ATO ID 2004/973 Income tax Research and Development: Additional deduction for incremental expenditure where a company has a transitional substituted accounting period in relation to the ‘deduction year’

August 19th, 2014

If an eligible company lodges a return of income for a period other than 12 months, will this period represent the ‘year of income’ (the ‘deduction year’ ) for the purposes of determining the company’s eligibility to claim an additional deduction for incremental expenditure, and also represent the ‘Y0 year’ when calculating ‘R&D spend’?

No. The ‘deduction year’ for the purposes of section 73Q of the Income Tax Assessment Act 1936 (ITAA 1936), and the ‘Y0 year’, when calculating the ‘R&D spend’ under section 73P of the ITAA 1936, for the purposes of sections 73U, 73V, 73W and 73Y of the ITAA 1936, will be the 12 month period preceding the last day of the period, for which the company will lodge its transitional period return.

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 eligibility under section 73Q of the ITAA 1936 to claim an additional deduction under section 73Y 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 is allowed to adopt a substituted accounting period under section 18 of the ITAA 1936. A condition of granting this approval is that the eligible company will lodge a return for a transitional period other than 12 months (covering income and deductions relating to a period greater than 12 months), in relation to ‘the deduction year’.

Eligibility to claim an additional deduction for incremental expenditure under section 73Q of the ITAA 1936 is determined for a ‘year of income’). That is, the requirements for eligibility set down in this section need to be met for this period, (referred to in the section as ‘the deduction year ‘).

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