ATO ID 2003/990 Income Tax Research and Development: additional deduction for incremental expenditure where a group member company has a substituted accounting period

August 19th, 2014

If an eligible company is grouped with another company that has a different accounting period, is the ‘year of income’ referred to in paragraph (b) of the definition of ‘R&D spend’ in subsection 73P(2) of the Income Tax Assessment Act 1936 (ITAA 1936) that of the eligible company, and not that of the group member?

Yes. The eligible company’s ‘year of income’ is used when calculating an amount under paragraph (b) of the definition of ‘R&D spend’ in subsection 73P(2) of the ITAA 1936, for the purposes of sections 73U, 73V, 73W and 73Y of the ITAA 1936.

The company is an ‘eligible company’, as defined in subsection 73B(1) of the ITAA 1936. It undertakes research and development activities in Australia and is examining its entitlement under section 73Y of the ITAA 1936 to an additional deduction relating to ‘incremental expenditure’, as defined in subsection 73P(2) of the ITAA 1936, for a year of income (referred to as the ‘deduction year’ in subsection 73Q(1) of the ITAA 1936).

The eligible company has a normal Australian accounting period ending on 30 June. It satisfies the requirements in subsection 73Q(1) of the ITAA 1936 to be entitled to an additional deduction under section 73Y of the ITAA 1936.

The eligible company is grouped with another company under section 73L of the ITAA 1936.

The company which is grouped with the eligible company, has a substituted accounting period, and lodged a transitional return (covering income and deductions relating to a period greater than 12 months), for the period equating to the year of income immediately prior to the deduction year.

 Calculation of the amount of the additional deduction allowable under section 73Y of the ITAA 1936 requires working out the eligible company’s ‘premium amount’ under section 73W of the ITAA 1936, as well as any apportionment of the premium amount under section 73X of the ITAA 1936.

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