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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