Income Tax Assessment Amendment (Research and Development) Act 1986
No. 90 of 1986
An Act to provide income tax concessions for expenditure on research and development, and for related purposes
[Assented to 25 June 1986]
BE IT ENACTED by the Queen, and the Senate and the House of Representatives of the Commonwealth of Australia, as follows:
Short title, &c.
1. (1) This Act may be cited as the Income Tax Assessment Amendment (Research and Development) Act 1986.
(2) The Income Tax Assessment Act 19361 is in this Act referred to as the Principal Act.
Commencement
2. This Act shall come into operation on the day on which it receives the Royal Assent.
Divisible deductions
3. Section 50g of the Principal Act is amended—
(a) by inserting in paragraph (1) (a) “sub-section 73b (15) or (17),” after “sub-section 73a (2),”; and
(b) by inserting after paragraph (2) (g) the following paragraphs:
“(ga) where—
(i) a divisible deduction is allowable to the company in relation to the year of income under section 73b in respect of expenditure incurred by the company in the acquisition or construction of a unit of plant or a building or an extension, alteration or improvement to a building;
(ii) the year of income is the first year of income in which a deduction is allowable to the company under section 73b in respect of that expenditure; and
(iii) the company incurred any of the expenditure referred to in sub-paragraph (i) before the commencement of, or during, the relevant period,
so much of the amount of that divisible deduction as bears to the amount of that divisible deduction the same proportion as the number of whole days (if any) in the relevant period, being whole days occurring after the time when the company first incurred any of the expenditure referred to in sub-paragraph (i), bears to the number of whole days in the year of income, being whole days occurring after that time, shall be deemed to be an allowable deduction in respect of that relevant period;
“(gb) where—
(i) a divisible deduction is allowable to the company in relation to the year of income under section 73b in respect of expenditure incurred by the company in the acquisition or construction of a unit of plant or a building or an extension, alteration or improvement to a building; and
(ii) the year of income is not the first year of income in which a deduction is allowable to the company under section 73b in respect of that expenditure,
so much of the amount of that divisible deduction as bears to the amount of that divisible deduction the same proportion as the number of whole days (if any) in that…
Overview
The Income Tax Assessment Amendment (Research and Development) Act 1986, enacted by the Commonwealth Parliament, was introduced to address the need for incentivising research and development activities within Australian businesses. The Act provides income tax concessions for expenditure on research and development to foster innovation and economic growth. The primary policy objective of the Act is to encourage companies to invest in research and development by offering tax benefits that reduce the effective tax burden on such expenditures. This initiative aims to stimulate technological advancement, enhance productivity, and improve the competitiveness of Australian industries on a global scale.
Scope and Application
The Income Tax Assessment Amendment (Research and Development) Act 1986 applies to eligible companies incorporated under the laws of the Commonwealth, a State, or a Territory of Australia. It provides income tax concessions for expenditure incurred by these companies in relation to research and development activities, plant, and buildings. The Act is applicable across the Commonwealth of Australia, and its provisions are intended to encourage investment in research and development by offering tax deductions and other incentives. The Act excludes certain activities from being considered as research and development activities, such as market research, quality control, prospecting for minerals, and others. It also provides for specific rules regarding the depreciation of plant and buildings used for research and development purposes. The Act allows for the application of subordinate instruments to extend or restrict its application, ensuring that the tax concessions are administered effectively and in line with the policy objectives of the legislation.
Key Provisions
- The Income Tax Assessment Amendment (Research and Development) Act 1986 primarily focuses on providing income tax concessions for companies engaged in research and development (R&D) activities. Section 73b of the Act introduces a range of deductions for eligible companies that incur specific types of expenditure related to R&D. For instance, companies can claim a deduction for contracted expenditure on R&D activities, with the amount of this deduction being 1.5 times the actual expenditure incurred (subsection 73b(13)). Additionally, for companies with an aggregate R&D amount exceeding $20,000, a deduction acceleration factor is applied to their R&D expenditure (subsection 73b(14)). The Act also allows for deductions on qualifying plant and building expenditure incurred for R&D purposes, with these deductions being a fraction of the total expenditure (subsections 73b(15) and 73b(17)).
- Eligible companies must meet several obligations to avail these deductions. Firstly, they must be registered with the Industry Research and Development Board, providing the necessary information regarding their R&D activities (subsection 73b(12)). Secondly, they must ensure that the R&D activities are systematic, investigative, or experimental and involve innovation or technical risk, excluding certain activities like market research or cosmetic modifications (subsection 73b(2)). Additionally, companies must not be recouped or entitled to be recouped, or receive grants for the R&D activities they undertake (subsection 73b(8)).
- The Act imposes strict conditions on the eligibility for deductions. For example, deductions are not allowed if the R&D activities result in commercial exploitation outside normal commercial terms or if the results are not for the benefit of the Australian economy (subsection 73b(33)). Furthermore, if the Commissioner determines that the company and another party were not dealing at arm's length regarding the R&D expenditure, only a reasonable amount of the expenditure will be considered for the deduction (subsection 73b(31)). The Act also outlines scenarios where certain deductions are not allowable, such as when a company sells or disposes of R&D-related property within a specific period (subsection 73b(28)).
- Breaches of the Act can result in significant consequences. While the Act does not explicitly state penalties for non-compliance, breaches of tax laws generally can lead to civil or criminal penalties under the Income Tax Assessment Act 1936. Civil penalties can include fines up to 200% of the unpaid tax, while criminal penalties can include fines and imprisonment, depending on the severity of the offence. Companies may also face interest charges on unpaid tax and additional costs for amending their assessments.
- Area of Law
- Taxation Law
- Instrument
- Act
- Concepts
- Commencement Provisions
- Definitions & Interpretation
- Reporting & Disclosure Obligations
- Compliance Obligations