Under SECT 355.405 ITAA97, an entity cannot claim R&D expenditure in situations where:
(a) when an entity incurs R&D expenditure, consideration has been received, or was reasonably expected to be received:
(b) that consideration is equal to or greater than the expenditure.
The spirit of this provision is to ensure companies only receive an R&D tax benefit where they are bearing the financial risk of the underlying R&D activity.
On 22 December 2021 the ATO released its finalised Tax Ruling, TR 2021/5 (the at risk rule), which followed the release of a draft ruling in June 2021.
The ruling includes a series of examples, and details the commissioner’s view on the relevant inputs to the provision, such as:
The final ruling appears to provide further and clearer examples than was published in the original draft.
The content of the ruling appears in line with widespread understanding and scope of the at risk rule.
Companies and advisors should ensure they review and are up to date with the content of this ruling which has scope where companies may be receiving consideration as a direct or indirect result of undertaking R&D activities.