ATO ID 2004/703 Income tax Research and Development: ‘R&D group turnover’ – supplies made in the course of carrying on business

August 19th, 2014

In calculating the ‘value of supplies’ under paragraph 73K(1)(b) of the Income Tax Assessment Act 1936 (ITAA 1936) of the definition of ‘R&D group turnover’, for a company that has carried on a business of acting as a lender in providing mortgage loans, is the amount received for the assignment of its loan portfolio a supply made ‘in the course of carrying on a business’ in the terms of the definition of ‘value of supplies’ in sub-section 73H(2) of the ITAA 1936?

No. The assignment agreement entered into by the company was a special circumstance or unusual event and was not within ‘the course of carrying on a business’ in terms of the definition of ‘value of supplies’ in subsection 73H(2) of the ITAA 1936.

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 relevant 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, as a result of unilateral actions taken by a third party, the company grouped with the eligible company ceased to provide loans, and entered into an agreement to assign the entire loan portfolio of undischarged mortgages.

Consideration was received by the company grouped with the eligible company as a result of assigning the loan portfolio during the relevant year of income.

Subsection 73K(1) of the ITAA 1936, provides that the ‘R&D group turnover’ of an eligible company for a year of income is the sum of:

(a)
 the value of the supplies the company made in the year of income; and
(b)
 the value of the supplies made in the year of income by other persons while they were grouped with the company
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