ATO ID 2004/808 Income Tax Research and Development: ‘group membership period’ and effect of viable business transfer

August 19th, 2014

Is a viable business transfer necessary for an eligible company to claim the research and development additional deduction under section 73Y of the Income Tax Assessment Act 1936 (ITAA 1936), where that company has:

 deducted, under subsection 73B(13) or subsection 73B(14) of the ITAA 1936, an amount for incremental expenditure in the current year of income and in each of the preceding three years of income; and experienced a change in control during that time?

No. An eligible company which has met the eligibility requirements of subsection 73Q(1) of the ITAA 1936, can be eligible to claim the research and development additional deduction under section 73Y of the ITAA 1936 without a viable business transfer, even where it has experienced this change in control.

Company A is an eligible company which undertakes research and development activities in Australia.

For the 2003-04 year of income, and for each of the preceding three years of income, Company A has deducted amounts for ‘incremental expenditure’ under subsection 73B(14) of the ITAA 1936. ‘Incremental expenditure’ is defined by section 73P of the ITAA 1936.

Company A was wholly owned by Company D until 30 April 2004 when it was acquired by Company E. No change to the business of Company A occurred.

Company D and Company E are foreign companies which are not liable to tax in Australia. They cannot and do not claim deductions for research and development in Australia.

Company A acquired 100% of shares in both Company B1 and Company B2 on 30 June 2003. Both Company B1 and Company B2 are eligible companies and undertake research and development activities in Australia. Both have deducted amounts for ‘incremental expenditure’ under subsection 73B(14) of the ITAA 1936, for the 2003-04 year of income.

The group is not consolidated and does not intend to consolidate.

Subsection 73Q(1) of the ITAA 1936 allows an eligible company to deduct an amount under section 73Y of the ITAA 1936, if that company:

  • can deduct an amount for incremental expenditure under either subsection 73B(13) or subsection 73B(14) of the ITAA 1936 for the current year of income, and
  • has done or can do so for each of the preceding three years.

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