to continue, commence or cease business expresses the ATO view in respect to the derivation and taxation treatment of government grants in connection to a business which is commenced, carried on, or ceased by the taxpayer.
Attention This document has changed over time. View its history.
FOI status: may be released
Status of this decision: Decision withdrawn 17 November 2017.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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.


Are instalments paid to a taxpayer (CRC Company) under the Commonwealth Agreements for the 2004 and 2006 Selection Rounds of the CRC Programme (the Agreements), derived at the time of receipt for the purposes of section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?


No. Instalments paid to a CRC Company under the Agreements are not derived for the purposes of section 6-5 of the ITAA 1997 until applied toward the conduct of the 'Activities', as specified in the Agreements.


The CRC Company will be paid a grant from the Commonwealth in instalments, upon the terms and conditions for CRCs established under the 2004 and 2006 Selection Rounds of the CRC Programme.

The terms and conditions are set out in the Agreements, entered into by the CRC Company and the Commonwealth, which commence on or after 1 July 2005 and 1 July 2007, respectively.

Key consequences of the Agreements are:

 the funding can only be applied to the conduct of the agreed 'Activities'
 the CRC Company must manage and govern the application of the funding towards the conduct of the Activities
 retention of the Commonwealth funding is conditional on the CRC Company meeting its obligations under the Agreement; and
 failure to apply the funding in the manner stipulated disentitles the CRC Company from retaining the funds, and can result in a requirement to repay them.

The CRC Company will carry on a business of managing and governing the conduct of the Activities of the research collaboration known as the CRC and will take a share of the results of those Activities.

Reasons for Decision

Under subsection 6-5(2) of the ITAA 1997, assessable income includes ordinary income derived during the income year.

Therefore, an amount (including an amount which has been received), will not be included in assessable income for an income year, unless it has been derived during that year.

In Brent v. Federal Commissioner of Taxation (1971) 125 CLR 418; 71 ATC 4195; (1971) 2 ATR 563, the High Court said at CLR 420, ATC 4200, ATR 570:

   It has become well established that unless the Act makes some specific provision on the point the amount of income derived is to be determined by the application of ordinary business and commercial principles and that the method of accounting to be adopted is that which 'is calculated to give a substantially correct reflex of the taxpayer's true income'. (Commissioner of Taxes (South Australia) v Executor, Trustee and Agency Company of South Australia Limited (Carden's Case) (1938) 63 CLR 108, at pp 152-154).

This reflects the view taken by the High Court in Arthur Murray (NSW) Pty Ltd v. Federal Commissioner of Taxation (1965) 114 CLR 314; 14 ATD 98; (1965) 9 AITR 673 ( Arthur Murray ).

In Case U7 87 ATC 127; Tribunal Case 20 (1986) 18 ATR 3120 a company received, at the discretion of the grantor, an 'advance' of grant monies to which it would become entitled upon expenditure on the agreed research and development (R&D) activities. These monies were repayable if this expenditure was not made, or was less than the amount advanced. The AAT referred to the decision in Arthur Murray and considered that, in the relevant year, the company had not done all that was required of it to earn the full amount prepaid to it.

At paragraphs 23 and 24 of Taxation Ruling TR 2006/3, the Commissioner states that government payments made in advance of performance of the obligations in return for which agreement to make the payments has been given, in situations where legal restrictions attach to the use of those payments, and where repayment of the monies will occur, should the obligations not be performed, or the restrictions breached, do not constitute income derived at the time of receipt. It is only at the later time, when obligations begin to be performed, and restrictions or conditions lift, and the recipient has done all required of it in order to retain the monies received, that it can be said that it will have begun to derive the amounts in question as income.

Having regard to the authorities cited and to the key consequences of the Agreements, it is concluded that the instalments under the Agreements are not derived as income on receipt. Rather, the instalments are assessable income of the CRC Company derived under section 6-5 of the ITAA 1997 when, and only to the extent, in an income year, they are applied towards the conduct of the 'Activities'.

Date of decision: 28 April 2006

Year of income:Year ended 30 June 2006
 Year ended 30 June 2007
 Year ended 30 June 2008

Legislative References:
Income Tax Assessment Act 1997
   section 6-5
   subsection 6-5(2)

Case References:
Brent v. Federal Commissioner of Taxation
   (1971) 125 CLR 418
   (1971) 2 ATR 563
   71 ATC 4195

Arthur Murray (NSW) Pty Ltd v. Federal Commissioner of Taxation
   (1965) 114 CLR 314
   14 ATD 98
   (1965) 9 AITR 673

Case U7
   87 ATC 127

Tribunal Case 20
   (1986) 18 ATR 3120

Related Public Rulings (including Determinations)
Taxation Ruling TR 2006/3

Related ATO Interpretative Decisions
ATO ID 2004/193

Government grants income

Siebel/TDMS Reference Number: 5163971

Business Line: Small Business/Individual Taxpayers

Date of publication: 5 May 2006

ISSN: 1445-2782

ATO ID 2006/122 (Withdrawn) history   Top  
   Date   Version 
   28 April 2006   Original statement   
 You are here ®  17 November 2017   Withdrawn   


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