ATO ID 2002/985 Income Tax Research and Development – 3 Year History – Additional Deduction

August 19th, 2014

Does the taxpayer satisfy the requirement of establishing a three year history outlined in paragraph 73Q(1)(b) of the Income Tax Assessment Act 1936 (ITAA 1936), for the three years preceding the 2002 financial year?

Yes.

The taxpayer was in receipt of an Research & Development (R&D) Start Grant for the 1999 and 2000 financial years and was registered with the Industry Research and Development Board (IRDB), under section 39J of the Industry Research and Development Act 1986 (IR&DA) for the 2001 financial year.

The taxpayer is a company incorporated in Australia.

The taxpayer and other parties applied for a grant under the IRDB’s R&D Start Program.

The grant was approved and the date of commencement of the R&D Start Grant was 1 July 1998 with a completion date of 30th June 2001. The grant was approved in relation to research and development activities to be undertaken in the 1999, 2000 and 2001 financial years.

The applicant and the other parties agreed to execute the R&D Start Grant agreement (the agreement) in accordance with the conditions attaching to the grant.

One of the conditions in the agreement states that the grant is made to the taxpayer and the other parties for the eligible project as described in the agreement.

The grant was calculated as 50% of the estimated project costs as outlined by the taxpayer and the other parties. This grant was to be allocated to all parties according to their individual contribution to the project and their actual individual costs.

The grant was paid in 6 monthly progressive payments contingent on the IRDB being satisfied that the relevant milestones were achieved, all progress reports submitted when due, and that they met all other obligations.

In the agreement it also states that within 1 month of the date of the agreement the taxpayer and the other parties must establish a project management committee in relation to the project. The management committee must comprise the people named in the agreement.

The agreement also states that the IRDB may terminate the agreement if the taxpayer and the other parties breach certain conditions or obligations. In the event that this action was taken, the IRDB may request repayment of all or part of the grant together with interest from either the taxpayer and the other parties. Therefore the taxpayer and the other parties are liable to repay all or part of the grant together with interest if the IRDB acts to terminate the agreement.

The taxpayer has also advised that in the 2001 financial year they were registered under section 39J of the Industry Research and Development Act 1986 , with the IRDB for the purposes of the Research and Development Tax Concession.

Section 73Q of the ITAA 1936 discusses the eligibility criteria for claiming an additional deduction under section 73Y of the ITAA 1936.

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