ATO ID 2003/991 Income Tax Research and Development: additional deduction for incremental expenditure where a company has a transitional substituted accounting period

August 19th, 2014

If an eligible company in one of the three years prior to the deduction year, has lodged a return of income for a period other than 12 months, will this period represent any of the ‘Y-1, Y-2 or Y-3’ years when calculating ‘R&D spend’?

No. The ‘Y-1, Y-2 and Y-3’ years will be the 12 month periods preceding the eligible company’s ‘Y0’ year (the ‘year of income’ of the eligible company), when calculating ‘R&D spend’ for the purpose of sections 73T, 73U, 73V, 73W and 73Y of the Income Tax Assessment Act 1936 (ITAA 1936).

The eligible company undertakes research and development activities in Australia, and is seeking to determine its entitlement to an additional deduction for incremental tax expenditure (section 73Y of the ITAA 1936).

The eligible company is allowed to adopt a substituted accounting period under section 18 of the ITAA 1936 (the year of income for which the additional deduction under section 73Y of the ITAA 1936 is sought).

The eligible company lodged a transitional substituted accounting period return, covering income and deductions for a period greater than 12 months, in one of the three years prior to the deduction year.

The definition of ‘R&D spend’ in subsection 73P(2) of the ITAA 1936 refers to the ‘incremental expenditure’ of the eligible company, for a relevant ‘year of income’.

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