About consolidated groups
If you are the head company of a consolidated group or MEC group, your subsidiary members are treated as part of you (the head company) while they are part of the consolidated or MEC group for income tax purposes. Therefore, the R&D tax incentive applies to your consolidated group or MEC group as if it is a single entity.
This is known as the single entity rule and it means that:
- the actions and transactions of a subsidiary member are treated as having been undertaken by you, the head company
- dealings that are solely between members of your consolidated or MEC group will not result in ordinary or statutory income or a deduction to you, the head company
- expenditure a subsidiary member incurs on R&D activities is taken to be incurred by you, the head company
- R&D activities conducted for your subsidiary member by a third party are taken to have been conducted for you, the head company
- R&D activities conducted by your subsidiary member for another member of the same group (or vice versa) are taken to have been conducted for you, the head company
- you (and not your subsidiary member) may be entitled to the R&D tax incentive for expenditure on R&D activities undertaken by a subsidiary member while it was in your consolidated or MEC group.
Registration if you are the head company of a consolidated or MEC group
You must register your own R&D activities undertaken as well as those undertaken by subsidiary members of your consolidated or MEC group while they were part of your consolidated or MEC group. It is not necessary for subsidiary members to also register if they were members of your consolidated or MEC group for the full income year.
If you are a subsidiary member:
- that joined a consolidated or MEC group during the income year, you may be entitled to claim the R&D tax incentive for expenditure incurred on R&D activities undertaken in the period before joining the group.
- for only part of the income year because you left that group during the year, you may be entitled to claim the R&D tax incentive for expenditure incurred on R&D activities undertaken in the period after you left the consolidated or MEC group.
Registration if you are a subsidiary member of a consolidated or MEC group for only part of the income year
In order to qualify for the R&D tax incentive for R&D activities undertaken while you were not part of a consolidated or MEC group, you must register your R&D activities undertaken in the period that you were not a member of that group.
See also:
- Consolidation
- single entity rule, refer to
- section 701-1 of the ITAA 1997
- Taxation Ruling TR 2004/11 Income tax: consolidation: the meaning and application of the single entity rule in Part 3-90 of the Income Tax Assessment Act 1997
- business.gov.auExternal Link
R&D partnerships
There are special rules in Subdivision 355-J of the ITAA 1997 regarding the R&D tax incentive for certain types of partnerships known as R&D partnerships. If you are in a partnership and you and each of the other partners, are R&D entities then the partnership is an R&D partnership.
Generally, a partnership is an association of persons (other than a company or limited partnership) carrying on business as partners or in receipt of ordinary or statutory income jointly. A limited partnership is also a partnership, although it is not an eligible R&D entity.
An R&D partnership cannot register for the R&D tax incentive. Instead, each partner wishing to claim the R&D tax incentive must register.
If you are a partner of an R&D partnership, the amount you can claim is based on your 'proportion' (as a partner) of the notional R&D deductions of the partnership. This proportion is based on your interest (as a partner) in the net income or loss of the R&D partnership, unless the partners have agreed that the partners should bear or be entitled to a different proportion.
Similarly, as a partner you may also have to pay your proportion of extra tax or include your proportion of additional amounts in your assessable income in certain circumstances. Examples of these circumstances may be where:
- recoupments are received that relate to expenditure on R&D activities by the R&D partnership and you have claimed the R&D tax incentive for these activities (clawback adjustment)
- amounts are received by the R&D partnership for the disposal of any R&D results.
In addition, any R&D activities conducted by or for the R&D partnership are taken to be conducted by or for each partner instead of the partnership.
The R&D partnership does not take into account any of the following when working out its net income or partnership loss:
- Any R&D expenditure taken to be incurred by you and the other partners as a result of subdivision 355-J of the ITAA 1997
- Any amount you and the other partners, can deduct as a result of subdivision 355-J of the ITAA 1997
- Any recoupment taken to be received by you and the other partners as a result of subdivision 355-J of the ITAA 1997.
See also:
- Subdivision 355-J of the ITAA 1997 for information about R&D partnerships and the R&D tax incentive
- section 355-505 for the definition of R&D partnership
- section 355-510 for the treatment of R&D partnership expenditure on R&D activities
- section 355-520 for the decline in value of depreciating assets of the R&D partnership
- section 355-535 for disposal of R&D results of an R&D partnership
- section 355-540 for R&D partnership recoupment rules
- section 355-545 for net income or partnership loss calculation rules
- Taxation Ruling TR 94/8 Income tax: whether business is carried on in partnership (including 'husband and wife' partnerships) – for information to help you to work out whether a business is carried on in partnership.