ATO logo

Consolidated groups and R&D partnerships

There are special rules for the R&D tax incentive for consolidated groups and R&D partnerships.

Last updated 13 May 2026

Consolidated groups

If you are the head company of a consolidated group or multi entry consolidated (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. It has the following implications for you as the head company:

  • The actions and transactions of a subsidiary member are treated as having been undertaken by you.
  • 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.
  • Expenditure a subsidiary member incurs on R&D activities is taken to be incurred by you.
  • R&D activities conducted for your subsidiary member by a third party are taken to have been conducted for you.
  • 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.
  • 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.

For more information about consolidation and the single entity rule, see:

Registration for the head company

You must register your own R&D activities undertaken, including those undertaken by subsidiary members of your consolidated or MEC group while they were part of your consolidated or MEC group.

Subsidiary members should not 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 for subsidiary members for a partial 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.

R&D partnerships

Generally, a partnership is an association of persons (other than a company or limited partnership) that is:

  • 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.

For information to help you to work out whether a business is carried on in partnership refer to Taxation Ruling TR 94/8 Income tax: whether business is carried on in partnership (including 'husband and wife' 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.

An R&D partnership can't register for the R&D tax incentive. Instead, each partner wishing to claim the R&D tax incentive must register separately prior to claiming.

Applying partnership 'proportions'

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 partnership income or loss:

  • R&D expenditure taken to be incurred by you and the other partners as a result of subdivision 355-J of the ITAA 1997
  • an amount you and the other partners can deduct as a result of subdivision 355-J of the ITAA 1997
  • a recoupment taken to be received by you and the other partners as a result of subdivision 355-J of the ITAA 1997.

Subdivision 355-J of the ITAA 1997 gives information about R&D partnerships and the R&D tax incentive. Refer to:  

 

QC81724