In broad terms, associates are those entities that, by reason of family or business connections, might appropriately be regarded as being associates of a particular entity.
For example, a consulting fee or wage charged by a controlling director for R&D Services would be subject to the associate entity payment provisions. Likewise, any charges from associate business entities for R&D Services would also be subject to the associate entity payment provisions.
Where a company incurs R&D expenditure from associates that is not paid by the end of the financial year, the company is able to carry forward the amount and claim as R&D expenditure in subsequent years when the item is paid.
To carry R&D expenditure forward for claiming in a subsequent year however, a general income tax deduction for the expenditure item must be foregone in the year that the associate R&D expenditure is incurred, though not paid.
Companies should also ensure any associate entity R&D expenditure amounts have been documented and that the claim amount does not include any profit margin on intragroup charges.
For the latest ATO guidance on this matter, please visit www.ato.gov.au.