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ATO Release New Draft Tax Ruling TR 2021/D3 (R&D Tax Offsets: The At Risk Rule)
June 28th, 2021
Under SECT 355.405 ITAA97, an entity cannot claim R&D expenditure in situations where:
(a) when an entity incurs R&D expenditure, consideration had been received, or was reasonably expected to be received:
- as a direct or indirect result of the expenditure being incurred; and
- regardless of the results of the activities on which the expenditure is incurred; and
(b) that consideration is equal to or greater than the expenditure.
The spirit of this provision is to ensure companies only receive a R&D tax benefit where they are bearing the financial risk of the underlying R&D activity.
Late last week, the ATO released a draft TR 2021/D3 on the issue of the at risk rule. The ruling includes a series of examples, and details the commissioner’s view on the relevant inputs to the provision, such as:
- meaning, scope and quantification of ‘consideration’;
- nexus to expenditure test;
- whether something is a ‘Direct or indirect result’;
- regardless of results test.
The ATO are taking comments on the ruling until July 2021.
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