ATO ID 2004/702 Income tax Research and Development: ‘R&D group turnover’ – value of supplies made in the year of income – interest payments

August 19th, 2014

In calculating the ‘value of supplies’ under paragraph 73K(1)(b) of the definition of ‘R&D group turnover’, in the Income Tax Assessment Act 1936 (ITAA 1936), for a company that conducts business as a lender, are amounts of interest in respect of loans that were settled in a prior year of income, as well as interest in respect of loans that were settled in the current year of income, included?

Yes. The ‘value of supplies’ under paragraph 73K(1)(b) of the definition of ‘R&D group turnover’ in the ITAA 1936, for the relevant year of income, includes the amount of interest receivable by the company on all outstanding loans, regardless of when those loans were written.

The taxpayer is an ‘eligible company’ as defined in subsection 73B(1) of the ITAA 1936. It undertook ‘research and development activities’ (as defined in subsection 73B(1) of the ITAA 1936) in the 2003 year of income. The eligible company incurred expenditure on these activities.

The eligible company was grouped with another company in the manner described in section 73L of the ITAA 1936 during the relevant year of income.

Under section 73K of the ITAA 1936, when determining its’ ‘R&D group turnover’, the eligible company was required to include ‘the value of supplies made in the year of income by other persons while they were grouped with the company’.

In the relevant year of income, the company grouped with the eligible company in the manner described in section 73L of the ITAA 1936, acted as a lender providing mortgage loans.

During the relevant year of income, the company grouped with the eligible company received, on a monthly basis, interest payments from borrowers in respect of Settled Loans that were written both during the relevant income year, and during earlier years of income, that were not discharged.

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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