ATO ID 2003/343 Income Tax R&D tax offset: ‘R&D group turnover’ – licence fees payable over more than one year of income

August 19th, 2014

What amount is included by the company in calculating the amount of ‘R&D group turnover’ for the purposes of determining the company’s entitlement to the research and development (R&D) tax offset under section 73J of the Income Tax Assessment Act 1936 (ITAA 1936), where a licence fee under an agreement is payable over four years of income?

 The amount included in the calculation of the company’s ‘R&D group turnover’ for the current year of income, for the purposes of determining its entitlement to the R&D tax offset under section 73J of the ITAA 1936, is only so much of the relevant licence fee as represents the value of the supplies made under the agreement for the current year of income.

A company carries on a business involving high levels of research and development and holds a number of patents relating to its work. Over the years the company has entered into a number of licence agreements as part of its business.

The company entered into a non-exclusive, non-transferable licence agreement with a company resident overseas for the use of patented technology for the life of certain patents, due to expire five years after entering the agreement.

The total licence fee under the agreement is set as a lump sum, payable by instalments over four years of income, but with no specific portion attributable to each of the four years.

The company’s aggregate research and development amount for the current year of income exceeds $20,000.

The aggregate research and development amount for the company and other taxpayers with which it is grouped does not exceed $1,000,000 for the current income year.

The value or price of the rights granted for the current year of income is not quantified in the licence agreement.

Section 73I of the ITAA 1936 provides that an eligible company can choose a tax offset rather than a deduction for research and development expenditure.

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