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Appropriate degree of control

Last updated 15 June 2021

An appropriate degree of control over the conduct of R&D activities exists where you can:

  • choose the project of R&D activities
  • decide on major changes in direction of those activities
  • stop an unproductive line of research
  • decide whether to follow up (or not) an unexpected result
  • decide to end a project.

If a researcher carries out a program of R&D activities for several companies as a group, these companies must maintain control over the conduct of the R&D activities. Any terms of the arrangement between the companies and the researcher that regulate how control is exercised must not preclude the companies' control in practice.

In some circumstances activities undertaken for a group of companies are overseen by a committee. Where companies have R&D activities carried out for them, they may be able to exercise proper control over the conduct of those activities through a committee they have chosen (which includes people selected by each company to represent their interests).

Financial burden or risk

You do not bear the financial burden or risk of conducting R&D activities if your expenditure on them is reimbursed by another party or recouped (including where you have received a government grant for that expenditure).

However, if you do not bear the financial burden of the R&D activities, it might still be correct to conclude that they have been conducted for you (and not to a significant extent for someone else), because you effectively own the results and control the conduct of those R&D activities. In such cases, though, you may not be able to claim the R&D tax incentive or only be able to claim a reduced R&D tax incentive if the 'expenditure not at risk' provisions apply. You may also need to apply the clawback adjustment provisions, resulting in an extra amount of income tax applying.

Example 1: Supply of a product for a fixed price

Company G is an Australian company that carries on business in Australia. Company G carries out R&D activities that are incidental to the supply of a saleable product for a fixed price. The fixed price bears no relationship to the extent of the R&D activities the company may need to conduct in order to produce the product. Company G bears the financial burden for R&D activities.

End of example


Example 2: Fee for design and testing of a product

Company E is an Australian company that carries on business in Australia. Company E supplies a saleable product to another company, Company F. Company E receives a fee for the design and testing of the product. The associated R&D expenditure is recouped wholly or in part by this fee. In these circumstances, Company E does not bear the financial burden for the R&D activities.

End of example

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