Expenditure that is not at risk
Expenditure that is not at risk (for example, if there is guaranteed return under a financing arrangement or an indemnity) is not eligible for a notional R&D deduction.
Expenditure is not at risk to the extent that when the expenditure is incurred, you (or your associate) could reasonably be expected to receive an amount of consideration:
- as a result of the expenditure being incurred or because of anything that happened before then
- irrespective of the results of the activities on which the entity incurs the expenditure.
Your expenditure can be at risk (and therefore eligible for an R&D tax offset) where the expectation of receiving consideration under a contract for the development and sale of a product is based on both:
- the terms and conditions of that contract
- the entity's experience and technical capability concerning the degree of confidence about successfully performing that contract.
Where this product development involves R&D activities and the conditions above exist the expectation of receiving consideration under this contract cannot be said to exist irrespective of the results of these activities.
The rule about expenditure not at risk does not apply to R&D activities conducted by you for one or more foreign corporations related to you. Nor does it apply to the corresponding permanent establishment case, where activities are conducted by a foreign corporation though a permanent establishment in Australia for other parts of the corporation.