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TR 2013/3 Income tax: research and development tax offsets: feedstock adjustments

Summary of 104 160 689 matter

*This must be read in conjunction with Taxation Ruling: TR 2013/3A1 – Addendum

Paragraph 355-465(1)(a) sets out the first condition for a feedstock adjustment to arise. This paragraph refers to three tests that must be satisfied for the first condition to be met as outlined below:

· an R&D entity incurs expenditure in one or more income years in acquiring or producing goods, or materials (the feedstock inputs);

· the feedstock inputs are transformed or processed;

·feedstock inputs are transformed or processed during R&D activities in producing one or more tangible products (feedstock outputs).

The words ‘expenditure … in acquiring or producing goods, or materials’ form a composite phrase in paragraph 355-465(1)(a), where that phrase describes expenditure of a particular character¹¹ and is limited in its scope to only covering expenditure incurred up to the time transformation or processing activities begin. This expenditure does not include expenditure incurred on the transformation or processing of the relevant goods or materials, with the exception of certain expenditure found in multistage production processes (discussed in paragraphs 24 and 26 of this Ruling).

This character concerns expenditure incurred in acquiring or producing goods or materials which have been ‘transformed or processed during R&D activities in producing one or more tangible products (the feedstock outputs) ‘, as indicated by the concluding words of the first condition. The fact that the expenditure must be of this character and have resulted in tangible products being produced is an important part of the first condition. If this precondition is not met then a feedstock adjustment will not happen.

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