TAX LAWS AMENDMENT (RESEARCH AND DEVELOPMENT) BILL 2011

i Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

Contents

1 Short

title

...........................................................................................

2 Commencement

.................................................................................

3 Schedule(s)

........................................................................................

Schedule 1--Main components of new R&D incentive

Income Tax Assessment Act 1997

Schedule 2--Innovation Australia's role

Part 1--Main amendment

Industry Research and Development Act 1986

Part 2--Other amendments

Industry Research and Development Act 1986

Schedule 3--Other amendments relating to new R&D incentive

Part 1--Tax offset rules

Income Tax Assessment Act 1997

Part 2--Prepayments of expenditure

Income Tax Assessment Act 1936

Part 3--Capital allowances

Income Tax Assessment Act 1997

Part 4--Capital works

Income Tax Assessment Act 1997

Part 5--Forgiveness of commercial debts

Division 1--Amending the new law

Income Tax Assessment Act 1997

Division 2--Amending the old law

Income Tax Assessment Act 1936

Part 6--Other amendments

100

Income Tax Assessment Act 1936

100

Income Tax Assessment Act 1997

101

Income Tax (Transitional Provisions) Act 1997

111

Taxation Administration Act 1953

111

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 1

A Bill for an Act to amend the law relating to

taxation and research and development, and for

other purposes

The Parliament of Australia enacts:

1 Short title

This Act may be cited as the Tax Laws Amendment (Research and

Development) Act 2010.

2 Commencement

(1) Each provision of this Act specified in column 1 of the table

commences, or is taken to have commenced, in accordance with

column 2 of the table. Any other statement in column 2 has effect

according to its terms.

2 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

Commencement information

Column 1

Column 2

Column 3

Provision(s) Commencement

Date/Details

1. Sections 1 to 3

and anything in

this Act not

elsewhere covered

by this table

The day this Act receives the Royal Assent.

2. Schedules 1

and 2

The day this Act receives the Royal Assent.

3. Schedule 3,

Parts 1 to 4

The day this Act receives the Royal Assent.

4. Schedule 3,

Part 5, Division 1

The later of:

(a) the start of the day this Act receives the

Royal Assent; and

(b) immediately after the commencement of

Schedule 2 to the Tax Laws Amendment

(Transfer of Provisions) Act 2010.

However, the provision(s) do not commence

at all if the event mentioned in paragraph (b)

does not occur.

5. Schedule 3,

Part 5, Division 2

The day this Act receives the Royal Assent.

However, if Schedule 2 to the Tax Laws

Amendment (Transfer of Provisions) Act

2010 commences on or before that day, the

provision(s) do not commence at all.

6. Schedule 3,

Part 6

The day this Act receives the Royal Assent.

7. Schedule 4

The day this Act receives the Royal Assent.

Note:

This table relates only to the provisions of this Act as originally

enacted. It will not be amended to deal with any later amendments of

this Act.

(2) Any information in Column 3 of the table is not part of this Act.

Information may be inserted in this column, or information in it

may be edited, in any published version of this Act.

Schedule 1 Main components of new R&D incentive

4 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

Schedule 1--Main components of new R&D

incentive

Income Tax Assessment Act 1997

1 After Division 345

Insert:

Division 355--Research and Development

Table of Subdivisions

Guide to Division 355

355-A Object

355-B Meaning of R&D activities and other terms

355-C Entitlement to tax offset

355-D Notional deductions for R&D expenditure

355-E Notional deductions for decline in value of depreciating assets

used for R&D activities

355-F Integrity

Rules

355-G Clawback of R&D recoupments

355-H Feedstock

adjustments

355-I

Application to earlier income year R&D expenditure incurred

to associates

355-J

Application to R&D partnerships

355-K Application to Cooperative Research Centres

355-W Other

matters

Guide to Division 355

355-1 What this Division is about

An R&D entity may be entitled to a tax offset for R&D activities.

The tax offset may be a refundable tax offset if the R&D entity's

aggregated turnover is less than $20 million.

Main components of new R&D incentive Schedule 1

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 5

To be entitled to the tax offset, the R&D entity needs one or more

notional deductions under this Division.

There are 2 main kinds of notional deductions. One is for

expenditure on R&D activities. The other is for the decline in value

of tangible depreciating assets used for R&D activities.

Note:

All of these notional deductions require the R&D entity to be

registered for the R&D activities under Part III of the Industry

Research and Development Act 1986.

Subdivision 355-A--Object

Table of sections

355-5 Object

355-5 Object

(1) The object of this Division is to encourage industry to conduct

research and development activities that might otherwise not be

conducted because of an uncertain return from the activities, in

cases where the knowledge gained is likely to benefit the wider

Australian economy.

(2) This object is to be achieved by providing a tax incentive for

industry to conduct, in a scientific way, experimental activities for

the purpose of generating new knowledge or information in either a

general or applied form (including new knowledge in the form of

new or improved materials, products, devices, processes or

services).

Subdivision 355-B--Meaning of R&D activities and other terms

Table of sections

355-20

R&D activities

355-25

Core R&D activities

355-30

Supporting R&D activities

355-35

R&D entities

Schedule 1 Main components of new R&D incentive

6 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

355-20 R&D activities

R&D activities are

core R&D activities or

supporting R&D

activities.

355-25 Core R&D activities

(1)

Core R&D activities are experimental activities:

(a) whose outcome cannot be known or determined in advance

on the basis of current knowledge, information or experience,

but can only be determined by applying a systematic

progression of work that:

(i) is based on principles of established science; and

(ii) proceeds from hypothesis to experiment, observation

and evaluation, and leads to logical conclusions; and

(b) that are conducted for the purpose of generating new

knowledge (including new knowledge in the form of new or

improved materials, products, devices, processes or services).

(2) However, none of the following activities are core R&D activities:

(a) market research, market testing or market development, or

sales promotion (including consumer surveys);

(b) prospecting, exploring or drilling for minerals or

petroleum

for the purposes of one or more of the following:

(i)

discovering

deposits;

(ii) determining more precisely the location of deposits;

(iii) determining the size or quality of deposits;

(d) research in social sciences, arts or humanities;

(e) commercial, legal and administrative aspects of patenting,

licensing or other activities;

(f) activities associated with complying with statutory

requirements or standards, including one or more of the

following:

(i) maintaining national standards;

(ii) calibrating secondary standards;

(iii) routine testing and analysis of materials, components,

products, processes, soils, atmospheres and other things;

(g) any activity related to the reproduction of a commercial

product or process:

Main components of new R&D incentive Schedule 1

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 7

(i) by a physical examination of an existing system; or

(ii) from plans, blueprints, detailed specifications or

publically available information;

(h) developing, modifying or customising computer software for

the dominant purpose of use by any of the following entities

for their internal administration (including the internal

administration of their business functions):

(i) the entity (the developer) for which the software is

developed, modified or customised;

(ii)

entity

connected with the developer;

(iii)

affiliate of the developer, or an entity of which the

developer is an affiliate.

355-30 Supporting R&D activities

(1)

Supporting R&D activities are activities directly related to

core

R&D activities.

(2) However, if an activity:

(a) is an activity referred to in subsection 355-25(2); or

(b) produces goods or services; or

the activity is a supporting R&D activity only if it is undertaken

for the dominant purpose of supporting

core R&D activities.

355-35 R&D entities

(1) Each of the following is an R&D entity:

(a) a body corporate incorporated under an

Australian law;

(b) a body corporate incorporated under a

foreign law that is an

Australian resident.

Note:

Each of the above paragraphs extends to a body corporate acting in its

capacity as trustee of a public trading trust (see subsection 102T(9) of

the Income Tax Assessment Act 1936).

(2) A body corporate incorporated under a

foreign law that:

(a) is a resident of a foreign country for the purposes of an

agreement in force between that country and Australia that:

(i) is a double tax agreement (as defined in Part X of the

Income Tax Assessment Act 1936); and

Schedule 1 Main components of new R&D incentive

8 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

(ii) includes a definition of permanent establishment; and

(b) carries on business in Australia through a permanent

establishment (within the meaning of that definition) of the

body corporate in Australia;

is an R&D entity to the extent that it carries on business through

that permanent establishment.

(3)

However,

exempt entity cannot be an R&D entity.

Subdivision 355-C--Entitlement to tax offset

Table of sections

355-100 Entitlement to tax offset

355-105 Deductions under this Division are notional only

355-110 Notional deductions include prepaid expenditure

355-100 Entitlement to tax offset

If notional deductions are at least $20,000

(1)

R&D entity is entitled to a

tax offset for an income year equal

to the percentage, set out in the table, of the total of the amounts (if

any) that the entity can deduct for the income year under any or all

of the following provisions:

(a) section 355-205 (R&D expenditure);

(b) section 355-305 (decline in value of R&D assets);

(d) section 355-480 (earlier year associate R&D expenditure);

(e) section 355-520 (decline in value of R&D partnership

assets);

(f) section 355-525 (balancing adjustment for R&D partnership

assets);

(g) section 355-580 (CRC contributions).

Rate of R&D tax offset

Item

In this case:

The percentage

is:

the

R&D entity's

aggregated turnover for the income

year is less than $20 million (and item 2 of this table

does not apply)

45%

Main components of new R&D incentive Schedule 1

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 9

Rate of R&D tax offset

Item

In this case:

The percentage

is:

exempt entity, or combination of exempt entities,

would control the

R&D entity in a way described in

section 328-125 (connected entities) if:

(a) references in section 328-125 to 40% were references

to 50%; and

(b) subsection 328-125(6) were ignored

40%

any other case

40%

Note:

The tax offset will be a refundable tax offset if the percentage

applicable to the entity is 45% (see section 67-30).

If notional deductions are less than $20,000

(2) However, if the total of those amounts is less than $20,000, the

R&D entity is instead entitled to a

tax offset for the income year

equal to that percentage of the total of the following kinds of

expenditure (if any):

Expenditure not subject to $20,000 threshold

Item

Kind of expenditure

1 Expenditure:

(a) that the

R&D entity can deduct under section 355-205 (R&D

expenditure) for the income year; and

(b) that was incurred to a research service provider (within the meaning of

the Industry Research and Development Act 1986) that is not an

associate of the R&D entity or of the relevant

R&D partnership (as

appropriate); and

which the provider is registered under Division 4 of Part III of that Act,

applicable to one or more of the

R&D activities to which the deduction

relates

Expenditure that the

R&D entity can deduct under section 355-580 (CRC

contributions) for the income year

Schedule 1 Main components of new R&D incentive

10 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

355-105 Deductions under this Division are notional only

An amount (the notional amount) that an

R&D entity can deduct

under this Division is disregarded except for the purposes of:

(a) working out whether the R&D entity is entitled under

section 355-100 to a

tax offset; and

(b) a provision (of this Act or any other Act) that refers to an

entitlement of the R&D entity under section 355-100 to a tax

offset; and

(i) prevents some or all of the notional amount from being

deducted; or

(ii) changes the income year for which some or all of the

notional amount can be deducted; and

Note:

Examples are Divisions 26 and 27 of this Act, Subdivision H of

Division 3 of Part III of the Income Tax Assessment Act 1936 and

Part IVA of that Act.

(d) a provision (of this Act or any other Act) that includes an

amount in assessable income wholly or partly because of the

notional amount; and

Note:

An example is Subdivision 20-A, which may include in

assessable income a recoupment of a loss or outgoing if the entity

can deduct an amount for the loss or outgoing.

(e) a provision (of this Act or any other Act) that excludes

expenditure from:

(i)

the

cost base or

reduced cost base of a

CGT asset; or

(ii) an element of that cost base or reduced cost base.

Note:

An example is section 110-45, which may exclude deductible

expenditure from elements of the cost base of an asset.

355-110 Notional deductions include prepaid expenditure

For the purposes of this Division, if:

(a) apart from Subdivision H (prepaid expenditure) of Division 3

of Part III of the Income Tax Assessment Act 1936, an

R&D

entity can deduct an amount under section 355-205 or

355-480 for an income year (the present year) or an earlier

income year; and

(b) that Subdivision applies to the calculation of that amount;

and

Main components of new R&D incentive Schedule 1

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 11

application of that Subdivision, for the present year;

the entity is taken to be able to deduct under section 355-205 or

355-480 (as appropriate) the amount referred to in paragraph (c)

for the present year.

Note:

Section 355-205 is about deductions for R&D expenditure.

Section 355-480 is about deductions for earlier year associate R&D

expenditure.

Subdivision 355-D--Notional deductions for R&D expenditure

Table of sections

355-200 What this Subdivision is about

355-205 When notional deductions for R&D expenditure arise

355-210 Conditions for R&D activities

355-215 R&D activities conducted by a permanent establishment for other parts of

the body corporate

355-220 R&D activities conducted for a foreign entity

355-225 Expenditure that cannot be notionally deducted

355-200 What this Subdivision is about

An R&D entity can notionally deduct its expenditure on registered

R&D activities for which certain conditions are met.

There are special conditions for R&D activities conducted for

foreign residents.

355-205 When notional deductions for R&D expenditure arise

(1)

R&D entity can deduct for an income year (the present year)

expenditure it incurs during that year to the extent that the

expenditure:

(a) is incurred on one or more

R&D activities:

(i) for which the R&D entity is registered under

section 27A of the Industry Research and Development

Act 1986 for an income year; and

(ii) that are activities to which section 355-210 (conditions

for R&D activities) applies; and

Schedule 1 Main components of new R&D incentive

12 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

(b) if the expenditure is incurred to the R&D entity's

associate--is paid to that associate during the present year.

Note 1:

If the matters in subparagraphs (a)(i) and (ii) are not satisfied until a

later income year, the R&D entity will need to wait until then before it

can deduct the expenditure for the present year.

Note 2:

The R&D activities will need to be conducted during the income year

the R&D entity is registered for those activities (see sections 27A and

27J of the Industry Research and Development Act 1986).

Note 3:

The entity may also be able to deduct expenditure incurred to an

associate in an earlier income year (see section 355-480).

Note 4:

Expenditure incurred in income years starting on or after 1 July 2010

may be deductible for activities registered for income years starting

before 1 July 2010 (see section 355-200 of the Income Tax

(Transitional Provisions) Act 1997).

(2) This section has effect subject to section 355-225 (excluded

expenditure), Subdivision 355-F (integrity rules) and subsection

355-580(3) (CRC contributions).

355-210 Conditions for R&D activities

(1)

R&D activity covered by one or more of the following

paragraphs is an activity to which this section applies:

(a) the R&D activity is conducted for the

R&D entity solely

within Australia or an external Territory;

(b) if the R&D entity is a body corporate carrying on business

through a permanent establishment (as described in

subsection 355-35(2))--the R&D activity is conducted:

(i) for the body corporate; but

(ii) not for the purposes of that permanent establishment;

and the conditions in section 355-215 (activities conducted

for a body corporate by its permanent establishment) are met

for the R&D activity;

residents who are each:

(i) incorporated under a

foreign law; and

(ii) a resident of a foreign country for the purposes of an

agreement of a kind described in subsection 355-35(2);

and the conditions in section 355-220 (activities conducted

for a foreign entity) are met for the R&D activity;

(d) the R&D activity is:

Main components of new R&D incentive Schedule 1

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 13

(i) conducted for the R&D entity solely outside Australia

and the external Territories; and

(ii) covered by a finding in force under paragraph 28C(1)(a)

of the Industry Research and Development Act 1986;

(e) the R&D activity consists of several parts, with:

(i) some parts being conducted for the R&D entity solely

within Australia or an external Territory; and

(ii) the other parts being conducted for the R&D entity

outside Australia and the external Territories while

covered by a finding in force under paragraph 28C(1)(a)

of the Industry Research and Development Act 1986.

Note:

An activity can be covered by a finding under paragraph 28C(1)(a) of

the Industry Research and Development Act 1986 if the activity

cannot be conducted in Australia or the external Territories.

(2)

However,

R&D activity is not an activity to which this section

applies if the activity is conducted, to a significant extent, for one

or more other entities not covered by any paragraph of

subsection (1).

Note:

An entity would not be covered by, for example, paragraph (1)(c) if

the conditions in section 355-220 were not met for the R&D activity

in relation to that entity.

355-215 R&D activities conducted by a permanent establishment for

other parts of the body corporate

For the purposes of paragraph 355-210(1)(b), the conditions for an

R&D activity are as follows:

(a) the R&D activity is conducted solely within Australia or an

external Territory;

(b) if the R&D activity is a

supporting R&D activity, each

corresponding

core R&D activity must be:

(i) an activity conducted, or to be conducted, solely within

Australia or an external Territory; and

(ii) an activity for which the

R&D entity is or has been

registered under section 27A of the Industry Research

and Development Act 1986, or could be registered for an

income year if that core R&D activity were conducted

during the income year;

Schedule 1 Main components of new R&D incentive

14 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

for the body corporate but not for the purposes of that

permanent establishment.

Note:

The body corporate is the R&D entity to the extent that it carries on

business through that permanent establishment (see subsection

355-35(2)).

355-220 R&D activities conducted for a foreign entity

(1) For the purposes of paragraph 355-210(1)(c), the conditions for an

R&D activity conducted for one or more foreign residents are as

follows:

(a) the R&D activity is conducted solely within Australia or an

external Territory;

(b) if the R&D activity is a

supporting R&D activity, each

corresponding

core R&D activity must be:

(i) an activity conducted, or to be conducted, solely within

Australia or an external Territory; and

(ii) an activity for which the

R&D entity is or has been

registered under section 27A of the Industry Research

and Development Act 1986, or could be registered for an

income year if that core R&D activity were conducted

during the income year;

(i) each foreign resident is

connected with the R&D

entity; or

(ii) for each foreign resident--either the foreign resident is

affiliate of the R&D entity or the R&D entity is an

affiliate of the foreign resident;

(d) the R&D activity is conducted:

(i) in accordance with a written agreement binding on only

the R&D entity and each foreign resident; and

(ii) either directly by the R&D entity, or indirectly by

another entity under an agreement binding on the R&D

entity;

(e) the R&D activity is not conducted in connection with an

agreement covered by subsection (2).

Note:

An example of conducting an R&D activity indirectly under a contract

is conducting the R&D activity under a subcontract, or one of a chain

of subcontracts, under the contract.

Main components of new R&D incentive Schedule 1

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 15

(2) An agreement is covered by this subsection if:

(a) the agreement is binding on the R&D entity (the first entity)

and an R&D entity that:

(i)

connected with the first entity; or

(ii) has the first entity as an

affiliate, or is an affiliate of the

first entity;

while

the

R&D activity is conducted; and

(b) the R&D activity is to be conducted under the agreement by

the first entity or by an entity:

(i) who is not bound by the agreement; and

(ii) who is to conduct the R&D activity directly or

indirectly under another agreement to which the first

entity is, or will become, bound.

Note:

One effect of this subsection is that, even if the R&D entity has an

agreement with the foreign resident for conducting the R&D activity,

the R&D entity cannot deduct expenditure incurred:

(a) for conducting the R&D activity as a subcontractor under a

subcontract with an affiliated R&D entity; or

(b) if the R&D entity is a subcontractor to an affiliated R&D

entity--for further subcontracting the conducting of the R&D

activity.

355-225 Expenditure that cannot be notionally deducted

Expenditure on buildings, certain assets and interest

(1) Sections 355-205 (deductions for R&D expenditure) and 355-480

(deductions for earlier year associate R&D expenditure) do not

apply to the following expenditure:

(a) expenditure incurred to acquire or construct:

(i) a building or a part of a building; or

(ii) an extension, alteration or improvement to a building;

(b) expenditure included in the

cost of a tangible

depreciating

asset for the purposes of Division 40 (as that Division applies

as described in section 355-310 or otherwise);

Division 11A of Part III of the Income Tax Assessment Act

1936) payable to an entity.

Note 1:

Expenditure covered by paragraph (a) may be deductible under

Division 43 (capital works).

Schedule 1 Main components of new R&D incentive

16 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

Note 2:

The decline in value of an asset covered by paragraph (b) may be

notionally deductible under section 355-305.

Note 3:

Expenditure covered by paragraph (c) may be deductible under

section 8-1.

Expenditure on core technology

(2) Sections 355-205 (deductions for R&D expenditure) and 355-480

(deductions for earlier year associate R&D expenditure) do not

apply to expenditure incurred in acquiring, or in acquiring the right

to use, technology wholly or partly for the purposes of one or more

R&D activities if:

(a) a purpose of the R&D activities was or is:

(i) to obtain new knowledge based on that technology; or

(ii) to create new or improved materials, products, devices,

processes, techniques or services to be based on that

technology; or

(b) the R&D activities were or are an extension, continuation,

development or completion of the activities that produced

that technology.

Subdivision 355-E--Notional deductions for decline in value of

depreciating assets used for R&D activities

Table of sections

355-300 What this Subdivision is about

355-305 When notional deductions for decline in value arise

355-310 Notional application of Division 40

355-315 Balancing

adjustments--assets only used for R&D activities

355-300 What this Subdivision is about

An R&D entity can notionally deduct the decline in value of a

tangible depreciating asset used for R&D activities.

If a balancing adjustment event later happens for the asset, the

R&D entity may be able to notionally deduct a further amount.

Alternatively, an amount may be included in the R&D entity's

assessable income.

Main components of new R&D incentive Schedule 1

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 17

355-305 When notional deductions for decline in value arise

(1)

If:

(a)

R&D entity is registered under section 27A of the

Industry Research and Development Act 1986 for an income

year (the present year) for one or more

R&D activities that

are activities to which section 355-210 (conditions for R&D

activities) applies; and

(b) while a tangible

depreciating asset is

held by the R&D

entity during the present year, the asset is used for the

purpose of conducting one or more of those R&D activities;

and

for the asset for the present year if Division 40 applied with

the changes described in section 355-310; and

(d) the R&D entity cannot deduct an amount for the asset for:

(i) an earlier income year under Subdivision 328-D (capital

allowances for small business entities); or

(ii) an earlier income year under Division 40 (as that

Division applies apart from this Division), in a case

where section 40-440 (low-value pools) applied;

the R&D entity can deduct the amount referred to in paragraph (c)

for the present year.

(2) This section has effect subject to subsection 355-580(4) (CRC

contributions).

355-310 Notional application of Division 40

(1) In addition to its application apart from this section, Division 40

also applies with the changes set out in this section for the purposes

of:

(a) paragraph 355-225(1)(b) (excluded expenditure); and

(b) paragraph 355-305(1)(c); and

(2) Firstly, substitute the following for references to a

taxable purpose

in Subdivisions 40-A to 40-D (other than for the purposes of

sections 40-100, 40-105 and 40-110):

Schedule 1 Main components of new R&D incentive

18 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

Replacing references to a taxable purpose

Item

If this application of Division 40 is

for the purposes of:

Substitute a reference to:

paragraph 355-225(1)(b) or

355-305(1)(c)

the purpose of conducting one or

more of the

R&D activities covered

by paragraph 355-305(1)(b)

section 355-315

the purpose of conducting one or

more of the

R&D activities to

which the R&D deductions (within

the meaning of that section) relate

Note:

Sections 40-100, 40-105 and 40-110 are about working out an asset's

effective life. Those sections already refer to the use of the asset for

R&D activities.

(3) Secondly, assume that Division 40 does not apply to a building,

nor to an extension, alteration or improvement to a building, (the

building works) for which the

R&D entity:

(a) can deduct amounts under Division 43 (capital works); or

(b) could deduct amounts under Division 43:

(i) apart from expenditure being incurred, or the building

works being started, before a particular day; or

(ii) had the R&D entity used the building works for a

purpose relevant to those building works under

section 43-140 (using an area in a deductible way).

(4) Finally, assume that the following provisions had not been enacted:

(a) subsection 40-25(7) (meaning of taxable purpose);

(b) subsection 40-45(2) (assets to which Division 40 does not

apply);

(d) Subdivision 328-D (capital allowances for small business

entities).

Note:

Subsection (3) and paragraph (4)(b) mean that deductions under

section 355-305 may be available for capital works other than building

works.

355-315 Balancing adjustments--assets only used for R&D activities

(1) This section applies to an

R&D entity if:

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Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 19

(a)

balancing adjustment event happens in an income year (the

event year) for an asset

held by the R&D entity; and

(b) the R&D entity cannot deduct an amount under

section 40-25, as that section applies apart from:

(i) this Division; and

(ii) former section 73BC of the Income Tax Assessment Act

1936;

for the asset for an income year; and

tax

offsets for one or more income years for deductions (the

R&D deductions) under section 355-305 for the asset; and

(d) the entity is registered under section 27A of the Industry

Research and Development Act 1986 for one or more

R&D

activities for the event year; and

(e) if Division 40 applied with the changes described in

section 355-310:

(i) the entity could deduct for the event year an amount

under subsection 40-285(2) for the asset and the

balancing adjustment event; or

(ii) an amount would be included in the entity's assessable

income for the event year under subsection 40-285(1)

for the asset and the balancing adjustment event.

Note 1:

This section applies in a modified way if the entity also has deductions

for the asset under former section 73BA or 73BH of the Income Tax

Assessment Act 1936 (see section 355-320 of the Income Tax

(Transitional Provisions) Act 1997).

Note 2:

Section 40-292 applies if the entity can deduct an amount under

section 40-25, as that section applies apart from this Division and

former section 73BC of the Income Tax Assessment Act 1936.

Notional deduction

(2)

the

R&D entity could deduct for the event year an amount

under subsection 40-285(2) for the asset and the event if

Division 40 applied as described in paragraph (1)(e), the R&D

entity can deduct that amount for the event year.

Amount to be included in assessable income

(3) If an amount (the section 40-285 amount) would be included in the

R&D entity's assessable income for the event year under

subsection 40-285(1) for the asset and the event if Division 40

Schedule 1 Main components of new R&D incentive

20 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

applied as described in paragraph (1)(e), the sum of that amount

and the following amount is included in the R&D entity's

assessable income for the event year:

Adjusted section 40-285 amount

�

where:

adjusted section 40-285 amount means so much of the

section 40-285 amount as does not exceed the total decline in

value.

total decline in value means the asset's

cost, less its

adjustable

value, worked out under Division 40 as it applies as described in

paragraph (1)(e).

Subdivision 355-F--Integrity Rules

Table of sections

355-400 Expenditure incurred while not at arm's length

355-405 Expenditure not at risk

355-410 Disposal of R&D results

355-415 Reducing deductions to reflect mark-ups within groups

355-400 Expenditure incurred while not at arm's length

If:

(a)

R&D entity incurs expenditure to another entity on all or

part of an

R&D activity; and

(b)

either:

(i) when the R&D entity incurs the expenditure, the R&D

entity and the other entity do not deal with each other at

arm's length; or

(ii) the other entity is the R&D entity's

associate; and

market value of the relevant

R&D activity or part (as appropriate);

for the purposes of this Division, the R&D entity is treated as if the

amount of expenditure it incurred on the relevant R&D activity or

part (as appropriate) were equal to that market value.

Main components of new R&D incentive Schedule 1

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 21

Note 1:

For the purposes of a deduction under section 355-305 or 355-520 for

an asset's decline in value, the arms' length rules in Division 40 apply

as part of the notional application of that Division under that section.

Note 2:

In the application of Division 13 of Part III of the Income Tax

Assessment Act 1936 (about international transfer-pricing

arrangements), this section is disregarded (see subsection 136AB(2) of

that Act).

355-405 Expenditure not at risk

(1)

R&D entity cannot deduct expenditure under section 355-205

or 355-480 if:

(a) when it incurs the expenditure, the R&D entity or its

associate had received, or could reasonably be expected to

receive, consideration:

(i) as a direct or indirect result of the expenditure being

incurred; and

(ii) 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.

Note:

Section 355-205 is about deductions for R&D expenditure.

Section 355-480 is about deductions for earlier year associate R&D

expenditure.

(2)

If:

(a)

when

R&D entity incurs expenditure, the R&D entity or

its

associate had received, or could reasonably be expected

to receive, consideration:

(i) as a direct or indirect result of the expenditure being

incurred; and

(ii) regardless of the results of the activities on which the

expenditure is incurred; and

(b) that consideration is less than the expenditure;

the R&D entity cannot deduct under section 355-205 or 355-480 so

much of the expenditure as is equal to the consideration.

(3) For the purposes of paragraphs (1)(a) and (2)(a), have regard to:

(a) anything that happened or existed before or at the time the

expenditure is incurred; and

(b) anything that is likely to happen or exist after that time.

Schedule 1 Main components of new R&D incentive

22 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

(4) This section does not apply to expenditure incurred on

R&D

activities covered by paragraph 355-210(1)(b) or (c).

Note:

Those paragraphs cover R&D activities conducted for foreign

residents.

355-410 Disposal of R&D results

(1) This section applies to an

R&D entity if:

(a) the R&D entity is entitled under section 355-100 to a

tax

offset because it can:

(i) deduct under section 355-205 or 355-480 expenditure

incurred on

R&D activities; or

(ii) deduct under section 355-305 or 355-520 an amount for

an asset (the R&D asset) used for the purpose of

conducting one or more R&D activities; and

(b) the R&D entity receives or becomes entitled to receive one or

more of the following amounts (the results amounts) in an

income year (the results year):

(i) an amount for the results of any of the R&D activities;

(ii) an amount from granting access to, or the right to use,

any of those results;

(iii) an amount attributable to the R&D entity having

incurred the expenditure, including an amount it is

entitled to receive regardless of the results of the R&D

activities;

(iv) an amount attributable to the R&D asset being used for

the purpose mentioned in subparagraph (a)(ii), including

an amount the R&D entity is entitled to receive

regardless of the results of the R&D activities;

(v) an amount from

disposing of a

CGT asset, or from

granting a right to occupy or use a CGT asset, where the

disposal or grant resulted in another person acquiring a

right to access or use any of those results.

Note:

This section also applies with changes to the partners of an R&D

partnership (see section 355-535).

(2) For each results amount, the following amount is included in the

R&D entity's assessable income for the results year:

(a) if the results amount is only a results amount because of

subparagraph (1)(b)(v), and the asset referred to in that

Main components of new R&D incentive Schedule 1

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 23

subparagraph is a

depreciating asset--an amount equal to

the extent (if any) that the results amount exceeds the asset's

cost just before the disposal or grant;

(b) if the results amount is only a results amount because of

subparagraph (1)(b)(v), and the asset referred to in that

subparagraph is not a depreciating asset--an amount equal to

the extent (if any) that the results amount exceeds the asset's

cost base just before the disposal or grant;

(3) For the purposes of paragraph (2)(a), assume that subsection

40-45(2) did not, except in the case of buildings and extensions,

alterations and improvements to buildings, prevent Division 40

from applying to certain capital works.

355-415 Reducing deductions to reflect mark-ups within groups

(1) This section applies to an

R&D entity if:

(a) the R&D entity can deduct an amount under section 355-205

or 355-480 for an income year for one or more

R&D

activities; and

(b) one or more other entities (the grouped entities) incurred

expenditure during the income year, or an earlier income

year, on one or more of those

R&D activities; and

(i) the grouped entity was

connected with the R&D entity;

(ii) the grouped entity was an

affiliate of the R&D entity or

the R&D entity was an affiliate of the grouped entity.

Note:

Section 355-205 is about deductions for R&D expenditure.

Section 355-480 is about deductions for earlier year associate R&D

expenditure.

Reducing deductions by group mark-ups

(2) The amount the

R&D entity can deduct, apart from this section,

under section 355-205 or 355-480 for the income year is reduced

by the amount (the reduction amount) worked out as follows:

Method statement

Schedule 1 Main components of new R&D incentive

24 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

Step 1. For each grouped entity, work out the sum of the amounts

derived during the income year, or an earlier income

year, by the grouped entity for goods or services relating

to one or more of the

R&D activities while:

(a)

the grouped entity was

connected with the

R&D

entity; or

(b)

the grouped entity was an

affiliate of the R&D

entity or the R&D entity was an affiliate of the

grouped entity.

Step 2. From the sum of those amounts, subtract the actual cost

to each grouped entity of providing the goods or services

that correspond to those amounts.

If R&D entity has deductions for both R&D expenditure and

earlier year associate R&D expenditure

(3) However, if the

R&D entity can deduct amounts under both

sections 355-205 and 355-480 for the income year, those amounts

are reduced as follows:

(a) apply the reduction amount to reduce the amount otherwise

deductible under section 355-205 (but not below zero); and

(b) then apply any remainder of the reduction amount to reduce

the amount otherwise deductible under section 355-480 (but

not below zero).

Disregard mark-ups already taken into account

(4) For the purposes of step 1 of the method statement in

subsection (2), disregard any of the amounts from that step that

have already been taken into account under this section for the

R&D entity and the

R&D activities for an earlier income year.

Subdivision 355-G--Clawback of R&D recoupments

Table of sections

355-430 What this Subdivision is about

355-435 When extra income tax is payable

355-440 Entity receives government recoupment

Main components of new R&D incentive Schedule 1

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 25

355-445 Recoupment could relate to R&D activities

355-450 Amount on which extra income tax is payable

355-430 What this Subdivision is about

An entity must pay extra income tax on its recoupments from

government of expenditure on R&D activities for which it has

obtained tax offsets under this Division.

355-435 When extra income tax is payable

An entity must pay extra income tax on a

recoupment if the

conditions in sections 355-440 and 355-445 are met for the

recoupment.

Note 1:

Section 355-450 sets out how much of the recoupment is subject to

extra income tax.

Note 2:

A recoupment includes a grant (see subsection 20-25(1)).

355-440 Entity receives government recoupment

The condition in this section is met if the entity receives or

becomes entitled to receive the

recoupment from:

(a)

Australian government agency; or

(b) an STB (within the meaning of Division 1AB of Part III of

the Income Tax Assessment Act 1936);

otherwise than under the

CRC program.

355-445 Recoupment could relate to R&D activities

The condition in this section is met if:

(a)

the

recoupment is received, or the entitlement to receive the

recoupment arises, during an income year (the trigger year);

and

(b)

either:

(i) the recoupment is of expenditure incurred on or in

relation to certain activities; or

(ii) the recoupment requires expenditure (the project

expenditure) to have been incurred, or to be incurred,

on certain activities.

Schedule 1 Main components of new R&D incentive

26 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

Note:

Paragraph (b) includes expenditure incurred in purchasing a tangible

depreciating asset to be used when conducting R&D activities.

355-450 Amount on which extra income tax is payable

Amount on which extra income tax is payable

(1) The extra income tax is payable for the trigger year on an amount

(the R&D expenditure) equal to the sum of:

(a) so much of the expenditure referred to in section 355-445

that is deducted under this Division; and

(b) for each asset (if any) for which expenditure referred to in

section 355-445 is included in the asset's

cost--each amount

(if any) equal to the asset's decline in value that is deducted

under this Division;

in working out

tax offsets under section 355-100 obtained by the

entity (the recipient), or an entity mentioned in subsection (4), for

one or more income years.

Note 1:

Section 12B or 31 of the Income Tax Rates Act 1986 sets the rate at

which the entity must pay extra income tax on this amount.

Note 2:

Paragraphs (a) and (b) of this subsection refer to amounts notionally

deducted under this Division (see section 355-105).

Amount is reduced by any repayments of the recoupment

(2) For the purposes of subsection (1), reduce the expenditure referred

to in subparagraph 355-445(b)(i) by any repayments of the

recoupment during an income year.

Cap on extra income tax if recoupment relates to a project

(3) Despite subsection (1), if the

recoupment is covered by

subparagraph 355-445(b)(ii), the amount of extra income tax

payable for the trigger year on the recoupment cannot exceed the

following amount:

R&D expenditure

Net amount of the recoupment

Project expenditure

�

where:

net amount of the recoupment means the total amount of the

recoupment, less any repayments of the recoupment during an

income year.

Main components of new R&D incentive Schedule 1

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 27

Related entities

(4) The other entities for the purposes of subsection (1) are as follows:

(a)

entity

connected with the recipient;

(b)

affiliate of the recipient or an entity of which the

recipient is an affiliate.

Subdivision 355-H--Feedstock adjustments

Table of sections

355-460 What this Subdivision is about

355-465 Feedstock adjustment to assessable income

355-470 Feedstock revenue

355-475 Application to connected entities and affiliates

355-460 What this Subdivision is about

An amount is included in an R&D entity's assessable income if it

can deduct under this Division expenditure on goods, materials or

energy used during R&D activities to produce:

(a)

marketable products; or

(b)

products applied to the R&D entity's own use.

355-465 Feedstock adjustment to assessable income

(1) This section applies to an

R&D entity for an income year (the

present year) if:

(a) it incurs expenditure in one or more income years in

acquiring or producing goods, or materials, (the feedstock

inputs) transformed or processed during

R&D activities in

producing one or more tangible products (the feedstock

outputs); and

(b) it obtains under section 355-100

tax offsets for one or more

income years for deductions under this Division:

(i) for the expenditure; or

(ii) for expenditure it incurs on any energy input directly

into the transformation or processing; or

Schedule 1 Main components of new R&D incentive

28 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

(iii) for the decline in value of assets used in acquiring or

producing the feedstock inputs; and

feedstock output, (the marketable product) is:

(i)

supplied by the R&D entity to another entity; or

(ii) applied by the R&D entity to the R&D entity's own use,

other than use for the purpose of transforming that

product for supply.

(2)

The

R&D entity's assessable income for the present year includes

an amount equal to

of the lesser of:

(a)

the

feedstock revenue for the feedstock output; and

(b) so much of the total of the amounts deducted as described in

paragraph (1)(b) that is reasonably attributable to the

production of the feedstock output.

Note:

This subsection applies separately for each of the feedstock outputs.

(3) Subsection (2) does not apply to the feedstock output if:

(a) it becomes, or is transformed into, a feedstock input; or

(b) that subsection already applies to the feedstock output

because of the application of paragraph (1)(c) to:

(i) an earlier time during the present year; or

(ii) an earlier income year.

355-470 Feedstock revenue

The

feedstock revenue, for the feedstock output, is worked out as

follows:

Cost of producing the feedstock output

Market value of the

marketable product

Cost of producing the marketable product

�

where:

market value of the marketable product means the marketable

product's

market value at the time it is:

(a)

supplied by the

R&D entity to the other entity; or

(b) first applied by the R&D entity to the R&D entity's own use,

other than use for the purpose of transforming that product

for supply.

Main components of new R&D incentive Schedule 1

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 29

355-475 Application to connected entities and affiliates

This Subdivision applies to a

supply or use of the marketable

product by:

(a)

entity

connected with the

R&D entity; or

(b)

affiliate of the R&D entity or an entity of which the R&D

entity is an affiliate;

as if it were by the R&D entity.

Subdivision 355-I--Application to earlier income year R&D

expenditure incurred to associates

Table of sections

355-480 Notional deductions for expenditure incurred to associate in earlier income

years

355-480 Notional deductions for expenditure incurred to associate in

earlier income years

Notional deductions for earlier year associate expenditure

(1)

R&D entity can deduct for an income year (the present year)

expenditure it incurred to its

associate during an earlier income

year to the extent that:

(a) the expenditure was incurred on one or more

R&D

activities:

(i) for which the R&D entity is registered under

section 27A of the Industry Research and Development

Act 1986 for an income year; and

(ii) that are activities to which section 355-210 (conditions

for R&D activities) applies; and

(b) the expenditure is paid to that associate during the present

year; and

Note 1:

This section applies in a modified way to R&D partnership

expenditure (see sections 355-510 and 355-515).

Note 2:

Expenditure paid in income years starting on or after 1 July 2010 may

be deductible for activities registered for income years starting before

1 July 2010 (see section 355-200 of the Income Tax (Transitional

Provisions) Act 1997).

Schedule 1 Main components of new R&D incentive

30 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

Expenditure cannot have been otherwise deducted etc.

(2) This subsection applies to the expenditure if:

(a)

the

R&D entity can deduct the expenditure, or is entitled to a

tax offset for the expenditure, under any other Division of

this Act for an earlier income year; and

(b) by the time of lodging its

income tax return for the most

recent income year before the present year, the R&D entity

had neither:

(i) deducted the expenditure; nor

(ii) obtained a tax offset for the expenditure;

as described in paragraph (a).

(3) The entitlement to the deduction, or

tax offset, described in

paragraph (2)(a) ceases to the extent that subsection (2) applies to

the expenditure.

Example: If, by the time mentioned in paragraph (2)(b), an R&D entity chose to

deduct only a third of the expenditure it could have deducted under

another Division, then the remaining 2 thirds of that expenditure:

(a) can be deducted under this section; but

(b) can no longer be deducted under the other Division.

Notional deduction is subject to integrity rules etc.

(4) This section has effect subject to section 355-225 (excluded

expenditure), Subdivision 355-F (integrity rules) and subsection

355-580(3) (CRC contributions).

Subdivision 355-J--Application to R&D partnerships

Table of sections

355-500 What this Subdivision is about

355-505 Meaning

R&D partnership and partner's proportion

355-510 R&D partnership expenditure on R&D activities

355-515 R&D activities conducted by or for an R&D partnership

355-520 When notional deductions arise for decline in value of depreciating assets

of R&D partnerships

355-525 Balancing adjustments for R&D partnership assets only used for R&D

activities

355-530 Implications for partner's aggregated turnover

355-535 Disposal of R&D results--assets of R&D partnerships

355-540 Application of recoupment rules

Main components of new R&D incentive Schedule 1

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 31

355-545 Relevance for net income, and losses, of the R&D partnership

355-500 What this Subdivision is about

This Subdivision modifies the rules in this Division for partners of

R&D partnerships.

In particular, the rules about deducting R&D expenditure are

modified to allow a partner to deduct the partner's proportion of

the R&D partnership's expenditure on R&D activities.

A partner of an R&D partnership may also be able to deduct under

this Subdivision the decline in value of partnership assets used for

R&D activities.

355-505 Meaning of R&D partnership and partner's proportion

(1) A partnership is an R&D partnership at a particular time if, at that

time, each of the partners is an

R&D entity.

(2) For an amount attributable to an

R&D partnership for an income

year, each partner of the R&D partnership is taken to bear or be

entitled to (as appropriate) this proportion (the partner's

proportion) of the amount:

(a) the proportion the partners agreed the partner should bear or

be entitled to (as appropriate); or

(b) if there is no such agreement--the proportion of the partner's

interest in the

net income or

partnership loss of the R&D

partnership for the income year.

355-510 R&D partnership expenditure on R&D activities

R&D partnership incurs expenditure on one or more R&D

activities during an income year, this Division applies in relation to

each

R&D entity that is a partner of the R&D partnership at some

time during the income year as if:

(a) the partner incurred the partner's proportion of that

expenditure when the R&D partnership incurred that

expenditure; and

Schedule 1 Main components of new R&D incentive

32 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

(b) neither the R&D partnership, nor any other partner of the

R&D partnership, incurred expenditure during the income

year on the R&D activities; and

appropriate having regard to that partner's proportion of

amounts attributable to the R&D partnership.

Note:

This section and section 355-515 may result in:

(a) the partner being able to deduct the partner's proportion of the

partnership expenditure under section 355-205 (R&D

expenditure) or 355-480 (earlier year associate R&D

expenditure) for the R&D activities; and

(b) the partner being affected by the integrity rules in

Subdivisions 355-F, 355-G and 355-H.

355-515 R&D activities conducted by or for an R&D partnership

If one or more

R&D activities are conducted by or for an

R&D

partnership during an income year, this Division applies in relation

to each

R&D entity that is a partner of the R&D partnership at

some time during the income year as if:

(a) the R&D activities were conducted by or for the partner in a

corresponding way to the way the R&D activities were

conducted by or for the R&D partnership; and

(b) the partner had relationships with other entities in relation to

the R&D activities that corresponded to the relationships the

R&D partnership had with those other entities in relation to

the R&D activities; and

relation to the R&D activities were a thing done by, or in

relation to, the partner; and

(d) the R&D activities were neither:

(i) conducted by or for the R&D partnership; nor

(ii) conducted by or for any other partner of the R&D

partnership; and

(e) such other changes were made to this Division as are

appropriate having regard to that partner's proportion of

amounts attributable to the R&D partnership.

Note 1:

For the purposes of this Division, entities that are associates or

affiliates of, or connected with, the R&D partnership are taken to be

associates or affiliates of, or connected with, the partner (see

paragraph (b)).

Main components of new R&D incentive Schedule 1

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 33

Note 2:

For the purposes of this Division, payments and agreements made by

the R&D partnership for the R&D activities are taken to be made by

the partner (see paragraph (c)).

355-520 When notional deductions arise for decline in value of

depreciating assets of R&D partnerships

When notional deductions arise

(1)

If:

(a)

R&D entity is a partner of an

R&D partnership at some

time during an income year (the present year); and

(b) the partner is registered under section 27A of the Industry

Research and Development Act 1986 for the present year for

one or more

R&D activities that are activities to which

section 355-210 (conditions for R&D activities) applies; and

Note:

Section 355-210 applies with changes for this paragraph (see

section 355-515).

depreciating asset is

held by the R&D

partnership during the present year, the asset is used for the

purpose of conducting one or more of those R&D activities;

and

(d) the R&D partnership could deduct an amount under

section 40-25 for the asset for the present year if Division 40

applied with the changes described in section 355-310; and

Note:

Section 355-310 applies with changes for this paragraph (see

subsection (2) of this section).

(e) the R&D partnership cannot deduct an amount for the asset

for:

(i) an earlier income year under Subdivision 328-D (capital

allowances for small business entities); or

(ii) an earlier income year under Division 40 (as that

Division applies apart from this Division), in a case

where section 40-440 (low-value pools) applied;

the partner can deduct the partner's proportion of the amount

referred to in paragraph (d) for the present year.

Changed application of Division 40 for this Subdivision

(2) For the purposes of this Subdivision, section 355-310 applies as if

the following changes were made:

Schedule 1 Main components of new R&D incentive

34 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

Changes to be made

Item

For a reference in section 355-310 to...

substitute a reference to...

paragraph 355-305(1)(c)

paragraph 355-520(1)(d)

section 355-315

section 355-525

paragraph 355-305(1)(b)

paragraph 355-520(1)(c)

R&D entity

R&D partnership

Disregard certain assets held because of CRC contributions

(3) This section has effect subject to subsection 355-580(4) (CRC

contributions).

355-525 Balancing adjustments for R&D partnership assets only

used for R&D activities

(1) This section applies to an

R&D entity (the partner) if:

(a)

balancing adjustment event happens in an income year (the

event year) for an asset

held by an

R&D partnership; and

(b) the R&D partnership cannot deduct an amount under

section 40-25, as that section applies apart from:

(i) this Division; and

(ii) former section 73BC of the Income Tax Assessment Act

1936;

for the asset for an income year; and

tax offsets

for one or more income years for deductions (the R&D

deductions) under section 355-520 for the asset; and

(d) the partner is registered under section 27A of the Industry

Research and Development Act 1986 for one or more

R&D

activities for the event year; and

(e) if Division 40 applied with the changes described in

section 355-310 (as affected by subsection 355-520(2)):

(i) the R&D partnership could deduct for the event year an

amount under subsection 40-285(2) for the asset and the

balancing adjustment event; or

(ii) an amount would be included in the R&D partnership's

assessable income for the event year under subsection

Main components of new R&D incentive Schedule 1

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 35

40-285(1) for the asset and the balancing adjustment

event.

Note 1:

This section applies in a modified way if the partner has deductions

for the asset under former section 73BA or 73BH of the Income Tax

Assessment Act 1936 (see section 355-325 of the Income Tax

(Transitional Provisions) Act 1997).

Note 2:

Section 40-293 applies if the R&D partnership can deduct an amount

under section 40-25, as that section applies apart from this Division

and former section 73BC of the Income Tax Assessment Act 1936.

Notional deduction

(2)

the

R&D partnership could deduct for the event year an amount

under subsection 40-285(2) for the asset and the event if

Division 40 applied as described in paragraph (1)(e), the partner

can deduct the partner's proportion of that amount for the event

year.

Amount to be included in assessable income

(3) If an amount (the section 40-285 amount) would be included in the

R&D partnership's assessable income for the event year under

subsection 40-285(1) for the asset and the event if Division 40

applied as described in paragraph (1)(e), the partner's proportion of

the sum of:

(a) that amount; and

(b) the following amount;

is included in the partner's assessable income for the event year:

Adjusted section 40-285 amount

�

where:

adjusted section 40-285 amount means so much of the

section 40-285 amount as does not exceed the total decline in

value.

total decline in value means the asset's

cost, less its

adjustable

value, worked out under Division 40 as it applies as described in

paragraph (1)(e).

Schedule 1 Main components of new R&D incentive

36 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

355-530 Implications for partner's aggregated turnover

For the purposes of sections 40-292 (balancing adjustments for

decline in value) and 355-100 (tax offsets for R&D), if:

(a)

R&D entity is a partner of an

R&D partnership at some

time during an income year; and

(b)

the

partner's

aggregated turnover for the income year does

not include the R&D partnership's

annual turnover for the

income year;

the partner's aggregated turnover for the income year includes the

partner's proportion of the R&D partnership's annual turnover for

the income year.

355-535 Disposal of R&D results for R&D partnerships

In addition to its application apart from this section,

section 355-410 (disposal of R&D results) also applies to each

partner of an

R&D partnership with such changes as are

appropriate having regard to:

(a)

amounts

(the

results amounts) of a kind set out in

subparagraphs 355-410(1)(b)(i) to (v) that the R&D

partnership receives or becomes entitled to receive in an

income year; and

(b) the principle that any amount to be included in the partner's

assessable income for the income year for a results amount

should be the partner's proportion of the amount arising

under subsection 355-410(2) for the results amount.

Note:

The ordinary application of section 355-410 will apply to any of the

partner's deductions under this Division that do not relate to the R&D

partnership.

355-540 Application of recoupment rules

(1)

If:

(a)

R&D partnership incurs expenditure (the partnership

expenditure) on

R&D activities; and

(b)

R&D entity (the partner) is entitled under

section 355-100 to a

tax offset because it can, under

section 355-205 or 355-480, deduct some or all of that

expenditure; and

Main components of new R&D incentive Schedule 1

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 37

recoupment of

any or all of the partnership expenditure;

the partner is taken, for the purposes of Subdivisions 20-A and

355-G:

(d) to have incurred the partner's proportion of the partnership

expenditure when the R&D partnership incurred that

expenditure; and

(e) to have received the partner's proportion of the recoupment

when the R&D partnership received the recoupment.

(2)

If:

(a)

R&D entity (the partner) is entitled under

section 355-100 to a

tax offset because it can, under

section 355-520, deduct an amount for an income year for an

asset; and

(b)

the

applicable

R&D partnership receives an amount as a

recoupment of any or all of the R&D partnership's

expenditure included in the

cost of the asset for the purposes

of the application of Division 40 as described in paragraph

355-520(1)(d);

the partner is taken, for the purposes of Subdivisions 20-A and

355-G:

when the R&D partnership incurred that expenditure; and

(d) to have received the partner's proportion of the recoupment

when the R&D partnership received the recoupment.

355-545 Relevance for net income, and losses, of the R&D

partnership

For

R&D entity that is a partner of an

R&D partnership, none

of the following:

(a) any expenditure the R&D entity is taken to have incurred

because of this Subdivision;

(b) any amount the R&D entity can deduct under this

Subdivision;

(c)

any

recoupment the R&D entity is taken to have received

because of this Subdivision;

Schedule 1 Main components of new R&D incentive

38 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

are to be taken into account in determining the

net income of the

R&D partnership, or any

partnership loss of the R&D partnership,

for an income year.

Subdivision 355-K--Application to Cooperative Research

Centres

Table of sections

355-580 When notional deductions for CRC contributions arise

355-580 When notional deductions for CRC contributions arise

Monetary contributions are deductible

(1)

R&D entity can deduct for an income year expenditure it

incurs during that year to the extent that:

(a) the expenditure is in the form of monetary contributions

under the

CRC program; and

(b) the contributions have been or will be spent under the CRC

program on one or more

R&D activities for which the R&D

entity is registered under section 27A of the Industry

Research and Development Act 1986 for an income year.

Note 1:

The R&D activities will need to be conducted during the income year

the R&D entity is registered for those activities (see sections 27A and

27J of the Industry Research and Development Act 1986).

Note 2:

Expenditure incurred in income years starting on or after 1 July 2010

may be deductible for activities registered for income years starting

before 1 July 2010 (see section 355-200 of the Income Tax

(Transitional Provisions) Act 1997).

(2) Subsection (1) does not apply to expenditure to the extent that it is

incurred out of Commonwealth funding.

No other deductions arise for monetary contributions etc.

(3)

Neither:

(a) a contribution an

R&D entity can deduct under

subsection (1); nor

(b) expenditure incurred under the

CRC program, to the extent

that the expenditure is incurred out of:

(i) a contribution an R&D entity can deduct under

subsection (1); or

Main components of new R&D incentive Schedule 1

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 39

(ii)

Commonwealth

funding;

can be deducted by any R&D entity under any other provision of

this Division for any income year.

(4) If an asset's

cost includes expenditure incurred under the

CRC

program out of:

(a) a contribution an

R&D entity can deduct under

subsection (1); or

(b)

Commonwealth

funding;

an amount equal to the asset's decline in value cannot be deducted

under this Division by any R&D entity for any income year.

Subdivision 355-W--Other matters

Table of sections

355-700 Objecting to assessment of refundable tax offset

355-705 Effect of findings by Innovation Australia

355-710 Amendment of assessments

355-715 Implications for other deductions and tax offsets

355-700 Objecting to assessment of refundable tax offset

(1)

R&D entity may object under subsection 175A(1) of the

Income Tax Assessment Act 1936 against an assessment made in

relation to the R&D entity to the extent that the assessment relates

to the amount of a

tax offset under section 355-100 that is subject

to the refundable tax offset rules.

Note:

See section 67-30 for when a tax offset under section 355-100 is

subject to the refundable tax offset rules.

(2) This section does not limit subsection 175A(1) of that Act, and has

effect despite subsection 175A(2) of that Act.

Note:

Subsection 175A(2) of that Act prevents objections if the taxpayer has

no taxable income, or if there is no tax payable on the taxpayer's

taxable income.

355-705 Effect of findings by Innovation Australia

Findings about registration or core technology

(1)

If:

Schedule 1 Main components of new R&D incentive

40 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

(a) a certificate given to the Commissioner under the Industry

Research and Development Act 1986 sets out:

(i) a finding under section 27B of that Act about an

R&D

entity's application for registration under section 27A of

that Act for an income year; or

(ii) a finding under section 27J of that Act about an R&D

entity's registration under section 27A of that Act for an

income year; or

(iii) a finding under section 28E of that Act about an R&D

entity and one or more

R&D activities conducted or to

be conducted during one or more income years; and

(b) the finding was made within 4 years after the end of the

income year or the last of the income years (as appropriate);

the finding binds the Commissioner for the purposes of

assessments of the R&D entity for the income year or years (as

appropriate).

Note:

Section 28E of the Industry Research and Development Act 1986

deals with findings that technology is core technology for particular

R&D activities. Expenditure incurred in acquiring such technology is

not deductible under this Division (see subsection 355-225(2)).

Advance findings about activities yet to be completed

(2)

If:

(a) an activity is being conducted, or is yet to be conducted, in an

income year; and

(b)

R&D entity applies in the income year for a finding

under section 28A of the Industry Research and Development

Act 1986 about the activity; and

Commissioner a certificate under that Act setting out the

finding;

the finding binds the Commissioner for the purposes of

assessments of the R&D entity for the income year and the next 2

income years.

Advance findings about completed activities

(3)

However,

if:

(a) an activity is completed during an income year; and

Main components of new R&D incentive Schedule 1

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 41

(b)

R&D entity applies in the income year for a finding

under section 28A of the Industry Research and Development

Act 1986 about the activity; and

Commissioner a certificate under that Act setting out the

finding;

the finding binds the Commissioner for the purposes of

assessments of the R&D entity for the income year.

355-710 Amendment of assessments

Dealing with findings of Innovation Australia

(1)

If:

(a) a certificate given to the Commissioner under the Industry

Research and Development Act 1986 sets out:

(i) a finding under section 27B of that Act about an

R&D

entity's application for registration under section 27A of

that Act for an income year; or

(ii) a finding under section 27J of that Act about an R&D

entity's registration under section 27A of that Act for an

income year; or

(iii) a finding under section 28A or 28C of that Act made on

application by an R&D entity during an income year; or

(iv) a finding under section 28E of that Act about an R&D

entity and one or more R&D activities conducted or to

be conducted during one or more income years; and

(b) the finding was made within 4 years after the end of the

income year or the last of the income years (as appropriate);

despite section 170 of the Income Tax Assessment Act 1936, the

Commissioner may amend the R&D entity's assessment for an

income year affected by the finding at any time for the purposes of

giving effect to the finding.

(2) However, the Commissioner may only do so within 2 years after

the Commissioner is given the certificate if giving effect to the

finding would increase the R&D entity's liability.

Dealing with key decisions of Innovation Australia and others

(3)

If:

Schedule 1 Main components of new R&D incentive

42 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

(a) an internal review decision (the key decision) under

subsection 30D(2) of the Industry Research and Development

Act 1986 relates to an

R&D entity; or

(b) a decision (also the key decision) under the Administrative

Appeals Tribunal Act 1975:

(i) varies a decision covered by paragraph (a); or

(ii) sets aside a decision covered by paragraph (a), whether

or not that key decision also includes a decision made in

substitution for the decision covered by paragraph (a);

(i) a decision under Part III of the Industry Research and

Development Act 1986 relating to an R&D entity; or

(ii) a decision covered by paragraph (b);

despite section 170 of the Income Tax Assessment Act 1936, the

Commissioner may amend the R&D entity's assessment for an

income year affected by the key decision at any time for the

purposes of giving effect to that decision.

355-715 Implications for other deductions and tax offsets

(1)

R&D entity is entitled under section 355-100 to a

tax offset

for an income year for expenditure it can deduct under

section 355-205, 355-480 or 355-580, that expenditure:

(a) cannot be taken into account by any entity in working out a

deduction under any other Division of this Act for any

income year; and

(b) cannot be taken into account by any entity in working out a

tax offset under any other Division of this Act for any income

year.

Note:

Section 355-205 is about R&D expenditure, section 355-480 is about

earlier year associate R&D expenditure, and section 355-580 is about

CRC contributions.

(2)

R&D entity is entitled under section 355-100 to a

tax offset

for an income year for a deduction under section 355-305,

355-315, 355-520 or 355-525 of an amount equal to the decline in

value of an asset, that decline in value:

(a) cannot be taken into account by any entity in working out a

deduction under any other Division of this Act (other than

section 40-292 or 40-293) for any income year; and

Main components of new R&D incentive Schedule 1

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 43

(b) cannot be taken into account by any entity in working out a

tax offset under any other Division of this Act for any income

year;

to the extent that the decline in value is attributable to the use of

the asset for the purpose of conducting one or more of the

R&D

activities to which the deduction relates.

Note 1:

A deduction may be available under section 40-25 to the extent that

the asset's decline in value is attributable to another purpose. If so,

that deduction under section 40-25 will not take into account the

asset's decline in value to the extent that it is attributable to the R&D

activities (see also subsection 40-25(2)).

Note 2:

Section 355-305 is about the decline in value of R&D assets,

section 355-315 is about balancing adjustments for R&D assets,

section 355-520 is about the decline in value of R&D partnership

assets, and section 355-525 is about balancing adjustments for R&D

partnership assets.

Note 3:

Sections 40-292 and 40-293 deal with balancing adjustments when

deductions have been available for the asset's decline in value both

under this Division and section 40-25.

2 Subsection 995-1(1)

Insert:

core R&D activities has the meaning given by section 355-25.

3 Subsection 995-1(1)

Insert:

CRC program means the program administered by the

Commonwealth known as the Cooperative Research Centres

Program.

4 Subsection 995-1(1)

Insert:

feedstock revenue has the meaning given by section 355-470.

5 Subsection 995-1(1)

Insert:

partner's proportion has the meaning given by subsection

355-505(2).

Schedule 1 Main components of new R&D incentive

44 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

6 Subsection 995-1(1)

Insert:

R&D activities has the meaning given by section 355-20.

7 Subsection 995-1(1)

Insert:

R&D entity has the meaning given by section 355-35.

8 Subsection 995-1(1)

Insert:

R&D partnership has the meaning given by subsection

355-505(1).

9 Subsection 995-1(1) (definition of research and

development activities)

Repeal the definition.

10 Subsection 995-1(1)

Insert:

supporting R&D activities has the meaning given by

section 355-30.

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Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 45

Schedule 2--Innovation Australia's role

Part 1--Main amendment

Industry Research and Development Act 1986

1 After Part II

Insert:

Part III--Functions relating to the R&D tax offset

Division 1--Introduction

26 Objects

The objects of this Part are:

(a) to provide integrity for the working out of tax offsets under

Division 355 (about R&D) of the Income Tax Assessment Act

1997; and

(b) to increase certainty through findings about matters relevant

to the working out of those tax offsets; and

quality research services by maintaining a register of research

service providers.

Note:

The integrity mentioned in paragraph (a) is provided, for example, by:

(a) the Board registering entities seeking these tax offsets; and

(b) the Board conducting compliance checks on those entities.

26A Simplified outline

The following is a simplified outline of this Part:

�

The Board may, on application by an R&D entity, register the

R&D entity for R&D activities. This registration is needed

before the R&D entity can be entitled to a tax offset (an R&D

tax offset) under Division 355 of the Income Tax Assessment

Act 1997 for the R&D activities.

Schedule 2 Innovation Australia's role

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46 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

�

The R&D entity can seek an advance finding to get early

notice about whether an activity is considered to be an R&D

activity.

�

The R&D entity can seek a finding that an activity cannot be

conducted in Australia. The finding is needed before

expenditure incurred on the activity can count towards an

R&D tax offset.

�

The Board may register entities as research service providers

capable of providing research services to R&D entities.

�

Internal and external review can be sought for certain

decisions under this Part.

Division 2--Registering for the R&D tax offset

Subdivision A--Introduction

27 Simplified outline

The following is a simplified outline of this Division:

�

The Board may register an R&D entity for R&D activities

conducted during an income year.

�

The Board may make findings about the nature of an R&D

entity's activities both before and after registration. This

includes findings made on application by the R&D entity after

registration.

�

These findings bind the Commissioner for the purposes of any

entitlement of the R&D entity to a tax offset under

Division 355 of the Income Tax Assessment Act 1997 for the

activities.

�

The Board will register an R&D entity's activities consistently

with any findings made about the entity's application. Any

findings made about these activities after registration will, if

necessary, automatically vary the entity's registration.

Innovation Australia's role Schedule 2

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Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 47

�

Registrations can also be varied and revoked.

Subdivision B--Registering R&D entities for R&D activities

27A Registering R&D entities for R&D activities

(1) The Board must, on application by an R&D entity, decide whether

to register or refuse to register the entity for either or both of the

following for an income year:

(a) one or more specified activities as core R&D activities

conducted during the income year;

(b) one or more specified activities as supporting R&D activities

conducted during the income year.

Note 1:

A decision under this subsection is reviewable (see Division 5).

Note 2:

For requirements of applications, see section 27D.

(2) If the Board decides under subsection (1) to register the R&D

entity, the Board must do so consistently with:

(a) any findings already in force under subsection 27B(1) in

relation to the application; and

(b) any findings already in force under subsection 28A(1)

(advance findings about the nature of activities) in relation to

the R&D entity.

(3) For each activity registered under subsection (1) as a supporting

R&D activity for an R&D entity for an income year, the

registration is to also specify:

(a) one or more activities as the corresponding core R&D

activities; and

(b) if any of those activities specified as a core R&D activity is

not registered under paragraph (1)(a) for the R&D entity for

the income year--each income year for which that core R&D

activity:

(i) was registered under paragraph (1)(a) for the R&D

entity; or

(ii) is proposed to be registered under paragraph (1)(a) for

the R&D entity.

Schedule 2 Innovation Australia's role

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48 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

27B Findings about applications for registration

(1) The Board may make one or more findings to the following effect

when considering an R&D entity's application for the purposes of

subsection 27A(1):

(a) that all or part of an activity mentioned in the application was

a core R&D activity conducted during the income year;

(b) that all or part of an activity mentioned in the application was

not an activity of a kind covered by paragraph (a);

a supporting R&D activity conducted:

(i) during the income year; and

(ii) in relation to one or more specified core R&D activities

for which the entity has been or could be registered

under section 27A for an income year;

(d) that all or part of an activity mentioned in the application was

not an activity of a kind covered by paragraph (c).

Note 1:

A finding is reviewable (see Division 5).

Note 2:

The Board could make a finding under paragraph (b) if, for example,

the Board has insufficient information to make a finding under

paragraph (a). Similarly, the Board could make a finding under

paragraph (d) if it has insufficient information to make a finding under

paragraph (c).

Note 3:

The Board may also make findings after registration (see subsection

27J(1)).

(2) If the Board makes a finding under subsection (1) in relation to the

R&D entity's application, the Board may specify in the finding the

times to which the finding relates.

Example: A finding under paragraph (1)(a) could specify the times during the

income year that an activity was a core R&D activity.

(3) This section has effect subject to section 32B (findings cannot be

inconsistent with any earlier findings).

27C Notice of decision about registration

(1) The Board must notify an applicant in writing of the Board's

decision under subsection 27A(1) about the application.

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(2) The notice must include a certificate for each finding (if any) made

under subsection 27B(1) for the application. The certificate must

set out:

(a) a description of the finding; and

(b) the Board's reasons for the finding; and

(d) the matters (if any) specified in regulations made for the

purposes of this paragraph.

The notice and certificate may set out other matters.

Note:

The notice could also mention the applicant's right to have the finding

reviewed under Division 5 (see section 30B).

(3) The Board must give the Commissioner a copy of the notice if the

notice includes one or more certificates.

(4) A failure to comply with this section does not affect the validity of

the decision or finding.

Subdivision C--Applying to register R&D activities

27D Applying to register R&D activities

An application to register activities under section 27A for an

income year must be:

(a) in the approved form; and

(b) accompanied by the fee (if any) specified in regulations made

under section 48A for the purposes of this section; and

(c)

made

within:

(i) 10 months after the end of the income year; or

(ii) a further period allowed by the Board in accordance

with the decision-making principles.

Note 1:

A refusal to allow a further period is reviewable (see Division 5).

Note 2:

Section 32 deals with approved forms.

Note 3:

Section 32A deals with the decision-making principles.

27E Board may request further information

(1) The Board may request the applicant in writing to give specified

information, or specified kinds of information, to the Board about

the application.

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50 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

(2) The request may be for the information or kinds of information to

be given within:

(a) 30 days after the request was made; or

(b) a further period allowed by the Board in accordance with the

decision-making principles.

Note 1:

A refusal to allow a further period is reviewable (see Division 5).

Note 2:

Section 32A deals with the decision-making principles.

Note 3:

A failure by the entity to give the information may result in a finding

under paragraph 27B(1)(b) or (d).

(3) The request may be for the information or kinds of information to

be given in the approved form.

Note:

Section 32 deals with approved forms.

(4) Subsections (2) and (3) do not limit subsection (1).

Subdivision D--Examining registrations

27F Examining a registration

(1) The Board may conduct one or more examinations of all or part of

an R&D entity's registration under section 27A for an income year

for the purposes of making one or more findings under subsection

27J(1).

Note:

A finding under subsection 27J(1) will support the entity's

registration, or cause the variation of that registration.

(2) The Board may examine an R&D entity's registration on its own

initiative.

(3) The Board must examine an R&D entity's registration if:

(a) requested by the Commissioner; or

(b) the R&D entity has applied for one or more findings under

subsection 27J(1) about the registration.

Note:

A finding under subsection 27J(1) can only bind the Commissioner for

the purposes of the R&D entity's income tax assessment for the

income year if the finding is made within 4 years after the end of the

income year (see subsection 355-705(1) of the Income Tax Assessment

Act 1997).

(4) If the R&D entity applies for a finding under subsection 27J(1)

about the registration, the Board must:

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(a) make one or more findings under subsection 27J(1) about the

registration; or

(b) if justified in accordance with the decision-making

principles--refuse to make a finding under subsection 27J(1)

about the registration.

Note 1:

The Board may make a finding that differs from that sought by the

R&D entity.

Note 2:

A finding, or a refusal to make a finding, is reviewable (see

Division 5).

Note 3:

Section 32A deals with the decision-making principles.

27G Applying for findings

An application for one or more findings under subsection 27J(1)

must be:

(a) in the approved form; and

(b) accompanied by the fee (if any) specified in regulations made

under section 48A for the purposes of this section.

Note 1:

An application can seek findings for several activities.

Note 2:

Section 32 deals with approved forms.

27H Board may request information during an examination

(1) When examining an R&D entity's registration, the Board may

request the entity in writing to give specified information, or

specified kinds of information, to the Board about the entity's

registration.

(2) The request may be for the information or kinds of information to

be given within:

(a) 30 days after the request was made; or

(b) a further period allowed by the Board in accordance with the

decision-making principles.

Note 1:

A refusal to allow a further period is reviewable (see Division 5).

Note 2:

Section 32A deals with the decision-making principles.

Note 3:

A failure by the entity to give the information may result in a finding

under paragraph 27J(1)(b) or (d).

(3) The request may be for the information or kinds of information to

be given in the approved form.

Schedule 2 Innovation Australia's role

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52 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

Note:

Section 32 deals with approved forms.

(4) Subsections (2) and (3) do not limit subsection (1).

27J Findings about a registration

(1) The Board may make one or more findings to the following effect

about an R&D entity's registration under section 27A for an

income year (the registration year):

(a) that all or part of a registered activity was a core R&D

activity conducted during the registration year;

(b) that all or part of a registered activity was not an activity of a

kind covered by paragraph (a);

activity conducted during the registration year and in relation

to:

(i) one or more specified registered core R&D activities; or

(ii) one or more specified core R&D activities for which the

entity has been registered in an earlier income year; or

(iii) one or more specified core R&D activities yet to be

conducted for which the entity could be registered in the

registration year if those activities were conducted

during the registration year; or

(iv) several specified core R&D activities, each covered by

subparagraph (i), (ii) or (iii);

(d) that all or part of a registered activity was not an activity of a

kind covered by paragraph (c).

Note 1:

A finding is reviewable (see Division 5).

Note 2:

The Board could make a finding under paragraph (b) if, for example,

the Board has insufficient information to make a finding under

paragraph (a). Similarly, the Board could make a finding under

paragraph (d) if it has insufficient information to make a finding under

paragraph (c).

(2) If the Board makes a finding under subsection (1) in relation to the

R&D entity's registration, the Board may specify in the finding the

times to which the finding relates.

Example: A finding under paragraph (1)(a) could specify the times during the

registration year that a registered activity was a core R&D activity.

(3) This section has effect subject to section 32B (findings cannot be

inconsistent with any earlier findings).

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27K Notice of findings or of decisions refusing to make findings

(1) The Board must notify the R&D entity, and the Commissioner, in

writing of any findings under subsection 27J(1) about the entity's

registration under section 27A.

(2) The notice must include a certificate for each finding. The

certificate must set out:

(a) a description of the finding; and

(b) the Board's reasons for the finding; and

(d) the effect of the finding on the entity's registration; and

(e) the matters (if any) specified in regulations made for the

purposes of this paragraph.

The notice and certificate may set out other matters.

Note 1:

For the effect of the finding on the entity's registration, see

section 27L (about automatic variations to registrations).

Note 2:

The notice could also mention the applicant's right to have the finding

reviewed under Division 5 (see section 30B).

(3) The Board must notify the R&D entity in writing of any decision

under paragraph 27F(4)(b) refusing to make a finding under

subsection 27J(1) in response to an application under section 27G

by the R&D entity.

(4) A failure to comply with this section does not affect the validity of

a finding or decision.

27L Automatic variations so registration is consistent with findings

(1) If an R&D entity is registered under section 27A for an income

year, then while a finding is in force:

(a) under subsection 27B(1) in relation to the application for the

registration; or

(b) under subsection 27J(1) in relation to the registration;

the registration is taken always to have existed in a form consistent

with the finding.

Note 1:

This subsection will cease to apply if the finding is set aside on review

(see Division 5).

Note 2:

A finding has no effect to the extent of any inconsistency with a

finding already in force under this Part in relation to the R&D entity

(see section 32B).

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(2)

If:

(a) a finding under subsection 28A(1) (advance findings about

the nature of activities) comes into force for an R&D entity

about an activity conducted during an income year; and

(b) the R&D entity is later registered under section 27A for the

activity for the income year;

then, after registration and while the finding is in force, the

registration is taken to exist in a form consistent with the finding.

Note 1:

This subsection will cease to apply if the finding is set aside on review

(see Division 5).

Note 2:

A finding has no effect to the extent of any inconsistency with a

finding already in force under this Part in relation to the R&D entity

(see section 32B).

(3) This section has effect for the purposes of this Act and the Income

Tax Assessment Act 1997.

27M Varying registrations on application

(1) The Board may, by notice in writing given to an R&D entity, vary

the entity's registration under section 27A for an income year if:

(a) the entity applies for the variation; and

(b) the variation is consistent with the Board's findings (if any)

in force under this Part in relation to the R&D entity; and

decision-making principles.

Note 1:

A decision not to vary is reviewable (see Division 5).

Note 2:

Section 32A deals with the decision-making principles.

(2) An application for a variation must be:

(a) in the approved form; and

(b) accompanied by the fee (if any) specified in regulations made

under section 48A for the purposes of this section.

Note:

Section 32 deals with approved forms.

(3) Section 27E applies to an application under this section in a way

corresponding to the way that section applies to an application

under section 27D.

Note:

This means the Board may request further information about the

application for variation.

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(4) For the purposes of this Act and the Income Tax Assessment Act

1997, the effect of a variation is that the entity's registration under

section 27A for the income year is taken always to have existed as

varied.

27N Revoking registrations

(1) The Board may, by notice in writing given to an entity, revoke the

entity's registration under section 27A for an income year if the

Board is satisfied that the entity was not an R&D entity at any time

when an activity covered by the registration was conducted during

the income year.

Note:

A decision to revoke under this subsection is reviewable (see

Division 5).

(2) The Board may, by notice in writing given to an R&D entity,

revoke the entity's registration under section 27A for an income

year if the entity requests the Board to do so.

(3) A request for a revocation under subsection (2) must be:

(a) in the approved form; and

(b) accompanied by the fee (if any) specified in regulations made

under section 48A for the purposes of this section.

Note:

Section 32 deals with approved forms.

(4) For the purposes of this Act and the Income Tax Assessment Act

1997, the effect of a revocation under this section is that the entity

is taken never to have been registered under section 27A for the

income year.

Note:

This subsection will cease to apply if a revocation under

subsection (1) is set aside on review (see Division 5).

(5) The Board must notify the Commissioner of a revocation under

this section.

Division 3--Other findings

Subdivision A--Introduction

28 Simplified outline

The following is a simplified outline of this Division:

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�

An R&D entity can seek a finding (an advance finding) about

whether an activity is an R&D activity.

�

An advance finding binds the Commissioner for the purpose

of working out tax offsets (R&D tax offsets) under

Division 355 of the Income Tax Assessment Act 1997.

�

An R&D entity can seek a finding that an activity cannot be

conducted in Australia.

�

An R&D tax offset will only be available for expenditure

incurred on an activity conducted outside Australia if a finding

that the activity cannot be conducted in Australia has come

into force.

�

The Board may also make a finding about whether particular

technology is core technology for R&D activities.

�

An effect of a finding that the technology is core technology

for the R&D activities is that an R&D tax offset will not be

available for expenditure incurred in acquiring, or in acquiring

the right to use, the technology for the R&D activities.

Subdivision B--Advance findings about the nature of activities

28A Advance findings about the nature of activities

(1) The Board must, on application by an R&D entity for a finding

under this subsection about an activity, do one or more of the

following:

(a) find that all or part of the activity is a core R&D activity;

(b) find that all or part of the activity is a supporting R&D

activity in relation to one or more specified core R&D

activities for which the entity has been or could be registered

under section 27A for an income year;

neither:

(i) a core R&D activity; nor

(ii) a supporting R&D activity of a kind covered by

paragraph (b);

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(d) if justified in accordance with the decision-making

principles--refuse to make a finding about all or part of the

activity.

Note 1:

A finding, or a refusal to make a finding, is reviewable (see

Division 5).

Note 2:

For requirements of applications, see section 28G.

Note 3:

A finding binds the Commissioner for the purposes of income tax

assessments for certain income years (see subsections 355-705(2) and

(3) of the Income Tax Assessment Act 1997).

Note 4:

Section 32A deals with the decision-making principles.

(2) The Board must not make a finding under subsection (1) about an

activity unless the Board is satisfied that the activity:

(a) is being conducted, or has been completed, during the income

year in which the application is made; or

(b) is yet to be conducted, but that it is reasonable to expect that

the activity will be conducted in any or all of the following

income years:

(i) the income year in which the application is made;

(ii) either of the next 2 income years.

(3) If the Board makes a finding under subsection (1) about an activity

that is being conducted, or has been completed, during the income

year in which the application is made, the Board may specify in the

finding the times to which the finding relates.

(4) This section has effect subject to section 32B (findings cannot be

inconsistent with any earlier findings).

28B Applications made on behalf of R&D entities

(1) An application for a finding under subsection 28A(1) may be made

on behalf of an R&D entity by an entity who:

(a) is specified in regulations made for the purposes of this

subsection; and

(b) is acting with the R&D entity's written consent.

The application is taken to be made by the R&D entity.

Note:

For specification by class, see subsection 13(3) of the Legislative

Instruments Act 2003.

(2)

If:

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(a) an entity could, under subsection (1), make an application on

behalf of more than one R&D entity for the same finding for

the same activity; and

(b) the entity applies (the joint application) under subsection

28G(2) for the finding on behalf of those R&D entities;

the joint application is taken to be a separate application under

subsection 28G(1) for the finding by each of those R&D entities.

Subdivision C--Findings about activities to be conducted

outside Australia

28C Findings about activities to be conducted outside Australia

(1) The Board must, on application by an R&D entity for a finding

under this subsection about an activity, do one or more of the

following:

(a) find that all or part of the activity is an activity (the overseas

activity) that meets the conditions in section 28D;

(b) find that all or part of the activity is not an activity that meets

the conditions in section 28D;

principles--refuse to make a finding about all or part of the

activity.

Note 1:

A finding, or a refusal to make a finding, is reviewable (see

Division 5).

Note 2:

For requirements of applications, see section 28G.

Note 3:

An effect of a finding under paragraph (a) is that a tax offset may be

available for expenditure incurred on the overseas activity after the

finding comes into force (see Division 355 of the Income Tax

Assessment Act 1997, in particular paragraphs 355-210(1)(d) and (e)

of that Act).

Note 4:

Section 32A deals with the decision-making principles.

(2) For the purposes of this Act and the Income Tax Assessment Act

1997, a finding under subsection (1) comes into force at the start of

the income year in which the application for the finding is made.

(3) This section has effect subject to section 32B (findings cannot be

inconsistent with any earlier findings).

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28D Conditions for a finding that an overseas activity cannot be

conducted in Australia etc.

Must be an R&D activity

(1) The first condition is that the overseas activity is covered by a

finding under paragraph 28A(1)(a) or (b) (findings that activities

are R&D activities).

Must have significant scientific link to Australian core activities

(2) The second condition is that the overseas activity has a significant

scientific link to one or more core R&D activities (the Australian

core activities):

(a) that are conducted or to be conducted solely within Australia

or an external Territory; and

(b)

that:

(i) are registered under section 27A for the R&D entity for

an income year; or

(ii) are reasonably likely to be conducted and be registered

under section 27A for the R&D entity for an income

year.

(3) The overseas activity has a significant scientific link to the

Australian core activities if:

(a) the Australian core activities cannot be completed without

the overseas activity being conducted; and

(b) the conditions (if any) specified in regulations made for the

purposes of this subsection are met.

Must be unable to be conducted within Australia etc.

(4) The third condition is that the overseas activity cannot be

conducted solely in Australia or the external Territories because:

(a) conducting it requires access to a facility, expertise or

equipment not available in Australia or the external

Territories; or

(b) conducting it in Australia or the external Territories would

contravene a law relating to quarantine; or

things) not available in Australia or the external Territories;

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(d) conducting it requires access to a geographical or geological

feature not available in Australia or the external Territories;

(e) it meets a condition (if any) specified in regulations made for

the purposes of this subsection.

Expenditure must be less than that incurred on Australian core

activities

(5) The fourth condition is that the total actual and reasonably

anticipated expenditure of any entity in all income years on:

(a) the overseas activity; and

(b) each other activity (if any) conducted wholly or partly

outside Australia and the external Territories that has a

significant scientific link to the Australian core activities;

is less than the total actual and reasonably anticipated expenditure

of any entity in all income years on:

(d) activities conducted solely within Australia and the external

Territories that are supporting R&D activities in relation to

the Australian core activities.

Subdivision D--Findings about whether technology is core

technology

28E Findings about whether technology is core technology

(1) If an R&D entity has acquired, or has acquired the right to use,

particular technology wholly or partly for the purposes of one or

more R&D activities conducted, or to be conducted, during one or

more income years, the Board may:

(a) find that the technology is core technology for the R&D

activities; or

(b) find that the technology is not core technology for the R&D

activities; or

principles--refuse to make a finding about the technology

and the R&D activities.

Note 1:

A finding, or a refusal to make a finding, is reviewable (see

Division 5).

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Note 2:

A finding under paragraph (a) means that a tax offset will not be

available for expenditure incurred in acquiring, or in acquiring the

right to use, the technology for the R&D activities (see subsection

355-225(2) of the Income Tax Assessment Act 1997).

Note 3:

Section 32A deals with the decision-making principles.

(2) Particular technology is core technology for one or more R&D

activities if:

(a) a purpose of the R&D activities was or is:

(i) to obtain new knowledge based on that technology; or

(ii) to create new or improved materials, products, devices,

processes, techniques or services to be based on that

technology; or

(b) the R&D activities were or are an extension, continuation,

development or completion of the activities that produced

that technology.

(3) The Board must make a finding under paragraph (1)(a) or (b) if

requested by the Commissioner to make a finding under this

section.

(4) In addition to subsection (3), the Board:

(a) may make a finding under subsection (1) on its own

initiative; and

(b) must make a decision under subsection (1) if the R&D entity

applies for a finding under this section.

Note:

For requirements of applications, see section 28G.

(5) This section has effect subject to section 32B (findings cannot be

inconsistent with any earlier findings).

Subdivision E--Matters relevant to findings under this Division

28F Notice of decision about findings

(1) The Board must notify an applicant in writing of each of the

Board's decisions under subsection 28A(1) or 28C(1) about the

application.

(2) The Board must notify an R&D entity in writing of each of the

Board's decisions under subsection 28E(1) that relates to the R&D

entity.

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(3) A notice under subsection (1) or (2) must include a certificate for

each finding (if any) to which the decision relates. The certificate

must set out:

(a) a description of the finding; and

(b) the Board's reasons for the finding; and

(d) for a finding under subsection 28E(1)--a description of the

technology affected by the finding; and

(e) the matters (if any) specified in regulations made for the

purposes of this paragraph.

The notice and certificate may set out other matters.

Note:

The notice could also mention the applicant's right to have the finding

reviewed under Division 5 (see section 30B).

(4) The Board must give the Commissioner a copy of the notice if the

notice includes one or more certificates.

(5) A failure to comply with this section does not affect the validity of

a decision or finding.

28G Applying for findings

Applications for findings

(1) An application for one or more findings under this Division must

be:

(a) in the approved form; and

(b) accompanied by the fee (if any) specified in regulations made

under section 48A for the purposes of this subsection.

Note 1:

An application can seek findings for several activities.

Note 2:

Section 32 deals with approved forms.

Joint applications for identical advance findings

(2) An application for identical findings under subsection 28A(1) on

behalf of several R&D entities must be:

(a) in the approved form; and

(b) accompanied by the fee (if any) specified in regulations made

under section 48A for the purposes of this subsection.

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Note:

The application is taken to be a separate application under

subsection (1) of this section for the finding by each of those R&D

entities (see subsection 28B(2)).

28H Board may request further information

(1) The Board may request in writing:

(a) for an application taken to be made by an R&D entity

because of section 28B--the entity that acted on behalf of the

R&D entity in relation to the application; or

(b)

otherwise--the

applicant;

to give specified information, or specified kinds of information, to

the Board about the application.

(2) The request may be for the information or kinds of information to

be given within:

(a) 30 days after the request was made; or

(b) a further period allowed by the Board in accordance with the

decision-making principles.

Note 1:

A refusal to allow a further period is reviewable (see Division 5).

Note 2:

Section 32A deals with the decision-making principles.

Note 3:

A failure by the entity to give the information may result in a refusal

to make the finding.

(3) The request may be for the information or kinds of information to

be given in the approved form.

Note:

Section 32 deals with approved forms.

(4) Subsections (2) and (3) do not limit subsection (1).

Division 4--Research service providers

Subdivision A--Introduction

29 Simplified outline

The following is a simplified outline of this Division:

�

The Board may register entities as research service providers

capable of providing research services to R&D entities.

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�

Near the end of each financial year, registered research service

providers will be asked if they want their registrations to

continue for the next financial year.

�

Registrations can be varied and revoked.

�

Details of registrations are set out in a register available on the

internet.

Subdivision B--Registering research service providers

29A Registering research service providers

(1) The Board must, on application by an entity, decide whether to

provider capable of providing services in one or more specified

research fields to R&D entities registered under section 27A.

Note:

A decision under this subsection is reviewable (see Division 5).

(2) The Board must not register the entity under subsection (1) unless

the Board is satisfied that the entity meets the criteria specified in

regulations made for the purposes of this subsection.

(3) A registration under this section is subject to the conditions (if any)

specified in regulations made for the purposes of this subsection.

Subdivision C--Applying for registration

29B Applying for registration

An application to be registered under section 29A must be:

(a) in the approved form; and

(b) accompanied by the fee (if any) specified in regulations made

under section 48A for the purposes of this section.

Note:

Section 32 deals with approved forms.

29C Board may request further information about an application

(1) The Board may request the applicant in writing to give specified

information, or specified kinds of information, to the Board about

the application.

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(2) The request may be for the information or kinds of information to

be given within 30 days after the request was made.

(3) The request may be for the information or kinds of information to

be given in the approved form.

Note:

Section 32 deals with approved forms.

(4) Subsections (2) and (3) do not limit subsection (1).

(5) The Board may refuse to consider the application if the applicant

fails to give the information within:

(a) the 30 days referred to in subsection (2); or

(b) a further period allowed by the Board in accordance with the

decision-making principles.

Note 1:

A refusal to allow a further period is reviewable (see Division 5).

Note 2:

Section 32A deals with the decision-making principles.

29D Board may need to make inquiries about an application

(1) The Board may notify the applicant in writing that the Board:

(a) needs to make inquiries in order to determine whether the

applicant meets the criteria for registration referred to in

subsection 29A(2); and

(b) requires the applicant to pay the Board a specified amount

towards the cost of those inquiries.

(2) The Board may refuse to consider the application until the

applicant pays the Board that amount.

(3) An amount specified in a notice under subsection (1) must not

exceed the higher of:

(a)

$1,000;

and

(b) the amount (if any) specified in regulations made for the

purposes of this subsection;

and must not be such as to amount to taxation.

Subdivision D--Varying or revoking registrations

29E Duration of registrations

(1) At least 2 months before the end of each financial year, the Board

must give each research service provider a notice:

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(a) asking the provider if it wishes to continue to be registered

under section 29A; and

(b) attaching an approved form to be completed by the provider

and returned to the Board if the provider wishes to continue

to be registered.

This subsection does not apply to a provider who becomes

registered under section 29A in May or June of that financial year.

Note:

Section 32 deals with approved forms.

(2) The Board may, by notice in writing given to the provider, revoke

the provider's registration under section 29A if the provider does

not return the completed form within:

(a) 30 days after the notice under subsection (1) was given; or

(b) a further period allowed by the Board in accordance with the

decision-making principles.

Note 1:

A decision to revoke under this subsection is reviewable (see

Division 5).

Note 2:

Section 32A deals with the decision-making principles.

(3) For the purposes of this Act and the Income Tax Assessment Act

1997, the revocation takes effect at the end of that financial year.

Note:

This subsection will cease to apply if the revocation is set aside on

review (see Division 5).

29F Varying registrations--on application

(1) The Board may, by notice in writing given to a research service

provider, vary the provider's registration under section 29A if:

(a) the provider applies for the variation; and

(b) the Board is satisfied that the provider would still meet the

criteria for registration referred to in subsection 29A(2) were

the application to be successful.

Note:

A refusal to vary is reviewable (see Division 5).

(2) An application for a variation must be:

(a) in the approved form; and

(b) accompanied by the fee (if any) specified in regulations made

under section 48A for the purposes of this section.

Note:

Section 32 deals with approved forms.

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(3) Sections 29C and 29D apply to applications under this section in a

way corresponding to the way those sections apply to applications

under section 29B.

Note:

This means the Board may request further information about the

application for variation, and make inquiries about the application for

variation.

29G Varying registrations--otherwise than on application

(1) The Board may, by notice in writing given to a research service

provider, vary the provider's registration under section 29A so that

the provider ceases to be registered to provide services in one or

more specified research fields.

Note 1:

A decision to vary is reviewable (see Division 5).

Note 2:

This subsection will cease to apply if the variation is set aside on

review (see Division 5).

(2) The Board may do so if the Board is satisfied that the provider

does not meet the criteria for registration referred to in subsection

29A(2) in so far as those criteria relate to those research fields.

29H Revoking registrations

(1) The Board may, by notice in writing given to a research service

provider, revoke the provider's registration under section 29A if

the Board is satisfied:

(a) that the provider has ceased to meet the criteria for

registration referred to in subsection 29A(2); or

(b) that the provider has breached a condition, referred to in

subsection 29A(3), of the registration.

Note 1:

A decision to revoke under this subsection is reviewable (see

Division 5).

Note 2:

This subsection will cease to apply if the revocation is set aside on

review (see Division 5).

Note 3:

Revocation can also happen under subsection 29E(2) if the provider

does not appropriately indicate that it wishes to continue to be

registered for the next financial year.

(2) The Board may, by notice in writing given to a research service

provider, revoke the provider's registration under section 29A if

the provider requests the Board to do so.

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(3) A request for a revocation under subsection (2) must be in the

approved form.

Note:

Section 32 deals with approved forms.

Subdivision E--Register of research service providers

29J Register of research service providers

(1) The Board is to make available for inspection on the internet a

(a) registrations in force under this Division; and

(b) registrations that have been revoked under this Division

during the current financial year or the previous financial

year.

Note 1:

A registration in force under this Division includes the research fields

for which the provider is registered.

Note 2:

A registration in force under this Division is that registration as varied

under section 29F or 29G.

(2) The register is not a legislative instrument.

Division 5--Review

30 Simplified outline

The following is a simplified outline of this Division:

�

An entity affected by a reviewable decision may ask the Board

to conduct an internal review of that decision.

�

The entity, or another entity affected by the resulting internal

review decision, may ask the Administrative Appeals Tribunal

to review the internal review decision.

30A Reviewable decisions

Each of the following decisions of the Board is a reviewable

decision:

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Reviewable decisions

Item

Decision

Provision under which

decision is made

Registering or refusing to register an

entity for activities

Subsection 27A(1)

A finding made when considering an

application for registration of activities

Subsection 27B(1)

Refusing to allow a further period for

making an application for registration of

activities

Paragraph 27D(c)

Refusing to allow a further period for

giving further information about an

application for registration of activities

Paragraph 27E(2)(b)

Refusing to make a finding about a

registration of activities

Paragraph 27F(4)(b)

Refusing to allow a further period for

giving further information about an

examination of a registration of activities

Paragraph 27H(2)(b)

A finding made about a registration of

activities

Subsection 27J(1)

Refusing to vary on application a

registration of activities

Subsection 27M(1)

Refusing to allow a further period for

giving further information about an

application for variation of a registration

of activities

Paragraph 27E(2)(b), as that

paragraph applies because of

subsection 27M(3)

Revoking a registration of activities

Subsection 27N(1)

An advance finding, or refusing to make

an advance finding, about the nature of

an activity

Subsection 28A(1)

A finding, or refusing to make a finding,

about an activity to be conducted outside

Australia

Subsection 28C(1)

A finding, or refusing to make a finding,

about particular technology

Subsection 28E(1)

Refusing to allow a further period for

giving further information about an

application for:

(a) an advance finding about the nature

Paragraph 28H(2)(b)

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Reviewable decisions

Item

Decision

Provision under which

decision is made

of an activity; or

(b) a finding about an activity to be

conducted outside Australia; or

technology

Registering or refusing to register an

entity as a research service provider

Subsection 29A(1)

Refusing to allow a further period for

giving further information about an

application for registration as a research

service provider

Subsection 29C(3)

Revoking a research service provider's

registration for not returning a completed

form about continuing that registration

Subsection 29E(2)

Refusing to vary on application a

research service provider's registration

Subsection 29F(1)

Refusing to allow a further period for

giving further information about an

application for variation of a research

service provider's registration

Subsection 29C(3), as that

subsection applies because of

subsection 29F(3)

Varying a research service provider's

registration otherwise than on

application

Subsection 29G(1)

Revoking a research service provider's

registration

Subsection 29H(1)

Refusing to allow a further period for

making an application for review of a

decision

Subsection 30C(3)

30B Notice of reviewable decision and internal review rights

(1) When making a reviewable decision relating to an entity, the Board

must give written notice to the entity of the following things:

(a) the making of the decision;

(b) the reasons for the decision;

Division.

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(2) If written notice of any of these things is given to the entity under

another provision of this Part, notice of the thing does not have to

be given twice.

Note:

Other provisions of this Part require notice to be given about decisions

covered by item 2, 7 or 11 of the table in section 30A.

(3) A failure to comply with this section does not affect the validity of

the decision.

30C Applications for internal review of reviewable decisions

Applications by affected entities

(1) An application for review of a reviewable decision may be made

by or on behalf of any entity whose interests are affected by the

reviewable decision.

(2) An application under subsection (1) must be in the approved form.

Note:

Section 32 deals with approved forms.

(3) An application under subsection (1) for review of a reviewable

decision must be made within:

(a) 28 days after the entity to which the decision relates is

notified of the decision under this Part; or

(b) such further period as the Board allows in accordance with

the decision-making principles.

Note 1:

A refusal to allow a further period is reviewable (see section 30A).

Note 2:

Section 32A deals with the decision-making principles.

Applications by Commissioner

(4) The Commissioner may, at any time, apply to the Board for review

of a reviewable decision.

30D Internal review of reviewable decisions

(1) After receiving an application for review of a reviewable decision,

the Board must review the decision.

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Making internal review decisions

(2) After reviewing the reviewable decision, the Board must make a

decision (an internal review decision):

(a) confirming the reviewable decision; or

(b) varying the reviewable decision; or

decision.

Note:

An internal review decision is reviewable by the Administrative

Appeals Tribunal (see section 30E). Under the Administrative Appeals

Tribunal Act 1975, notice of the internal review decision must be

given to any person whose interests are affected by the decision.

Deemed internal review decisions

(3) If the Board does not make a decision under subsection (2) before

the end of the period of 90 days after the day on which the Board

received the application for review, the Board is taken, at the end

of that period, to have made a decision (also an internal review

decision) confirming the reviewable decision.

Note: Under

the

Administrative Appeals Tribunal Act 1975, notice must be

given to any person whose interests are affected by the internal review

decision taken to be made under this subsection.

(4) However, an internal review decision (the deemed decision) is

taken not to have been made under subsection (3) if:

(a) after the end of the period referred to in that subsection, the

Board makes a decision under subsection (2) about the

applicable reviewable decision; and

(b) an application has yet to be made under section 30E to the

Administrative Appeals Tribunal for review of the deemed

decision.

Matters relevant to all internal review decisions

(5) For the purposes of this Act and the Income Tax Assessment Act

1997, an internal review decision takes effect on the day on which

the reviewable decision took effect.

(6) The Board must notify the Commissioner in writing of:

(a) the making of an internal review decision; and

(b) the reasons for that decision.

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30E External review by AAT of internal review decisions

(1) Application may be made to the Administrative Appeals Tribunal

for review of an internal review decision of the Board.

(2) Subsection 43(6) of the Administrative Appeals Tribunal Act 1975

has effect for the purposes of this Act and the Income Tax

Assessment Act 1997 for:

(a) an internal review decision as varied by the Tribunal under

section 43 of the Administrative Appeals Tribunal Act 1975;

(b) a decision made by the Tribunal under that section in

substitution for an internal review decision.

Note:

This means that the varied or substituted decision takes effect from the

day on which the reviewable decision took effect (see subsection

30D(5)).

(3) If an internal review decision is taken to be made under subsection

30D(3), section 29 of the Administrative Appeals Tribunal Act

1975 applies as if:

(a) paragraph 29(1)(d) of that Act applied to the internal review

decision; and

(b) the prescribed time for the purposes of that paragraph were

the end of the period of 28 days starting on the day on which

the internal review decision is taken to be made.

(4) Despite section 35 of the Administrative Appeals Tribunal Act

1975:

(a) hearings of proceedings for review of an internal review

decision are to be held in private; and

(b) during the proceedings, the Tribunal may, by order:

(i) give directions as to the persons who may be present

during all or part of a hearing of the proceedings; and

(ii) give directions of a kind mentioned in paragraph

35(2)(aa), (b) or (c) of that Act.

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74 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

Division 6--Consolidated groups and MEC groups

31 Registrations and findings not effective for subsidiary members

for group R&D activities

(1) An R&D entity's registration under section 27A for an income year

has no effect to the extent that the registration is for an activity

conducted during a period that the R&D entity is a subsidiary

member of a consolidated group or MEC group, of which the head

company is an R&D entity.

Example: If an activity is conducted by the R&D entity during all of an income

year, and part way through the income year the R&D entity becomes a

subsidiary member of a consolidated group:

(a) the R&D entity can apply to be registered for the activity for the

income year, and that registration will be effective in respect of

the first part of the income year; and

(b) the head company of the group can apply to be registered for the

activity for the income year in respect of the second part of the

income year.

(2)

If:

(a) a finding is made under this Part on application by an R&D

entity that is a subsidiary member of a consolidated group or

MEC group; and

(b) the head company of the group is also an R&D entity;

the finding has no effect to the extent that the finding is for an

activity conducted during a period that the R&D entity is a

subsidiary member of the group.

31A What happens to findings if R&D entity joins a group

(1) If a finding (the actual finding) under this Part:

(a) is in force for an R&D entity immediately before the time

(the joining time) it becomes a subsidiary member of a

consolidated group or MEC group, of which the head

company is an R&D entity; and

(b) is for an activity to be conducted wholly or partly after the

joining time;

a corresponding finding (the deemed finding) in the same terms is

taken to come into force at the joining time for the head company

and the activity.

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(2) The deemed finding ceases to be in force if the R&D entity ceases

to be a subsidiary member of the group.

(3) The result of any review (see Division 5) of an actual finding is

taken to apply in a corresponding way to the deemed finding.

(4) Neither section 28F (notice of decision about findings) nor

Division 5 (review) applies to the deemed finding.

31B What happens to findings if R&D entity leaves a group

(1) The consequences in subsection (2) apply if a finding (the group

finding) under this Part:

(a) is for an R&D entity that is the head company of a

consolidated group or MEC group; and

(b) is in force immediately before the time (the leaving time)

another R&D entity ceases to be a subsidiary member of the

group; and

entity wholly or partly after the leaving time; and

(d) is not a deemed finding.

(2) The consequences are as follows:

(a) a corresponding finding (the continuing finding) in the same

terms is taken to come into force at the leaving time for the

other R&D entity and the activity;

(b) everything that happened under this Part before the leaving

time in relation to the group finding is taken to have

happened in relation to the continuing finding;

Division 7--Other matters

32 Approved forms

(1) This section applies if a provision of this Part requires a thing to be

in the approved form.

(2) To be in the approved form for the provision, the thing must:

(a) be in writing in a form approved by the Board; and

(b) include the information required by the form; and

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the form.

(3) The Board may approve, in writing, a form for the purposes of

paragraph (2)(a). When doing so, the Board must ensure the form

requires the production of information, or other material (including

documents), specified in regulations made for the purposes of this

subsection.

Note:

For specification by class, see subsection 13(3) of the Legislative

Instruments Act 2003.

32A Decision-making principles

The Minister may, by legislative instrument, make principles (the

decision-making principles) that the Board must comply with

when deciding the following:

(a) whether to allow a thing to be given under this Part within a

further period than that specified in this Part;

(b) whether refusing to make a finding sought under this Part is

justified;

justified.

32B General rules about findings under this Part

(1) A finding made under this Part in relation to an R&D entity has no

effect to the extent of any inconsistency with a finding already in

force under this Part in relation to the R&D entity.

Example: A finding under subsection 27J(1) in relation to an R&D entity's

registration has no effect to the extent of any inconsistency with:

(a) a finding already in force under that subsection in relation to that

registration; or

(b) a finding already in force under subsection 27B(1) in relation to

the application for that registration; or

findings about the nature of activities) in relation to the R&D

entity.

(2) Subsection 33(3) of the Acts Interpretation Act 1901 does not

apply to the power to make a finding under this Part.

Note:

This means the power to make a finding does not itself include the

power to vary or revoke that finding. A finding can only be varied or

revoked on review under Division 5.

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32C Alternative constitutional basis

(1) Without limiting its effect apart from this subsection, this Part also

has the effect it would have if:

(a) subsection (2) had not been enacted; and

(b) each reference in this Part to an R&D entity were, by express

provision, confined to an R&D entity that:

(i) is a constitutional corporation; or

(ii) has its registered office (within the meaning of the

Corporations Act 2001) or principal place of business

(within the meaning of that Act) located in a Territory.

(2) Without limiting its effect apart from this subsection, this Part also

has the effect it would have if:

(a) subsection (1) had not been enacted; and

(b) this Part, by express provision, confined applications,

registrations, findings and decisions under this Part to be in

relation to activities, or parts of activities, conducted or to be

conducted:

(i) solely in a Territory; or

(ii) solely outside of Australia; or

(iii) solely in a Territory and outside of Australia; or

(iv) for the dominant purpose of supporting core R&D

activities conducted, or to be conducted, solely in a

Territory.

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Part 2 Other amendments

78 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

Part 2--Other amendments

Industry Research and Development Act 1986

2 Section 3

Omit "research and development activities", substitute "R&D

activities".

3 Subsection 4(1)

Insert:

approved form has the meaning given by section 32.

4 Subsection 4(1) (definition of approved research institute)

Repeal the definition.

5 Subsection 4(1)

Insert:

Commissioner has the same meaning as in the Income Tax

Assessment Act 1997.

6 Subsection 4(1) (definition of company)

Repeal the definition.

7 Subsection 4(1)

Insert:

consolidated group has the same meaning as in the Income Tax

Assessment Act 1997.

8 Subsection 4(1)

Insert:

constitutional corporation has the same meaning as in the Income

Tax Assessment Act 1997.

9 Subsection 4(1)

Insert:

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Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 79

core R&D activities has the same meaning as in the Income Tax

Assessment Act 1997.

10 Subsection 4(1)

Insert:

core technology has the meaning given by subsection 28E(2).

11 Subsection 4(1)

Insert:

decision-making principles has the meaning given by section 32A.

12 Subsection 4(1)

Insert:

entity has the same meaning as in the Income Tax Assessment Act

1997.

13 Subsection 4(1) (definition of finance scheme guidelines)

Repeal the definition.

14 Subsection 4(1)

Insert:

head company has the same meaning as in the Income Tax

Assessment Act 1997.

15 Subsection 4(1)

Insert:

income year has the same meaning as in the Income Tax

Assessment Act 1997.

16 Subsection 4(1)

Insert:

internal review decision has the meaning given by section 30D.

17 Subsection 4(1)

Insert:

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80 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

MEC group has the same meaning as in the Income Tax

Assessment Act 1997.

18 Subsection 4(1)

Insert:

R&D activities has the same meaning as in the Income Tax

Assessment Act 1997.

19 Subsection 4(1)

Insert:

R&D entity has the same meaning as in the Income Tax

Assessment Act 1997.

20 Subsection 4(1) (definition of research and development

activities)

Repeal the definition.

21 Subsection 4(1) (definition of researcher)

Repeal the definition, substitute:

researcher means an entity that the Board believes is capable of

carrying out a project of R&D activities or innovation activities.

22 Subsection 4(1)

Insert:

research field means a research field specified in regulations made

for the purposes of this definition.

23 Subsection 4(1)

Insert:

research service provider means an entity registered under

section 29A.

24 Subsection 4(1)

Insert:

reviewable decision has the meaning given by section 30A.

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25 Subsection 4(1)

Insert:

significant scientific link has the meaning given by subsection

28D(3).

26 Subsection 4(1)

Insert:

subsidiary member has the same meaning as in the Income Tax

Assessment Act 1997.

27 Subsection 4(1)

Insert:

supporting R&D activities has the same meaning as in the Income

Tax Assessment Act 1997.

28 Subsection 4(2)

Repeal the subsection.

29 Paragraph 7(aa)

Repeal the paragraph.

30 Paragraph 7(ca)

Omit "Commissioner of Taxation", substitute "Commissioner".

31 Subsection 11(1)

Omit "(1)".

32 Subsection 11(2)

Repeal the subsection.

33 Subsection 22(9)

Repeal the subsection.

34 Part IIIA

Repeal the Part.

35 Subparagraph 46(2)(b)(iv)

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82 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

Omit "research and development activities", substitute "R&D

activities".

36 Paragraph 46(2)(ca)

Repeal the paragraph, substitute:

(ca) must set out:

(i) the total number of applications during the year for

registration under section 27A for a tax offset under

Division 355 of the Income Tax Assessment Act 1997;

and

(ii) the total amounts of the offsets involved; and

(iii) an analysis of the operation of the R&D tax offset

scheme for the year; and

37 At the end of subsection 46(2)

Add:

; and (f) must set out a copy of the register mentioned in section 29J

as it exists at the end of the year.

38 Subsection 47(1)

Omit "except for the purposes of this Act, of the Census and Statistics

Act 1905 or of the Income Tax Assessment Act 1936 or".

39 Subsection 47(1)

Omit "supply protected information to a person if the supplying",

substitute "disclose protected information to a person if disclosing".

40 Subsection 47(2)

Omit "Subsection (1) does not apply to the supply of", substitute "An

official to whom this section applies may disclose".

41 After subsection 47(2)

Insert:

(2A) An official to whom this section applies may disclose protected

information if the disclosure is made:

(a) in the course of performing a duty or function, or exercising a

power, under this Act; or

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(b) for the purposes of enabling another person to perform duties

or functions, or exercise powers, under this Act; or

functions, or exercise powers, under the Census and Statistics

Act 1905 or the Income Tax Assessment Act 1997.

42 Subsection 47(3)

Insert:

disclose means divulge or communicate.

43 Section 48A

Repeal the section, substitute:

48A Fees for making applications under Part III

(1) The regulations may specify:

(a) fees for making applications to the Board under Part III; and

(b) a method for indexing the fees.

(2) The fees must not be such as to amount to taxation.

Schedule 3 Other amendments relating to new R&D incentive

Part 1 Tax offset rules

84 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

Schedule 3--Other amendments relating to

new R&D incentive

Part 1--Tax offset rules

Income Tax Assessment Act 1997

1 Subsection 63-10(1) (after table item 30)

Insert:

tax offset under Division 355

(about R&D) that is not covered by

section 67-30

You may carry it forward to a later

income year (under Division 65)

2 Section 67-23 (table item 35)

Repeal the item.

3 At the end of section 67-23

Add:

Note 3:

For the tax offsets available under Division 355 (about R&D), see

section 67-30.

4 At the end of Division 67

Add:

67-30 Refundable tax offsets--R&D

(1)

tax offset to which an

R&D entity is entitled under

section 355-100 (about R&D) for an income year is subject to the

refundable tax offset rules if the amount of the tax offset is worked

out using the percentage in item 1 of the table in subsection

355-100(1).

Note 1:

Otherwise, the tax offset will be a non-refundable tax offset (see

item 35 of the table in subsection 63-10(1)).

Note 2:

This subsection can apply to an entitlement under subsection

355-100(1) or (2).

(2) Without limiting its effect apart from this subsection,

subsection (1) also has the effect it would have if:

(a) subsection (3) had not been enacted; and

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(b) the reference in subsection (1) to an

R&D entity were, by

express provision, confined to an R&D entity that:

(i)

constitutional corporation; or

(ii) has its registered office (within the meaning of the

Corporations Act 2001) or principal place of business

(within the meaning of that Act) located in a Territory.

(3) Without limiting its effect apart from this subsection,

subsection (1) also has the effect it would have if:

(a) subsection (2) had not been enacted; and

(b) this Act applied so that

tax offsets under section 355-100

could only be worked out in respect of

R&D activities

conducted or to be conducted:

(i) solely in a Territory; or

(ii) solely outside of Australia; or

(iii) solely in a Territory and outside of Australia; or

(iv) for the dominant purpose of supporting

core R&D

activities conducted, or to be conducted, solely in a

Territory.

Schedule 3 Other amendments relating to new R&D incentive

Part 2 Prepayments of expenditure

86 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

Part 2--Prepayments of expenditure

Income Tax Assessment Act 1936

5 Subsection 82KZL(1) (paragraph (d) of the definition of

excluded expenditure)

Repeal the paragraph, substitute:

(d) to the extent that it is of a capital nature and cannot be

deducted under:

(i) section 355-205 (R&D expenditure); or

(ii) section 355-480 (earlier year associate R&D

expenditure);

the

Income Tax Assessment Act 1997; or

(da) to the extent that it is of a private or domestic nature; or

6 Subsection 82KZL(1)

Insert:

R&D activities has the same meaning as in the Income Tax

Assessment Act 1997.

7 Subsection 82KZL(1) (definition of research and

development activities)

Repeal the definition.

8 Subsection 82KZL(3)

Omit "carrying on research and development activities", substitute

"conducting R&D activities".

9 After section 82KZLA

Insert:

82KZLB How this Subdivision applies to deductible R&D

expenditure incurred to associates in earlier income years

In addition to its application apart from this section, this

Subdivision applies to expenditure deductible under

section 355-480 of the Income Tax Assessment Act 1997 as if:

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Prepayments of expenditure Part 2

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 87

(a) references in this Subdivision to incurring the expenditure

were references to paying the expenditure; and

(b) references in this Subdivision to the expenditure year were

references to the payment year.

10 Paragraph 82KZM(1)(c)

Repeal the paragraph, substitute:

(i) section 8-1; or

(ii) section 355-205 (R&D expenditure) or 355-480 (earlier

year associate R&D expenditure);

the

Income Tax Assessment Act 1997, in respect of the

expenditure, would be allowable from the taxpayer's

assessable income for the year of income in which the

expenditure is incurred;

11 Paragraph 82KZMA(1)(a)

Repeal the paragraph, substitute:

(a) apart from that section, the taxpayer could deduct the

expenditure for the expenditure year under:

(i) section 8-1; or

(ii) section 355-205 (R&D expenditure) or 355-480 (earlier

year associate R&D expenditure);

the

Income Tax Assessment Act 1997; and

12 Paragraph 82KZME(1)(a)

Repeal the paragraph, substitute:

(a) apart from that section, the taxpayer could deduct the

expenditure for the expenditure year under:

(i) section 8-1; or

(ii) section 355-205 (R&D expenditure) or 355-480 (earlier

year associate R&D expenditure);

the

Income Tax Assessment Act 1997; and

13 Paragraph 82KZMF(2)(a)

Omit "section 73B, 73BA, 73BH, 73QA, 73QB or former section 73Y

of this Act or".

14 At the end of subsection 82KZMF(2)

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Part 3--Capital allowances

Income Tax Assessment Act 1997

15 Subsection 40-25(7) (note)

Omit "Note", substitute "Note 1".

16 At the end of subsection 40-25(7)

Add:

Note 2:

When this Division notionally applies under section 355-310 (about

depreciating assets used for R&D activities), the taxable purpose is

sometimes only the purpose of conducting R&D activities.

17 Subsection 40-65(6)

Repeal the subsection, substitute:

Exception: also notionally deductible under R&D provisions

(6)

If:

(a) only one of the following events has happened:

(i) you have deducted one or more amounts under this

Division for an asset;

(ii) you have been entitled under section 355-100 (about

R&D) to one or more

tax offsets because you can

deduct one or more amounts under section 355-305 for

an asset; but

(b) later, the other event happens for the asset;

then, for the purposes of working out the deduction for the later

event, you must choose the same method that you chose for the

first event.

Note 1:

Deductions under section 355-305 (about decline in value of tangible

depreciating assets used for R&D activities) are worked out using a

notional application of this Division.

Note 2:

This subsection applies with changes if you have or could have

deducted an amount under former section 73BA of the Income Tax

Assessment Act 1936 for the asset (see section 40-67 of the Income

Tax (Transitional Provisions) Act 1997).

(7)

If:

(a) the events in paragraph (6)(a) could both arise for the same

period for an asset; and

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90 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

(b) neither event has already arisen for the asset;

then you must choose the same method for the purposes of

working out the deduction for each event.

18 Subsection 40-95(9) (note)

Repeal the note.

19 Subsection 40-100(4)

Repeal the subsection, substitute:

Criteria for making a determination

(4) The Commissioner is to make a determination of the effective life

of a

depreciating asset in accordance with subsections (5) and (6).

(5) Firstly, estimate the period (in years, including fractions of years)

the asset can be used by any entity for one or more of the following

purposes:

(a)

taxable purpose;

(b) the purpose of producing

exempt income or

non-assessable

non-exempt income;

R&D activities, assuming that

this is reasonably likely.

(6) Secondly, if relevant for the asset:

(a) assume the asset will be subject to wear and tear at a rate that

is reasonable for the Commissioner to assume; and

(b) assume the asset will be maintained in reasonably good order

and condition; and

be scrapped, sold for no more than scrap value or abandoned.

However, for paragraph (c), disregard reasons attributable to the

technical risk in conducting

R&D activities if it is reasonably

likely that the asset will be used for such activities.

20 Subsections 40-105(1), (2) and (3)

Repeal the subsections, substitute:

(1) You work out the effective life of a

depreciating asset yourself in

accordance with this section.

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Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 91

(1A) Firstly, estimate the period (in years, including fractions of years)

the asset can be used by any entity for one or more of the following

purposes:

(a)

taxable purpose;

(b) the purpose of producing

exempt income or

non-assessable

non-exempt income;

R&D activities, assuming that

this is reasonably likely.

(1B) Secondly, if relevant for the asset:

(a) have regard to the wear and tear you reasonably expect from

your expected circumstances of use; and

(b) assume that the asset will be maintained in reasonably good

order and condition.

(2) If, in working out that period, you decide that the asset would be

likely to be:

(a)

scrapped;

(b) sold for no more than scrap value or abandoned;

before the end of that period, its effective life ends at the earlier

time. However, when making your decision, disregard reasons

attributable to the technical risk in conducting

R&D activities if it

is reasonably likely that the asset will be used for such activities.

(3) You work out the period mentioned in subsection (1A) or (2)

beginning at the

start time of the

depreciating asset.

21 Subsection 40-215(1)

Omit "(1)".

22 At the end of subsection 40-215(1)

Add:

Note:

This section does not apply to notional deductions under

section 355-305 or 355-520 (about R&D) because those provisions are

about deducting the asset's decline in value, not its cost.

23 Subsection 40-215(2)

Repeal the subsection.

24 Section 40-292

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Part 3 Capital allowances

92 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

Repeal the section, substitute:

40-292 Adjustments--assets used for both general tax purposes and

R&D activities

(1) This section applies if:

(a)

balancing adjustment event happens in an income year (the

event year) for an asset you

held and for which:

(i) you can deduct, for an income year, an amount under

section 40-25, as that section applies apart from

Division 355 and former section 73BC of the Income

Tax Assessment Act 1936; or

(ii) you could have deducted, for an income year, an amount

as described in subparagraph (i) if you had used the

asset; and

(b) you are entitled under section 355-100 to

tax offsets for one

or more income years for deductions (the R&D deductions)

under section 355-305 for the asset.

Note:

This section applies in a modified way if you have deductions for the

asset under former section 73BA or 73BH of the Income Tax

Assessment Act 1936 (see section 40-292 of the Income Tax

(Transitional Provisions) Act 1997).

Section 40-290 to be applied as if use for conducting R&D

activities were use for a taxable purpose

(2) In applying section 40-290 (including references in that section to

the reduction of deductions under section 40-25) in relation to the

asset, assume that using the asset for a

taxable purpose includes

using it for the purpose of conducting the

R&D activities to which

the R&D deductions relate.

Increase in amounts deductible under section 40-285

(3) If you are entitled under section 355-100 to a

tax offset for the

event year in respect of deductions under Division 355 totalling at

least $20,000, any amount (the section 40-285 amount) you can

deduct for the asset under section 40-285 (after applying

subsection (2) of this section) for the event year is increased by:

(a)

your

aggregated turnover for the event year is less than

$20 million--

of the amount worked out under

subsection (5) of this section; and

Other amendments relating to new R&D incentive Schedule 3

Capital allowances Part 3

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 93

(b)

otherwise--

of the amount worked out under

subsection (5) of this section.

Increase in amounts assessable under section 40-285

(4) Any amount (the section 40-285 amount) that is included in your

assessable income for the asset under section 40-285 (after

applying subsection (2) of this section) for the event year is

increased by

of the amount worked out under subsection (5) of

this section.

Component of any increase in amounts deductible or assessable

(5) The amount is worked out as follows:

Sum of your R&D deductions

Adjusted section 40-285 amount

Total decline in value

�

where:

adjusted section 40-285 amount means:

(a) if the section 40-285 amount is a deduction--the amount of

the deduction; or

(b) if the section 40-285 amount is an amount included in your

assessable income--so much of the section 40-285 amount as

does not exceed the total decline in value.

total decline in value means the

cost of the asset less its

adjustable value.

40-293 Adjustments--partnership assets used for both general tax

purposes and R&D activities

(1) This section applies to an

R&D partnership if:

(a)

balancing adjustment event happens in an income year (the

event year) for a

depreciating asset

held by the R&D

partnership and for which:

(i) the R&D partnership can deduct, for an income year, an

amount under section 40-25, as that section applies

apart from Division 355 and former section 73BC of the

Income Tax Assessment Act 1936; or

Schedule 3 Other amendments relating to new R&D incentive

Part 3 Capital allowances

94 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

(ii) the R&D partnership could have deducted, for an

income year, an amount as described in subparagraph (i)

if it had used the asset; and

(b) one or more partners of the R&D partnership are entitled

under section 355-100 to

tax offsets for one or more income

years for deductions (the R&D deductions) under

section 355-520 for the asset.

Note:

This section applies in a modified way if the partners have deductions

for the asset under former section 73BA or 73BH of the Income Tax

Assessment Act 1936 (see section 40-293 of the Income Tax

(Transitional Provisions) Act 1997).

Section 40-290 to be applied as if use for conducting R&D

activities were use for a taxable purpose

(2) In applying section 40-290 (including references in that section to

the reduction of deductions under section 40-25) in relation to the

asset, assume that using the asset for a

taxable purpose includes

using it for the purpose of conducting the

R&D activities to which

the R&D deductions relate.

Increase in amounts deductible or assessable under section 40-285

(3) Any amount (the section 40-285 amount):

(a)

that

the

R&D partnership can deduct for the asset under

section 40-285 (after applying subsection (2) of this section)

for the event year; or

(b) that is included in the R&D partnership's assessable income

for the asset under section 40-285 (after applying

subsection (2) of this section) for the event year;

is increased by

of the following amount:

Sum of all R&D deductions

Adjusted section 40-285 amount

Total decline in value

�

where:

adjusted section 40-285 amount means:

(a) if the section 40-285 amount is a deduction--the amount of

the deduction; or

(b) if the section 40-285 amount is an amount included in the

R&D partnership's assessable income--so much of the

Other amendments relating to new R&D incentive Schedule 3

Capital allowances Part 3

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 95

section 40-285 amount as does not exceed the total decline in

value.

total decline in value means the

cost of the asset less its

adjustable value.

25 Subsection 40-425(8)

Repeal the subsection, substitute:

Exception: R&D

(8) You cannot allocate a

depreciating asset to a low-value pool if you

are entitled under section 355-100 to a

tax offset for a deduction

under section 355-305 for the asset for an income year starting

before, or at the same time as, the allocation has effect.

Note:

A similar rule applies if you deducted or could have deducted amounts

under former 73BA of the Income Tax Assessment Act 1936 (see

section 40-430 of the Income Tax (Transitional Provisions) Act 1997).

Schedule 3 Other amendments relating to new R&D incentive

Part 4 Capital works

96 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

Part 4--Capital works

Income Tax Assessment Act 1997

26 Section 43-35

Repeal the section, substitute:

43-35 Requirement for registration under the Industry Research

and Development Act

You may deduct an amount under this Division on the basis of

using capital works for the purpose of conducting

R&D activities

only if:

(a) you are registered under section 27A (registering R&D

activities) of the Industry Research and Development Act

1986 for the R&D activities for an income year; or

(b) if you are an

R&D partnership--an

R&D entity, who was a

partner of the R&D partnership at some time while the R&D

activities were conducted, is registered under that section for

the R&D activities for an income year.

Note 1:

R&D activities must be conducted in connection with a business

carried on for the purpose of producing assessable income, see

section 43-195.

Note 2:

You may still deduct an amount under this Division if you were

registered for the R&D activities under former section 39J

(Registration of eligible companies) of the Industry Research and

Development Act 1986 (see section 355-200 of the Income Tax

(Transitional Provisions) Act 1997).

27 Paragraph 43-70(2)(g)

Repeal the paragraph, substitute:

(g) expenditure on property for which a deduction under

section 355-305 or 355-520 is allowable for the property, or

would be allowable if the property were for use for

conducting

R&D activities; or

28 Subsection 43-70(2) (note)

Repeal the note.

29 Section 43-90

Other amendments relating to new R&D incentive Schedule 3

Capital works Part 4

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 97

Omit "

research and development activities", substitute "research and

development activities (within the meaning of former section 73B of the

Income Tax Assessment Act 1936)".

30 Section 43-90

After "research and development activities", insert "(within the

meaning of that former section)".

31 Section 43-90 (note)

Repeal the note, substitute:

Note:

There are special rules that explain or qualify the uses described in

Column 3 of this Table. These rules are set out in Subdivision 43-E

(sections 43-155 to 43-195). For example, certain facilities that are not

commonly provided in a hotel, motel or guest house in Australia are

taken not to be used or for use to operate a hotel, motel or guest house,

see subsection 43-180(6).

32 Section 43-100

Omit "

research and development activities", substitute "

core R&D

activities or

supporting R&D activities".

33 At the end of section 43-100

Add:

Note:

Core R&D activities and supporting R&D activities are kinds of R&D

activities.

34 Subsection 43-140(1)

Omit "carrying on

research and development activities" (wherever

occurring), substitute "conducting

R&D activities".

35 Subsection 43-140(1) (note 1)

Omit "Research and development activities must be carried on",

substitute "R&D activities must be conducted".

36 Subsection 43-140(1) (note 2)

Omit "carrying on research and development activities", substitute

"conducting R&D activities".

37 Section 43-195 (heading)

Repeal the heading, substitute:

Schedule 3 Other amendments relating to new R&D incentive

Part 4 Capital works

98 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

43-195 Use for R&D activities must be in connection with a business

38 Section 43-195

Omit "

research and development activities", substitute "

R&D

activities".

39 Section 43-210 (step 4)

Omit "carrying on

research and development activities", substitute

"conducting

R&D activities".

40 Section 43-210 (note to step 4)

Omit "research and development activities", substitute "R&D

activities".

41 Section 43-215 (step 3)

Omit "carrying on

research and development activities", substitute

"conducting

R&D activities".

Other amendments relating to new R&D incentive Schedule 3

Forgiveness of commercial debts Part 5

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 99

Part 5--Forgiveness of commercial debts

Division 1--Amending the new law

Income Tax Assessment Act 1997

42 Subsection 245-145(1) (table item 4)

Repeal the item, substitute:

4 Expenditure

deductible

under

Division 355 (R&D)

Division 355 of this Act

Note:

This item will not commence unless Schedule 2 to the Tax Laws Amendment (Transfer

of Provisions) Act 2010 commences.

Division 2--Amending the old law

Income Tax Assessment Act 1936

43 Subsection 245-140(1) in Schedule 2C (table item 8 of the

definition of table of deductible expenditure)

Repeal the item, substitute:

8 Expenditure

deductible

under

Division 355 (R&D) of the Income

Tax Assessment Act 1997

Division 355 of that Act

Note:

This item will not commence if Schedule 2 to the Tax Laws Amendment (Transfer of

Provisions) Act 2010 has already commenced.

Schedule 3 Other amendments relating to new R&D incentive

Part 6 Other amendments

100 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

Part 6--Other amendments

Income Tax Assessment Act 1936

44 Sections 73B to 73Z

Repeal the sections.

45 Section 94J

After "this Act", insert "and other than Division 355 of the Income Tax

Assessment Act 1997".

46 After subsection 102T(8)

Insert:

(9) A reference in section 355-35 of the Income Tax Assessment Act

1997 to a body corporate is to be read as including a reference to a

body corporate acting in its capacity as trustee of a public trading

trust.

47 Subsection 136AB(2)

After "Income Tax Assessment Act 1997", insert ", and of

section 355-400 of that Act,".

48 Subsection 170(10A)

Repeal the subsection.

49 Subsection 262A(4AC)

Omit "73E(1), 73F(1) or 73G(1),".

50 Paragraph 262A(4AC)(a)

Omit "73E, 73F or 73G,".

51 Subsection 57-85(3) in Schedule 2D (table item 13)

Repeal the item, substitute:

13 R&D

Division

355

52 Subsection 57-110(2) in Schedule 2D (table item 7)

Repeal the item, substitute:

Other amendments relating to new R&D incentive Schedule 3

Other amendments Part 6

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 101

7 R&D

Sections

40-292,

40-293, 355-315 and

355-525

Section 40-25, 355-305 or

355-520

53 At the end of subsection 57-110(2) in Schedule 2D

Add:

Note:

Item 7 of the table is expanded by section 355-340 of the Income Tax

(Transitional Provisions) Act 1997.

Income Tax Assessment Act 1997

54 Section 4-25

Repeal the section, substitute:

4-25 Special provisions for working out your basic income tax

liability

The following provisions may increase your basic income tax

liability beyond the liability worked out simply by applying the

income tax rates to your taxable income:

(a)

Subdivision

355-G;

(b)

subsection

392-35(3).

Note 1:

Subdivision 355-G increases some entities' tax liability by requiring

them to pay extra income tax on government recoupments relating to

R&D activities for which entitlements to tax offsets arise under

Division 355.

Note 2:

Subsection 392-35(3) increases some primary producers' tax liability

by requiring them to pay extra income tax on their averaging

components worked out under Subdivision 392-C.

55 Subsection 9-5(1) (after table item 4)

Insert:

An entity is liable to pay extra

income tax on government

recoupments relating to R&D

activities for which entitlements to

tax offsets arise under Division 355.

Subdivision 355-G

56 Section 10-5 (table item headed "balancing adjustment")

Omit "research & development", substitute "R&D".

Schedule 3 Other amendments relating to new R&D incentive

Part 6 Other amendments

102 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

57 Section 10-5 (table item headed "industrial property")

Omit "research and development", substitute "R&D".

58 Section 10-5 (after table item headed "quarrying")

Insert:

R&D

balancing adjustment .......................................................... 40-292, 40-293,

355-315 and

355-525

disposal of R&D results ..................................................... 355-410

feedstock adjustment .......................................................... 355-465

59 Section 10-5 (table item headed "research &

development")

Repeal the item.

60 Section 12-5 (table item headed "balancing adjustment")

Omit "research & development and", substitute "R&D and".

61 Section 12-5 (table item headed "industrial property")

Omit "research and development", substitute "R&D".

62 Section 12-5 (after table item headed "qualifying

securities")

Insert:

R&D

Division 355

63 Section 12-5 (table item headed "research &

development")

Repeal the item.

64 Section 12-5 (table item headed "scientific research")

Omit "research & development", substitute "R&D".

65 Section 13-1 (after table item headed "public unit trust")

Insert:

R&D

Division 355

Other amendments relating to new R&D incentive Schedule 3

Other amendments Part 6

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 103

66 Section 13-1 (table item headed "research and

development")

Repeal the item.

67 Section 20-5 (table items 5 and 6)

Repeal the items.

68 Section 20-5 (at the end of the table)

Add:

An R&D entity receives or becomes

entitled to receive an amount:

� for, or relating to, the results of

R&D activities; or

� attributable to it incurring

expenditure on R&D activities or to

its use of a depreciating asset for

the purpose of conducting R&D

activities;

and the entity is entitled under

Division 355 to a tax offset relating to

those R&D activities.

The amount is included in its

assessable income.

355-410

You receive a recoupment from

government relating to R&D activities

for which entitlements to tax offsets

under Division 355 arise.

Extra income tax is payable on the

recoupment.

Subdivision 355-G

69 Subsection 20-30(1) (after table item 1.19)

Insert:

1.19A Division

355

R&D

70 Subsection 20-30(2) (table item 2.8)

Before "73B, 73BA or 73BH", insert "Former".

71 Subsection 41-10(2)

Repeal the subsection, substitute:

Schedule 3 Other amendments relating to new R&D incentive

Part 6 Other amendments

104 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

(2) Subsection 355-715(2) (tax offset for assets used for R&D

activities) does not apply to a deduction under subsection (1).

72 Paragraph 41-10(3)(c)

Repeal the paragraph, substitute:

for R&D activities).

73 Section 104-235 (heading)

Repeal the heading, substitute:

104-235 Balancing adjustment events for depreciating assets and

certain assets used for R&D: CGT event K7

74 Paragraph 104-235(1A)(a)

Repeal the paragraph, substitute:

(a) you are an

R&D entity and you could deduct an amount

under section 40-25 for the

depreciating asset if the

following assumptions were made:

(i) despite paragraph 40-30(1)(c) and subsection 40-30(2),

all intangible assets were excluded from the definition

of depreciating asset in section 40-30;

(ii) subsection 40-45(2) did not, except in the case of

buildings, prevent Division 40 from applying to capital

works to which Division 43 applies, or to which

Division 43 would apply but for expenditure being

incurred, or capital works being started, before a

particular day;

(iii) you satisfied any relevant requirement for deductibility

under Division 40; or

75 Subsection 104-235(1B)

Repeal the subsection, substitute:

(1B)

CGT event K7 also happens if:

(a) you are an

R&D entity; and

(b)

balancing adjustment event occurs for a

depreciating asset

you

held; and

Other amendments relating to new R&D incentive Schedule 3

Other amendments Part 6

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 105

section 40-25 for the asset if the assumptions set out in

paragraph (1A)(a) were made; and

(d) at some time when you held the asset:

(i) you used it other than for a taxable purpose or for the

purpose of conducting

R&D activities for which you

were registered under section 27A of the Industry

Research and Development Act 1986; or

(ii) you had it installed ready for use other than for a taxable

purpose.

76 At the end of subsection 104-235(1B)

Add:

Note:

For subparagraph (d)(i), disregard any use of the asset for the purpose

of carrying on research and development activities (within the

meaning of former section 73B of the Income Tax Assessment Act

1936): see section 104-235 of the Income Tax (Transitional

Provisions) Act 1997.

77 Paragraph 104-235(4)(a)

Repeal the paragraph, substitute:

(a)

the

depreciating asset covered by subsection (1) or (1B) is a

pre-CGT asset; or

78 Subsection 104-240(1)

Omit "or the section 73BA depreciating asset", substitute "covered by

subsection 104-235(1) or (1B)".

79 Subsection 104-240(1) (paragraph (a) of the definition of

sum of reductions)

Omit "in the case of the

depreciating asset", substitute "if the

depreciating asset is covered by subsection 104-235(1)".

80 Subsection 104-240(1) (paragraph (b) of the definition of

sum of reductions)

Repeal the paragraph, substitute:

(b) if the depreciating asset is covered by subsection

104-235(1B)--the reductions that would have been required

under section 40-25 on the assumption that using the asset for

taxable purpose included using it for the purpose of

Schedule 3 Other amendments relating to new R&D incentive

Part 6 Other amendments

106 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

conducting

R&D activities for which you were registered

under section 27A of the Industry Research and Development

Act 1986.

81 Subsection 104-240(1) (definition of total decline)

Omit "or the section 73BA depreciating asset".

82 Subsection 104-240(1) (note)

Repeal the note, substitute:

Note 1:

This subsection applies in a modified way if you used the asset for the

purpose of carrying on research and development activities (within the

meaning of former section 73B of the Income Tax Assessment Act

1936): see section 104-235 of the Income Tax (Transitional

Provisions) Act 1997.

Note 2:

The CGT concepts of cost base and capital proceeds are not relevant

for this event.

83 Subsection 104-240(2)

Omit "or the section 73BA depreciating asset", substitute "covered by

subsection 104-235(1) or (1B)".

84 Paragraphs 108-55(1)(a) and (b)

Repeal the paragraphs, substitute:

(a) Subdivision 40-D; or

(b) section 355-315 or 355-525 (about R&D).

85 Paragraph 110-45(2)(b) (note)

Repeal the note.

86 Subsection 110-45(2) (table item 3)

Repeal the item.

87 Section 118-24 (heading)

Repeal the heading, substitute:

118-24 Depreciating assets

88 Subsection 118-24(1)

Omit "or a section 73BA depreciating asset (within the meaning of

section 73BB of the Income Tax Assessment Act 1936)".

Other amendments relating to new R&D incentive Schedule 3

Other amendments Part 6

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 107

89 Subsection 118-24(1)

After "Division 40", insert "(including that Division as it applies under

Division 355)".

90 Section 118-35

Repeal the section, substitute:

118-35 R&D

Disregard

capital gain or

capital loss from a

CGT event if an

amount is included in your assessable income in any income year

under section 355-410 (about disposal of R&D results) because of

that CGT event.

91 Subsection 205-15(1) (table items 1 and 2)

After "that part of the payment that is attributable to the period during

which the entity was a franking entity", insert ", less any reduction

under subsection (4)".

92 At the end of section 205-15

Add:

(4)

entity's

franking credit for a payment mentioned in item 1 or 2

of the table in subsection (1) is reduced by the amount (if any)

worked out as follows, but not below zero.

Method statement

Step 1. Identify any income years ending before the payment was

made for which the entity has

received a refund of

income tax.

Step 2. Add up the part (if any) of each of those refunds that is

attributable to a

tax offset that is subject to the

refundable tax offset rules because of section 67-30

(about R&D).

Step 3. Subtract any reduction under this subsection of a

franking credit for any earlier payment by the entity.

Schedule 3 Other amendments relating to new R&D incentive

Part 6 Other amendments

108 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

(For this purpose, assume a credit reduced to zero is still

a franking credit.)

93 Subsection 205-30(2)

Repeal the subsection, substitute:

(2) Despite item 2 of the table in subsection (1), no debit arises on that

part of the refund that is attributable to any of the following:

(a) a payment of income tax in relation to either or both of the

following:

(i)

FHSA component;

(ii)

RSA component;

(b)

tax offset that is subject to the refundable tax offset rules

because of section 67-30 (about R&D).

94 Paragraph 205-35(1)(b)

Repeal the paragraph, substitute:

(b) the refund of the amount, or the application of the credit,

represents in whole or in part:

(i) a return to the entity of an amount paid or applied to

satisfy the entity's liability to pay income tax; or

(ii) the amount remaining after applying a

tax offset that is

subject to the refundable tax offset rules because of

section 67-30 (about R&D) against the entity's basic

income tax liability.

95 Subsection 205-35(2)

After "return", insert ", or amount remaining,".

96 Paragraph 230-515(2)(b)

Repeal the paragraph.

97 Paragraph 250-290(2)(c)

Omit "and 40-292", substitute ", 40-292 and 40-293".

98 Subsection 295-85(4) (table item 7)

Omit "Research and development", substitute "R&D".

99 Subsection 328-175(9)

Other amendments relating to new R&D incentive Schedule 3

Other amendments Part 6

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 109

Repeal the subsection, substitute:

Exception: assets for which previously entitled to a tax offset under

the R&D provisions

(9) You cannot deduct amounts for a

depreciating asset for any period

under this Subdivision if you are entitled under section 355-100 to

tax offset for a deduction under section 355-305 for the asset for

the same or an earlier period.

100 Subsection 345-10(4) (table item 7)

Omit "Research and development", substitute "R&D".

101 Section 701-5 (note 2)

Repeal the note.

102 Subsection 701-40(1) (note)

Repeal the note.

103 Paragraph 701-40(2)(d)

Repeal the paragraph.

104 Subsection 701-55(2)

Omit "Subdivision 328-D, and sections 73BA and 73BF of the Income

Tax Assessment Act 1936,", substitute "Subdivisions 328-D and 355-E".

105 Before Subdivision 716-Z

Insert:

Subdivision 716-V--Research and Development

Table of sections

716-500 Head company bound by agreements binding on subsidiary members

716-505 History for entitlement to tax offset: joining entity

716-510 History for entitlement to tax offset: leaving entity

Schedule 3 Other amendments relating to new R&D incentive

Part 6 Other amendments

110 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

716-500 Head company bound by agreements binding on subsidiary

members

Section 355-220 (about R&D activities conducted for a foreign

entity) applies to the

head company of a

consolidated group as if

the head company were bound by an agreement during any period

that a

subsidiary member of the group is bound by the agreement.

716-505 History for entitlement to tax offset: joining entity

If:

(a) a company becomes a

subsidiary member of a

consolidated

group; and

(b) apart from this section, things happening in relation to the

company before it became a subsidiary member would,

because of section 701-5 (the entry history rule), be taken

into account as things happening in relation to the

head

company for working out the head company's

aggregated

turnover for the purposes of section 355-100 (tax offsets for

R&D);

the things happening are not to be taken into account as mentioned

in paragraph (b).

716-510 History for entitlement to tax offset: leaving entity

If:

(a) a company ceases to be a

subsidiary member of a

consolidated group; and

(b) while the company was a subsidiary member, things

happened in relation to an entity which, if section 701-1 (the

single entity rule) were disregarded:

(i)

would

connected with the company; or

(ii) would be an

affiliate of the company; or

(iii) would have the company as an affiliate; and

been taken into account in working out the company's

aggregated turnover for the purposes of section 355-100 (tax

offsets for R&D); and

(d) the things are not also things that, because of section 701-40

(the exit history rule), are taken into account as things

Other amendments relating to new R&D incentive Schedule 3

Other amendments Part 6

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 111

happening in relation to an eligible asset etc. (within the

meaning of that section) of the company in working out for

the entity core purposes the company's aggregated turnover

for the purposes of section 355-100;

the things are to be taken into account in working out the

company's aggregated turnover for the purposes of

section 355-100.

106 Subsection 995-1(1) (paragraph (e) of the definition of

capital allowance)

Omit "films); or", substitute "films).".

107 Subsection 995-1(1) (paragraph (f) of the definition of

capital allowance)

Repeal the paragraph.

Income Tax (Transitional Provisions) Act 1997

108 Subsection 118-24A(1)

Before "subsection 73B(1)", insert "former".

Taxation Administration Act 1953

109 Paragraph 14ZW(1)(bc)

Repeal the paragraph.

110 Subsection 286-75(3) in Schedule 1

Repeal the subsection.

111 Paragraph 286-80(2)(b) in Schedule 1

Repeal the paragraph.

Schedule 4 Application, savings and transitional provisions

Part 1 Application provisions

112 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

Schedule 4--Application, savings and

transitional provisions

Part 1--Application provisions

1 Application of repeals and amendments

(1)

The repeals and amendments made by this Act apply:

(a) so far as they affect assessments--to assessments for income

years commencing on or after 1 July 2010; and

(b) so far as they relate to income years but do not affect

assessments--to income years commencing on or after 1 July

2010; and

affairs existing, or periods ending on or after the

commencement of the first income year commencing on or

after 1 July 2010.

Note:

For the purposes of an assessment for an income year commencing on or after 1 July

2010, regard may still be had to acts done or omitted to be done, states of affairs

existing, or periods ending during an earlier income year. For example, regard may be

had to expenditure incurred by other entities in income years commencing before 1 July

2010 for the purposes of paragraph 355-415(1)(b) of the Income Tax Assessment Act

1997.

(2)

However, each of the following applies in relation to the 2010-11

financial year and all later financial years:

(a) section 29E of the Industry Research and Development Act

1986 (as inserted by Schedule 2);

(b) the repeal of paragraph 39H(b) of the Industry Research and

Development Act 1986;

1986 (as amended by this Act).

Application, savings and transitional provisions Schedule 4

General savings provisions Part 2

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 113

Part 2--General savings provisions

2 Object

The object of this Part is to ensure that, despite the repeals and

amendments made by this Act, the full legal and administrative

consequences of:

(a) any act done or omitted to be done; or

(b) any state of affairs existing; or

before such a repeal or amendment applies, can continue to arise and be

carried out, directly or indirectly through an indefinite number of steps,

even if some or all of those steps are taken after the repeal or

amendment applies.

3 Making and amending assessments, and doing other

things etc., in relation to past matters

(1)

Even though a provision is repealed or amended by this Act, the repeal

or amendment is disregarded for the purpose of doing any of the

following under any Act or legislative instrument (within the meaning

of the Legislative Instruments Act 2003):

(a) making or amending an assessment (including under a

provision that is itself repealed or amended);

(b) exercising any right or power, performing any obligation or

duty or doing any other thing (including under a provision

that is itself repealed or amended);

in relation to any act done or omitted to be done, any state of affairs

existing, or any period ending, before the repeal or amendment applies.

Note:

Examples of things covered by this subitem are as follows:

(a) an eligible company may object under Part IVC of the Taxation

Administration Act 1953 in an income year commencing on or

after 1 July 2010 about a notice given under former section 73I

of the Income Tax Assessment Act 1936 for an income year

commencing before 1 July 2010;

(b) an eligible company seeking registration under former

section 39J of the Industry Research and Development Act 1986

for an income year commencing before 1 July 2010 may do so

during an income year commencing on or after 1 July 2010;

section 39M of the Industry Research and Development Act 1986

in an income year commencing on or after 1 July 2010 about

Schedule 4 Application, savings and transitional provisions

Part 2 General savings provisions

114 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

research and development activities registered for an income year

commencing before 1 July 2010.

(2)

Even though a provision is repealed or amended by this Act, the repeal

or amendment is disregarded so far as it relates to a state of affairs:

(a) that exists after the repeal or amendment applies; and

(b) that relates to:

(i) an act done or omitted to be done; or

(ii) a state of affairs existing; or

(iii) a period ending;

before the repeal or amendment applies.

Note:

Examples of things covered by this subitem are as follows:

(a) an amount may be included in an eligible company's assessable

income under former subsection 73BF(4) of the Income Tax

Assessment Act 1936 for an income year commencing on or after

1 July 2010 if the company receives in that income year an

amount for the results of research and development activities for

which the company had deductions under former section 73BA

of that Act in an income year commencing before 1 July 2010;

(b) an eligible company's deduction under section 73B of the Income

Tax Assessment Act 1936 for expenditure incurred during an

income year commencing before 1 July 2010 is reduced because

of section 73C of that Act if, in an income year commencing on

or after 1 July 2010, the company receives a recoupment of that

expenditure from the Commonwealth.

(3)

To avoid doubt, this item extends to the repeal of subsection 286-75(3),

and paragraph 286-80(2)(b), in Schedule 1 to the Taxation

Administration Act 1953. In particular, if, in a particular case, the period

in respect of which an administrative penalty is payable under

subsection 286-75(3) in that Schedule:

(a) has not begun; or

(b) has begun but not ended;

when those provisions are repealed, then, despite the repeal, those

provisions continue to apply in the particular case until the end of the

period.

4 Saving of provisions about effect of assessments

Application, savings and transitional provisions Schedule 4

General savings provisions Part 2

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 115

If a provision or part of a provision that is repealed or amended by this

Act deals with the effect of an assessment, the repeal or amendment is

disregarded in relation to assessments made, before or after the repeal or

amendment applies, in relation to any act done or omitted to be done,

any state of affairs existing, or any period ending, before the repeal or

amendment applies.

5 Repeals disregarded for the purposes of dependent

provisions

If the operation of a provision (the subject provision) of any Act or

legislative instrument (within the meaning of the Legislative

Instruments Act 2003) made under any Act depends to any extent on a

provision that is repealed by this Act, the repeal is disregarded so far as

it affects the operation of the subject provision.

6 Schedule does not limit operation of the Acts Interpretation

Act 1901

This Schedule does not limit the operation of the Acts Interpretation Act

1901.

Schedule 4 Application, savings and transitional provisions

Part 3 Transitional provisions appearing as amendments of other Acts

116 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

Part 3--Transitional provisions appearing as

amendments of other Acts

Income Tax Assessment Act 1997

7 Subsection 40-75(2) (note)

Omit "Note", substitute "Note 1".

8 At the end of subsection 40-75(2)

Add:

Note 2:

You may also adjust the formula for an income year if you had

undeducted core technology expenditure for the asset at the end of

your last income year commencing before 1 July 2010 (see

section 355-605 of the Income Tax (Transitional Provisions) Act

1997).

9 Subsection 40-85(2) (note)

Repeal the note, substitute:

Note:

The opening adjustable value of a depreciating asset may be modified

by one of these provisions:

(a) Subdivision

27-B;

(b) subsection

40-90(3);

40-285(4);

(d) paragraph

40-365(5)(b);

(e) section

775-70;

(f) section

775-75;

(g) section 355-605 of the Income Tax (Transitional Provisions) Act

1997.

Income Tax (Transitional Provisions) Act 1997

10 After section 40-65

Insert:

40-67 Methods for working out decline in value

(1) Subsections 40-65(6) and (7) of the Income Tax Assessment Act

1997 apply with the changes set out in this section if either or both

of the following events have happened:

Application, savings and transitional provisions Schedule 4

Transitional provisions appearing as amendments of other Acts Part 3

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 117

(a) you have deducted one or more amounts under former

section 73BA of the Income Tax Assessment Act 1936 for an

asset;

(b) you could have deducted one or more amounts under that

former section for the asset if you had not chosen tax offsets

under former section 73I of that Act.

(2)

Assume:

(a) paragraph 40-65(6)(a) of the Income Tax Assessment Act

1997 included both events set out in subsection (1) of this

section; and

(b) subsections 40-65(6) and (7) of that Act deal with all 4 kinds

of events in a corresponding way to the way that they deal

with 2 kinds of events.

11 At the end of Subdivision 40-B

Add:

40-105 Calculations of effective life

(1) This section applies to the following (the instrument):

(a) a determination under section 40-100 of the Income Tax

Assessment Act 1997 of the effective life of an asset;

(b) a calculation under section 40-105 of that Act of the effective

life of an asset;

if the instrument was in force immediately before the

commencement of Schedule 1 to the Tax Laws Amendment

(Research and Development) Act 2010.

(2) The instrument has effect, after that commencement, as if it had

been made under that section as amended by the Tax Laws

Amendment (Research and Development) Act 2010.

12 After section 40-290

Insert:

Schedule 4 Application, savings and transitional provisions

Part 3 Transitional provisions appearing as amendments of other Acts

118 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

40-292 Balancing adjustment--assets used for both general tax

purposes and R&D activities

R&D entity has old law R&D decline in value deductions

(1) This section applies to an R&D entity if:

(a) a balancing adjustment event happens in an income year (the

event year) commencing on or after 1 July 2010 for an asset

held by the R&D entity and:

(i) the R&D entity can deduct, for an income year, an

amount under section 40-25 of the Income Tax

Assessment Act 1997 (the new Act), as that section

applies apart from Division 355 of that Act and former

section 73BC of the Income Tax Assessment Act 1936

(the old Act); or

(ii) the R&D entity could have deducted, for an income

year, an amount as described in subparagraph (i) if it

had used the asset; and

(b) either or both of the following subparagraphs apply:

(i) the R&D entity can deduct (the old law deductions)

under former section 73BA or 73BH of the old Act an

amount for one or more income years for the asset;

(ii) the R&D entity chooses tax offsets under former

section 73I of the old Act instead of deductions (also the

old law deductions) under those former sections for one

or more income years for the asset.

Note:

This section applies even if the R&D entity is entitled under

section 355-100 of the new Act to tax offsets for one or more income

years for deductions under section 355-305 of that Act for the asset.

Section 40-290 to be applied as if use for carrying on R&D

activities were use for a taxable purpose

(2) In applying section 40-290 of the new Act (including references in

that section to the reduction of deductions under section 40-25 of

that Act) in relation to the asset, assume that using the asset for a

taxable purpose includes using it for:

(a) the purpose of the carrying on, by or on behalf of the R&D

entity, of the research and development activities (within the

meaning of former section 73B of the old Act) to which the

old law deductions relate; or

Application, savings and transitional provisions Schedule 4

Transitional provisions appearing as amendments of other Acts Part 3

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 119

(b) if the R&D entity is entitled under section 355-100 of the

new Act to tax offsets for one or more income years for

deductions (the new law deductions) under section 355-305

of that Act for the asset--the purpose of conducting the R&D

activities to which the new law deductions relate.

Increase in amounts deductible or assessable under section 40-285

(3) Any amount (the section 40-285 amount):

(a) that the R&D entity can deduct for the asset under

section 40-285 of the new Act (after applying subsection (2)

of this section) for the event year; or

(b) that is included in the R&D entity's assessable income for the

asset under section 40-285 of the new Act (after applying

subsection (2) of this section) for the event year;

is taken to be increased under section 40-292 of the new Act by the

following amount:

Old law

Sum of

1.25 rate

new law

deductions

Adjusted section

40-285 amount

Total decline

in value

�

where:

adjusted section 40-285 amount means:

(a) if the section 40-285 amount is a deduction--the amount of

the deduction; or

(b) if the section 40-285 amount is an amount included in the

R&D entity's assessable income--so much of the

section 40-285 amount as does not exceed the total decline in

value.

old law 1.25 rate deductions means the sum of the R&D entity's

notional Division 40 deductions, and notional Division 42

deductions, (if any) for the asset that were multiplied by 1.25 in

working out the old law deductions.

total decline in value means the cost of the asset less its adjustable

value.

Schedule 4

Application, savings and transitional provisions

Part 3

Transitional provisions appearing as amendments of other Acts

120 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

Normal rules do not apply for the asset and the event

(4) Neither of the following sections:

(a) section 40-292 of the new Act (as amended by the Tax Laws

Amendment (Research and Development) Act 2010);

(b) section 40-292 of the new Act (as that section applies

because of Part 2 of Schedule 4 to the Tax Laws Amendment

(Research and Development) Act 2010);

to the extent that they would otherwise apply apart from this

section to the R&D entity for the event, do so apply to the R&D

entity for the event.

Note 1:

The section 40-292 of the new Act mentioned in paragraph (a) would

otherwise apply for the event in a case where the R&D entity had new

law deductions.

Note 2:

The section 40-292 of the new Act mentioned in paragraph (b) would

otherwise apply for the event in respect of the old law deductions.

40-293 Balancing adjustment--partnership assets used for both

general tax purposes and R&D activities

Partners have old law R&D decline in value deductions

(1) This section applies to an R&D partnership if:

(a) a balancing adjustment event happens in an income year (the

event year) commencing on or after 1 July 2010 for an asset

held by the R&D partnership and:

(i) the R&D partnership can deduct, for an income year, an

amount under section 40-25 of the Income Tax

Assessment Act 1997 (the new Act), as that section

applies apart from Division 355 of that Act and former

section 73BC of the Income Tax Assessment Act 1936

(the old Act); or

(ii) the R&D partnership could have deducted, for an

income year, an amount as described in subparagraph (i)

if it had used the asset; and

(b) either or both of the following subparagraphs apply:

(i) one or more partners of the R&D partnership can deduct

(the old law deductions) under former section 73BA or

73BH of the old Act amounts for one or more income

years for the asset;

Application, savings and transitional provisions Schedule 4

Transitional provisions appearing as amendments of other Acts Part 3

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 121

(ii) one or more partners of the R&D partnership choose tax

offsets under former section 73I of the old Act instead

of deductions (also the old law deductions) under those

former sections for one or more income years for the

asset.

Note:

This section applies even if the partners are entitled under

section 355-100 of the new Act to tax offsets for one or more income

years for deductions under section 355-520 of that Act for the asset.

Section 40-290 to be applied as if use for carrying on R&D

activities were use for a taxable purpose

(2) In applying section 40-290 of the new Act (including references in

that section to the reduction of deductions under section 40-25 of

that Act) in relation to the asset, assume that using the asset for a

taxable purpose includes using it for:

(a) the purpose of the carrying on, by or on behalf of the R&D

partnership, of the research and development activities

(within the meaning of former section 73B of the old Act) to

which the old law deductions relate; or

(b) if one or more partners of the R&D partnership are entitled

under section 355-100 of the new Act to tax offsets for one or

more income years for deductions (the new law deductions)

under section 355-520 of that Act for the asset--the purpose

of conducting the R&D activities to which the new law

deductions relate.

Increase in amounts deductible or assessable under section 40-285

(3) Any amount (the section 40-285 amount):

(a) that the R&D partnership can deduct for the asset under

section 40-285 of the new Act (after applying subsection (2)

of this section) for the event year; or

(b) that is included in the R&D partnership's assessable income

for the asset under section 40-285 of the new Act (after

applying subsection (2) of this section) for the event year;

is taken to be increased under section 40-293 of the new Act by the

following amount:

Schedule 4

Application, savings and transitional provisions

Part 3

Transitional provisions appearing as amendments of other Acts

122 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

Old law

Sum of all

1.25 rate

new law

deductions

Adjusted section

40-285 amount

Total decline

in value

�

where:

adjusted section 40-285 amount means:

(a) if the section 40-285 amount is a deduction--the amount of

the deduction; or

(b) if the section 40-285 amount is an amount included in the

R&D partnership's assessable income--so much of the

section 40-285 amount as does not exceed the total decline in

value.

old law 1.25 rate deductions means the sum of the partners'

notional Division 40 deductions, and notional Division 42

deductions, (if any) for the asset that were multiplied by 1.25 in

working out the old law deductions.

total decline in value means the cost of the asset less its adjustable

value.

Normal rules do not apply for the asset and the event

(4) Section 40-293 of the new Act, to the extent that it would

otherwise apply apart from this section to the R&D partnership or

its partners for the event, does not so apply to the R&D partnership

and the partners for the event.

Note:

Section 40-293 of the new Act would otherwise apply for the event in

a case where the partners had new law deductions.

13 After section 40-420

Insert:

40-430 Allocating assets to low-value pools

For the purposes of Subdivision 40-E of the Income Tax

Assessment Act 1997, you cannot allocate a depreciating asset to a

low-value pool if:

Application, savings and transitional provisions Schedule 4

Transitional provisions appearing as amendments of other Acts Part 3

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 123

(a) you can deduct an amount for the asset under former

section 73BA of the Income Tax Assessment Act 1936; or

(b) you could so deduct an amount if you had not chosen a tax

offset under former section 73I of that Act;

for a period before, or starting at the same time as, the allocation

has effect.

14 After section 104-205

Insert:

104-235 CGT event K7: asset used for old law R&D activities

Section applies if asset used for old law R&D activities

(1) This section applies to an R&D entity if:

(a) a balancing adjustment event happens in an income year

commencing on or after 1 July 2010 for an asset held by the

R&D entity; and

(b) at some time when the R&D entity held the asset, it used the

asset for the purpose of the carrying on by or on its behalf of

research and development activities (within the meaning of

former section 73B of the Income Tax Assessment Act 1936).

Changed application of sections 104-235 and 104-240

(2) Sections 104-235 and 104-240 of the Income Tax Assessment Act

1997 (the new Act) apply to the R&D entity for the event as if:

(a) a reference in those sections to the purpose of conducting

R&D activities for which you were registered under

section 27A of the Industry Research and Development Act

1986;

included:

(b) a reference to the purpose described in paragraph (1)(b) of

this section.

Normal rules do not apply for the asset and the event

(3) Neither of the following sections:

(a) sections 104-235 and 104-240 of the new Act (as amended

by the Tax Laws Amendment (Research and Development)

Act 2010);

Schedule 4

Application, savings and transitional provisions

Part 3

Transitional provisions appearing as amendments of other Acts

124 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

(b) sections 104-235 and 104-240 of the new Act (as those

sections apply because of Part 2 of Schedule 4 to the Tax

Laws Amendment (Research and Development) Act 2010);

to the extent that they would otherwise apply apart from this

section to the R&D entity for the event, do so apply to the R&D

entity for the event.

Note 1:

The sections described in paragraph (a) would otherwise apply for the

event in a case where the R&D entity had used the asset for the

purpose of conducting R&D activities for which it was registered

under section 27A of the Industry Research and Development Act

1986.

Note 2:

The sections described in paragraph (b) would otherwise apply in

respect of the purpose described in paragraph (1)(b) of this section.

15 After Division 328

Insert:

Division 355--Research and Development

Table of Subdivisions

355-D Registration for activities before 2010-11 income year

355-E Balancing adjustments for decline in value deductions for

assets used in R&D activities

355-F Integrity

rules

355-K Modified application of the old R&D law

355-M Undeducted core technology expenditure

Subdivision 355-D--Registration for activities before 2010-11

income year

Table of sections

355-200 Registration for activities before 2010-11 income year

355-200 Registration for activities before 2010-11 income year

A reference in each of the following provisions of the Income Tax

Assessment Act 1997 to a registration under section 27A of the

Industry Research and Development Act 1986 includes a reference

to a registration under former section 39J of that Act:

Application, savings and transitional provisions Schedule 4

Transitional provisions appearing as amendments of other Acts Part 3

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 125

(a)

paragraph

43-35(a);

(b)

subparagraph

355-205(1)(a)(i);

(c)

subparagraph

355-215(b)(ii);

(d)

subparagraph

355-220(1)(b)(ii);

(e)

subparagraph

355-480(1)(a)(i);

(f)

paragraph

355-580(1)(b).

Subdivision 355-E--Balancing adjustments for decline in value

deductions for assets used in R&D activities

Table of sections

355-320 Balancing adjustment--assets only used for R&D activities

355-325 Balancing adjustment--R&D partnership assets only used for R&D

activities

355-320 Balancing adjustment--assets only used for R&D activities

R&D entity has old law R&D decline in value deductions

(1) This section applies to an R&D entity if:

(a) a balancing adjustment event happens in an income year (the

event year) commencing on or after 1 July 2010 for an asset

held by the R&D entity; and

(b) the R&D entity cannot deduct an amount under section 40-25

of the Income Tax Assessment Act 1997 (the new Act), as that

section applies apart from:

(i) Division 355 of that Act; and

(ii) former section 73BC of the Income Tax Assessment Act

1936 (the old Act);

for the asset for an income year; and

(i) the R&D entity can deduct (the old law deductions)

under former section 73BA or 73BH of the old Act an

amount for one or more income years for the asset;

(ii) the R&D entity chooses tax offsets under former

section 73I of the old Act instead of deductions (also the

old law deductions) under those former sections for one

or more income years for the asset; and

Schedule 4

Application, savings and transitional provisions

Part 3

Transitional provisions appearing as amendments of other Acts

126 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

(d) the R&D entity is registered under section 27A of the

Industry Research and Development Act 1986 for one or

more R&D activities for the event year; and

(e) if Division 40 of the new Act applied as described in

subsection (2) of this section:

(i) the R&D entity could deduct for the event year an

amount under subsection 40-285(2) of that Act for the

asset and the balancing adjustment event; or

(ii) an amount would be included in the R&D entity's

assessable income for the event year under subsection

40-285(1) of that Act for the asset and the balancing

adjustment event.

Note 1:

This section applies even if the R&D entity is entitled under

section 355-100 of the new Act to tax offsets for one or more income

years for deductions (the new law deductions) under section 355-305

of that Act for the asset.

Note 2:

Section 40-292 of this Act may apply if paragraph (c), but not

paragraph (b), of this subsection is satisfied.

Changed application of Division 40

(2) For the purposes of paragraph (1)(e), assume that Division 40 of

the new Act applied with the changes described in section 355-310

of that Act, but with these changes to that section:

Changes to be made to section 355-310 of the new Act

Item

For a reference in

section 355-310 to...

substitute a reference to...

section 355-315

this section

the purpose of conducting

one or more of the R&D

activities to which the

R&D deductions (within

the meaning of that section)

relate

both:

(a) the purpose of conducting one or more of

the research and development activities

(within the meaning of former section 73B

of the old Act) to which the old law

deductions relate; and

(b) the purpose of conducting one or more of

the R&D activities to which the new law

deductions (if any) relate

Application, savings and transitional provisions Schedule 4

Transitional provisions appearing as amendments of other Acts Part 3

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 127

Notional deduction

(3) If the R&D entity could deduct for the event year an amount under

subsection 40-285(2) of the new Act for:

(a) the asset; and

(b)

the

event;

if Division 40 of that Act applied as described in subsection (2) of

this section, the R&D entity is taken to be able to deduct under

subsection 355-315(2) of the new Act that amount for the event

year.

Note:

The R&D entity may be entitled to a tax offset under section 355-100

(about R&D) of the new Act for the deduction.

Amount to be included in assessable income

(4) If an amount (the section 40-285 amount) would be included in the

R&D entity's assessable income for the event year under

subsection 40-285(1) of the new Act for the asset and the event if

Division 40 of that Act applied as described in subsection (2) of

this section, the sum of:

(a) that amount; and

(b) the following amount;

is taken to be included in the R&D entity's assessable income for

the event year under subsection 355-315(3) of the new Act:

Old law

Sum of

1.25 rate

new law

deductions

Adjusted section

40-285 amount

Total decline

in value

�

where:

adjusted section 40-285 amount means so much of the

section 40-285 amount as does not exceed the total decline in

value.

old law 1.25 rate deductions means the sum of the R&D entity's

notional Division 40 deductions, and notional Division 42

deductions, (if any) for the asset that were multiplied by 1.25 in

working out the old law deductions.

Schedule 4

Application, savings and transitional provisions

Part 3

Transitional provisions appearing as amendments of other Acts

128 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

total decline in value means the asset's cost, less its adjustable

value, worked out under Division 40 of the new Act as it applies as

described in subsection (2).

Normal rules do not apply for the asset and the event

(5) Neither of the following sections:

(a) section 355-315 of the new Act;

(b) former section 73BF of the old Act (as that section applies

because of Part 2 of Schedule 4 to the Tax Laws Amendment

(Research and Development) Act 2010);

to the extent that they would otherwise apply apart from this

section to the R&D entity for the event, do so apply to the R&D

entity for the event.

Note 1:

Section 355-315 of the new Act would otherwise apply for the event

in a case where the R&D entity had new law deductions.

Note 2:

Former section 73BF of the old Act would otherwise apply for the

event in respect of the old law deductions.

355-325 Balancing adjustment--R&D partnership assets only used

for R&D activities

Partner has old law R&D decline in value deductions

(1) This section applies to an R&D entity (the partner) if:

(a) a balancing adjustment event happens in an income year (the

event year) commencing on or after 1 July 2010 for an asset

held by an R&D partnership; and

(b) the R&D partnership cannot deduct an amount under

section 40-25, as that section applies apart from:

(i) Division 355 of the Income Tax Assessment Act 1997

(the new Act); and

(ii) former section 73BC of the Income Tax Assessment Act

1936 (the old Act);

for the asset for an income year; and

(i) the partner can deduct (the old law deductions) under

former section 73BA or 73BH of the old Act an amount

for one or more income years for the asset;

Application, savings and transitional provisions Schedule 4

Transitional provisions appearing as amendments of other Acts Part 3

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 129

(ii) the partner chooses tax offsets under former section 73I

of the old Act instead of deductions (also the old law

deductions) under those former sections for one or more

income years for the asset; and

(d) the partner is registered under section 27A of the Industry

Research and Development Act 1986 for one or more R&D

activities for the event year; and

(e) if Division 40 of the new Act applied as described in

subsection (2) of this section:

(i) the R&D partnership could deduct for the event year an

amount under subsection 40-285(2) of that Act for the

asset and the balancing adjustment event; or

(ii) an amount would be included in the R&D partnership's

assessable income for the event year under subsection

40-285(1) of that Act for the asset and the balancing

adjustment event.

Note 1:

This section applies even if the partner is entitled under

section 355-100 of the new Act to tax offsets for one or more income

years for deductions (the new law deductions) under section 355-520

of that Act for the asset.

Note 2:

Section 40-293 of this Act may apply if paragraph (c), but not

paragraph (b), of this subsection is satisfied.

Changed application of Division 40

(2) For the purposes of paragraph (1)(e), assume that Division 40 of

the new Act applied with the changes described in section 355-310

of that Act, but with these changes to that section:

Changes to be made to section 355-310 of the new Act

Item

For a reference in

section 355-310 to...

substitute a reference to...

section 355-315

this section

the purpose of conducting

one or more of the R&D

activities to which the

R&D deductions (within

the meaning of that section)

relate

both:

(a) the purpose of conducting one or more of

the research and development activities

(within the meaning of former section 73B

of the old Act) to which the old law

deductions relate; and

(b) the purpose of conducting one or more of

the R&D activities to which the new law

Schedule 4

Application, savings and transitional provisions

Part 3

Transitional provisions appearing as amendments of other Acts

130 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

Changes to be made to section 355-310 of the new Act

Item

For a reference in

section 355-310 to...

substitute a reference to...

deductions (if any) relate

R&D entity

R&D partnership

Notional deduction

(3) If the R&D partnership could deduct for the event year an amount

under subsection 40-285(2) of the new Act for:

(a) the asset; and

(b)

the

event;

if Division 40 of that Act applied as described in subsection (2) of

this section, the partner is taken to be able to deduct under

subsection 355-525(2) of the new Act the partner's proportion of

that amount for the event year.

Note:

The partner may be entitled to a tax offset under section 355-100

(about R&D) of the new Act for the deduction.

Amount to be included in assessable income

(4) If an amount (the section 40-285 amount) would be included in the

R&D partnership's assessable income for the event year under

subsection 40-285(1) of the new Act for the asset and the event if

Division 40 of that Act applied as described in subsection (2) of

this section, the sum of:

(a) the partner's proportion of that amount; and

(b) the following amount;

is taken to be included in the partner's assessable income for the

event year under subsection 355-525(3) of the new Act:

Old law

Sum of all

1.25 rate

new law

deductions

Adjusted section

40-285 amount

Total decline

in value

�

where:

Application, savings and transitional provisions Schedule 4

Transitional provisions appearing as amendments of other Acts Part 3

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 131

adjusted section 40-285 amount means so much of the

section 40-285 amount as does not exceed the total decline in

value.

old law 1.25 rate deductions means the sum of the partner's

notional Division 40 deductions, and notional Division 42

deductions, (if any) for the asset that were multiplied by 1.25 in

working out the old law deductions.

total decline in value means the asset's cost, less its adjustable

value, worked out under Division 40 of the new Act as it applies as

described in subsection (2).

Normal rules do not apply for the asset and the event

(5) Neither of the following sections:

(a) section 355-525 of the new Act;

(b) former section 73BF of the old Act (as that section applies

because of Part 2 of Schedule 4 to the Tax Laws Amendment

(Research and Development) Act 2010);

to the extent that they would otherwise apply apart from this

section to the partner for the event, do so apply to the partner for

the event.

Note 1:

Section 355-525 of the new Act would otherwise apply for the event

in a case where the partner had new law deductions.

Note 2:

Former section 73BF of the old Act may otherwise apply for the event

in respect of the old law deductions.

355-340 Balancing adjustment--tax exempt entities that become

taxable

Item 7 of the table in subsection 57-110(2) in Schedule 2D to the

Income Tax Assessment Act 1936 applies as if the deduction rules

set out in the final column of that item also included former

sections 73BA and 73BH of the Income Tax Assessment Act 1936.

Subdivision 355-F--Integrity rules

Table of sections

355-415 Expenditure reduced to reflect group mark-ups

Schedule 4

Application, savings and transitional provisions

Part 3

Transitional provisions appearing as amendments of other Acts

132 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

355-415 Expenditure reduced to reflect group mark-ups

For the purposes of step 1 of the method statement in subsection

355-415(2) of the Income Tax Assessment Act 1997, also disregard

amounts that have already been taken into account under former

subsection 73B(14AA) of the Income Tax Assessment Act 1936 for

the R&D entity, the grouped entity and the R&D activities for an

earlier income year.

Subdivision 355-K--Modified application of the old R&D law

Table of sections

355-550 Prepayments of R&D expenditure extending into the 2010-11 income year

355-550 Prepayments of R&D expenditure extending into the

2010-11 income year

Advance R and D expenditure

(1) This section applies if, apart from former paragraph 73B(10)(a) of

the Income Tax Assessment Act 1936, an eligible company could

deduct advance R and D expenditure in one or more income years

commencing on or after 1 July 2010.

Note:

That deduction would be under former section 73B of that Act as that

former section applies because of Part 2 of Schedule 4 to the Tax Laws

Amendment (Research and Development) Act 2010.

Other prepayments of R&D expenditure

(2) This section also applies if:

(a) apart from Subdivision H (prepaid expenditure) of Division 3

of Part III of the Income Tax Assessment Act 1936, an

eligible company can deduct an amount under former

section 73B, 73BA, 73BH, 73QA, 73QB or 73Y of that Act

for an income year commencing before 1 July 2010; and

(b) that Subdivision applies to the calculation of that amount;

and

eligible company could deduct an amount, as a result of that

application of that Subdivision, for an income year

commencing on or after 1 July 2010.

Application, savings and transitional provisions Schedule 4

Transitional provisions appearing as amendments of other Acts Part 3

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 133

Note:

That deduction would be under that Act as it applies because of Part 2

of Schedule 4 to the Tax Laws Amendment (Research and

Development) Act 2010.

Changed registration requirement

(3) Former paragraph 73B(10)(a) of that Act is taken to apply to those

income years commencing on or after 1 July 2010 as if the

reference in that former paragraph to section 39J of the Industry

Research and Development Act 1986 were a reference to

section 27A of that Act.

Meaning of expressions

(4) An expression used in this section that is also used in former

section 73B of the Income Tax Assessment Act 1936 has the same

meaning in this section as it has in that former section.

Subdivision 355-M--Undeducted core technology expenditure

Table of sections

355-600 Scope

355-605 Core technology that is a depreciating asset

355-610 Core technology that is not a depreciating asset

355-600 Scope

This Subdivision applies to core technology (within the meaning of

former section 73B of the Income Tax Assessment Act 1936) if:

(a) you incurred core technology expenditure (within the

meaning of that former section) in an income year

commencing before 1 July 2010 in relation to the core

technology under one or more contracts entered into at or

after the time referred to in former subsection 73B(12) of that

Act; and

(b) that expenditure (the undeducted expenditure) cannot be

deducted for the last income year commencing before 1 July

2010.

Schedule 4

Application, savings and transitional provisions

Part 3

Transitional provisions appearing as amendments of other Acts

134 Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010

355-605 Core technology that is a depreciating asset

This section only applies for deductions under Division 40

(1) This section applies for the purposes of Division 40 of the Income

Tax Assessment Act 1997, other than sections 40-292 and 40-293

of that Act, if the core technology (the asset) is a depreciating

asset.

(2) Disregard this section, including its effect on the amount you can

deduct under section 40-25 of that Act for the asset, for the

purposes of working out:

(a) a deduction under any other Division of that Act for any

income year; and

(b) a tax offset under any other Division of that Act for any

income year.

Changes made by this section

(3) The asset's opening adjustable value for the first income year that

commences on or after 1 July 2010 (the first new income year) is

equal to the amount of the undeducted expenditure.

(4) Subsection 40-75(2) of the Income Tax Assessment Act 1997

applies to the asset as if the first new income year were a change

year (within the meaning of that subsection).

355-610 Core technology that is not a depreciating asset

If the core technology is not a depreciating asset, you can deduct

the undeducted expenditure in equal proportions over a period of 5

income years starting in the first income year commencing on or

after 1 July 2010.

Application, savings and transitional provisions Schedule 4

Other savings and transitional provisions Part 4

Tax Laws Amendment (Research and Development) Bill 2010 No. , 2010 135

Part 4--Other savings and transitional provisions

16 R&D activities registered under the old law

A reference in each of the following provisions of the Industry

Research and Development Act 1986 (as amended by this Act) to a

registration under section 27A of that Act includes a reference to a

registration under former section 39J of that Act:

(a)

subparagraph

27A(3)(b)(i);

(b)

subparagraph

27B(1)(c)(ii);

(c)

subparagraph

27J(1)(c)(ii);

(d)

paragraph

28A(1)(b);

(e)

paragraph

28D(2)(b).

Note:

For each of these provisions, the R&D activity registered under former section 39J will

need to be a core R&D activity within the meaning of the amendments made by this

Act.

17 Australian research agencies registered under the old law

(1)

This item applies to an entity registered, immediately before the

commencement of this item, under section 39F of the Industry Research

and Development Act 1986 as an Australian research agency in respect

of one or more classes (the research classes) of Australian research and

development activities.

(2)

The entity is taken, immediately after the commencement of this item,

to be registered under section 29A of that Act as a research service

provider qualified to provide services in research fields corresponding

to those research classes.

18 Regulations

(1)

The Governor-General may make regulations prescribing matters:

(a) required or permitted by this Act to be prescribed; or

(b) necessary or convenient to be prescribed for carrying out or

giving effect to this Act.

(2)

The Governor-General may make regulations dealing with matters of a

transitional, savings or application nature relating to the repeals and

amendments made by this Act.

Commonwealth of Australia Bills

TAX LAWS AMENDMENT (RESEARCH AND DEVELOPMENT) BILL 2011