ATO ID 2006/122 Income Tax Assessable income: derivation of Commonwealth funding – Cooperative Research Centres (CRC) Programme

August 20th, 2014

Are instalments paid to a taxpayer (CRC Company) under the Commonwealth Agreements for the 2004 and 2006 Selection Rounds of the CRC Programme (the Agreements), derived at the time of receipt for the purposes of section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. Instalments paid to a CRC Company under the Agreements are not derived for the purposes of section 6-5 of the ITAA 1997 until applied toward the conduct of the ‘Activities’, as specified in the Agreements.

The CRC Company will be paid a grant from the Commonwealth in instalments, upon the terms and conditions for CRCs established under the 2004 and 2006 Selection Rounds of the CRC Programme.

The terms and conditions are set out in the Agreements, entered into by the CRC Company and the Commonwealth, which commence on or after 1 July 2005 and 1 July 2007, respectively.

Key consequences of the Agreements are:

 the funding can only be applied to the conduct of the agreed ‘Activities’
 the CRC Company must manage and govern the application of the funding towards the conduct of the Activities
 retention of the Commonwealth funding is conditional on the CRC Company meeting its obligations under the Agreement; and
 failure to apply the funding in the manner stipulated disentitles the CRC Company from retaining the funds, and can result in a requirement to repay them.

The CRC Company will carry on a business of managing and governing the conduct of the Activities of the research collaboration known as the CRC and will take a share of the results of those Activities.

Under subsection 6-5(2) of the ITAA 1997, assessable income includes ordinary income derived during the income year.

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