House of Representatives

Tax Laws Amendment (Research and Development) Bill 2010

Income Tax Rates Amendment (Research and Development) Bill 2010

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon Wayne Swan MP)

Chapter 5 - Administrative arrangements for the research and development tax incentive

Outline of chapter

5.1 Schedule 2 to the Tax Laws Amendment (Research and Development) Bill 2010 (Bill) amends the Industry Research and Development Act 1986 (IR & D Act) to provide a framework to support:

·
the registration and assessment of activities as research and development (R & D) activities by Innovation Australia (the Board);
·
the recognition and registration of research agencies, known as Research Service Providers, by the Board; and
·
internal review of decisions made by the Board and, if necessary, the subsequent review of these decisions by the Administrative Appeals Tribunal (AAT).

Context of amendments

5.2 The new R & D tax incentive will operate on a self assessment basis: entities will assess for themselves whether they are eligible under the rules contained in new Division 355 of the Income Tax Assessment Act 1997 (ITAA 1997).

5.3 A key function of the Board will be to enhance the integrity of the program by managing a process of registration for activities. Registration allows the Board to undertake risk assessment and compliance work, complementing integrity measures undertaken by the Commissioner of Taxation (Commissioner). In conducting this risk assessment and compliance work, the Board will confirm or reject an R & D entity's self assessment of certain activities as 'core' or 'supporting' R & D activities as defined under new Division 355 of the ITAA 1997.

5.4 The Board will also have a function in examining and making findings about R & D conducted outside Australia or the external Territories (overseas activities), to enable R & D entities to access an R & D tax offset for certain types of activities that are conducted overseas.

5.5 To provide certainty for R & D entities, the Board will also be able to provide public advice and advisory materials, make generalised public findings about whether activities are core R & D or supporting R & D activities. Public advice issued by the Board will be binding on the Board, but not the Commissioner. R & D entities may apply for private findings before or after an activity is registered by the Board. Taken together this enhanced advisory framework will ensure that the new tax incentive is targeted appropriately and administered effectively.

5.6 The Board will also have a role in ensuring a minimum standard of qualification and capability of entities registered as Research Service Providers. The Board must maintain a register of Research Service Providers.

5.7 The new arrangements will appear as new Part III of the IR & D Act, which will replace existing Part IIIA. Although the R & D Tax Concession will be discontinued from the end of the 2009-10 income year, the Board will still require ongoing powers in relation to activities conducted prior to the end of the 2009-10 income year. These powers will be saved to ensure the Board is able to continue to carry out its duties with respect to activities conducted under the R & D Tax Concession.

Summary of new law

Registration of research and development activities

5.8 In order to claim a tax offset for R & D activities conducted in Australia or the external Territories, R & D entities will need to register their activities with the Board. While registration is a precondition of eligibility for the tax offset, registration does not, by itself, render the activities that are the subject of the registration of eligible R & D activities.

5.9 The R & D tax incentive operates on a self assessment basis; that is, an R & D entity will assess for itself whether the activities conducted in an income year are eligible R & D activities as defined under new Division 355 of the ITAA 1997. As part of this process, R & D entities will be required to separately identify core and supporting R & D activities. However, the Board is able to make findings about activities that confirm or reject an R & D entity's self assessment of its activities. Board findings about whether activities are R & D activities can arise in three ways:

·
the Board may make findings about an application for registration, or activities that have been registered, of its own accord;
·
the Board must examine and make findings on activities that have been registered if it is requested to do so by the Commissioner; and
·
the Board may make findings on whether registered activities are R & D activities upon application by an R & D entity.

5.10 Findings by the Board that activities are or are not core R & D or supporting R & D activities are binding on the Commissioner when making a decision in relation to whether expenditure associated with the activities is or is not R & D expenditure and claimable under the R & D tax incentive rules. The Board may also release policy guidance about how it makes determinations in relation to the nature of activities.

5.11 R & D entities which disagree with a finding made by the Board may request an internal review of the finding by the Board. The Commissioner may also request an internal review of a finding (see paragraph 1.20).

Advance findings

5.12 An R & D entity may request a finding about the nature of activities before it is possible to register these activities. These advance findings can be sought in relation to an activity where an R & D entity:

·
has completed the activity in an income year (but before it is possible to register the activity);
·
has yet to complete the activity in an income year; or
·
has yet to conduct the activity, but can reasonably be expected to do so in the current or next two income years.

5.13 The ability of the Board to make an advance finding is intended to increase certainty for R & D entities in relation to whether the Board considers certain activities to be core R & D activities or supporting R & D activities, before the entity applies to register the activity.

Findings about overseas activities

5.14 R & D entities must apply to the Board for a finding about activities being conducted or proposed to be conducted, outside Australia or the external Territories, if the R & D entity wishes to claim a tax offset in relation to expenditure on those activities. The Board will give a positive finding in relation to these activities if it is satisfied that certain requirements are met, including the requirement that the activities are covered by an advance finding (see paragraphs 1.12 and 1.13) and also that they cannot be conducted in Australia or the external Territories.

5.15 Claims for a tax offset in relation to expenditure on overseas activities may only be made where a positive finding about the overseas activities is in force. Findings are in force in the income year in which the application for the finding is made.

Findings about core technology

5.16 An R & D entity or the Commissioner may apply to the Board for a finding that particular technology is or is not core technology. Technology is core technology if a purpose of R & D activities was or is to obtain new knowledge, make improvements or continue the development of that technology.

5.17 The effect of a finding by the Board that technology is core technology is that the tax offset will not be available for expenditure incurred on acquiring the technology or the right to use technology.

Registration of entities as Research Service Providers

5.18 The Board may register an entity as a Research Service Provider capable of providing services in one or more specified fields of research if the Board is satisfied that the entity meets certain criteria (which will be specified in regulations made under the IR & D Act). The Board will maintain a register of Research Service Providers and make this register available for inspection on the internet, and publish a list of Research Service Providers in its annual report.

5.19 As a transitional arrangement for the 2010-11 income year, Australian research agencies who are registered under section 39F of the current IR & D Act on 30 June 2010 will be taken to automatically be registered as Research Service Providers. These entities, and new entities which are registered in the future, will need to renew their registration on an annual basis. Registration will apply for an income year, rather than for a year from the time of application.

Review of Board decisions

5.20 Certain decisions by the Board are reviewable decisions and any entity whose interests are affected will have the right to request an internal review of the decision within 28 days (or further period allowed by the Board). The Commissioner can also request an internal review of these decisions at any time. Applications may also be made to the AAT for a review of an internal review decision.

Comparison of key features of new law and current law

New law Current law
The new Part III of the IR & D Act specifies the powers of the Board in relation to the new R & D tax incentive. The current Part IIIA of the IR & D Act specifies the powers of the Board in relation to the R & D Tax Concession.
The Board may register core and supporting R & D activities upon application by R & D entities. Head entities must register instead of any of their subsidiaries which would otherwise be entitled to registration. The Board may revoke an entity's registration in certain circumstances. The Board may register R & D activities upon application by eligible companies, including subsidiaries. The Board cannot revoke a registration.
The Board may make findings on whether activities are (or are not) core R & D activities and whether activities are (or are not) supporting R & D activities. Registrations are automatically varied to be consistent with the Board's findings. Findings may be made at the discretion of the Board, or on application by an R & D entity, and must be made at the request of the Commissioner. The Board may issue certificates in relation to whether registered activities are R & D activities. Findings can be made at the discretion of the Board and must be made at the request of the Commissioner.
An R & D entity, or an entity nominated in regulations acting on behalf an R & D entity, may request an advance finding to confirm that an activity which is not yet able to be registered is a core or supporting R & D activity, if the activity was completed in the income year in which the application is made or if the activities can reasonably be expected to be conducted or completed within three years. An eligible company may request an advance registration that provides it with a right to register its R & D activities. Advance registration decisions have effect for up to three years.
An R & D entity must apply to the Board for a finding if it wishes to claim a tax offset in relation to activities conducted outside Australia or the external Territories. The Board must be satisfied that the activities satisfy a number of conditions, including that the activities are the subject of a positive advance finding, and cannot be conducted in Australia or the external Territories. An eligible company must apply to the Board for a provisional certificate in relation to overseas R & D activities before the commencement of those activities if it wishes to claim a deduction under the R & D Tax Concession for those activities. The overseas activity must be part of a larger Australian project and overseas expenditure must not exceed 10 per cent of total project expenditure.
The Commissioner or an R & D entity may ask the Board to make a finding that particular technology is or is not core technology for R & D activities. The Commissioner may ask the Board to issue a certificate stating whether particular technology is or is not core technology in relation to R & D activities.
The Board may register Research Service Providers for an income year. Registrations may be renewed at the same time every year. The Board may register Australian research agencies for a period of 12 months.

Detailed explanation of new law

Registration of activities

5.21 Registration of R & D activities that were conducted in the previous income year is a precondition of eligibility for the R & D tax offset. On application by an R & D entity, the Board must make a decision to register, or refuse to register, core R & D activities and supporting R & D activities conducted during an income year. [Schedule 2, item 1, subsection 27A(1)]

5.22 Supporting R & D activities are defined in section 355-30 of the ITAA 1997 by reference to their connection to specific core R & D activities. Consistent with this, where the Board registers a supporting R & D activity, the registration must also specify the core R & D activity or activities to which the supporting activity is connected. [Schedule 2, item 1, subsection 27A(3)]

5.23 Where the connected core R & D activities are not conducted in the same income year as the supporting R & D activities, the registration must identify the income year in which those core activities were registered or are proposed to be registered. The connected core R & D activities can be undertaken in a past, present or future income year. If the connected core R & D activities were undertaken prior to the end of the R & D Tax Concession under section 73B of the Income Tax Assessment Act 1936 , the core R & D activities must have been registered under section 39J of the current IR & D Act and must satisfy the definition of core R & D activities contained in section 355-25 of the ITAA Act 1997. [Schedule 2, item 1, subsection 27A(3) and Schedule 4, item 16]

5.24 The Board's decision to register activities for an R & D entity must be made consistently with any findings that have been made by the Board about the application under subsection 27B(1), and any advance findings about the activities already in force under subsection 28A(1). This means that, for example, the Board cannot register an R & D entity for particular activities if it has already made a finding that those activities are not R & D activities. [Schedule 2, item 1, subsection 27A(2)]

5.25 An applicant that wishes to be registered will be required to self assess whether or not it is an R & D entity. R & D entities are defined in section 355-35 of the ITAA 1997. While an entity may otherwise be eligible to be an R & D entity, the entity's registration will have no effect under section 27A to the extent that it is a subsidiary member of a consolidated group or multiple entry consolidated group (MEC group). [Schedule 1, item 1, section 355-35 and Schedule 2, item 1, section 31]

5.26 If the Board becomes aware that it has registered R & D activities of an entity that is not an R & D entity (for example, because the body is an unincorporated joint venture), the registration can be revoked by the Board. An R & D entity may also request to have its registration revoked. [Schedule 2, item 1, section 27N]

5.27 The Board must notify the R & D entity of its decision to register or refuse to register the R & D entity for activities for an income year. [Schedule 2, item 1, section 27C]

5.28 As the new R & D tax incentive is a self assessment regime, the majority of applications to the Board will be registered without formal examination in relation to the activities conducted in the income year in question. Therefore, registration of activities does not, by itself, render the activities that are the subject of the registration eligible R & D activities.

Applications for registration of activities

5.29 Applications for registration must be made within:

·
ten months after the end of the income year in which the activities were conducted [Schedule 2, item 1, subparagraph 27D(c)(i)]; or
·
a further period allowed by the Board, in accordance with the decision-making principles [Schedule 2, item 1, subparagraph 27D(c)(ii)].

5.30 The responsible Minister will make, by legislative instrument, the decision-making principles under section 32A, which will apply to the Board's decision about whether to accept an application outside the 10-month period.

5.31 The Board will determine and publish the approved form for applications. Applications will be reviewed to ensure that they are in accordance with the approved form and that all information required by that form has been supplied, as failure to do so may result in the Board refusing to register the applicant's activities. [Schedule 2, item 1, paragraph 27D(a)]

5.32 Regulations may specify certain information or other material which must be included in an approved form. [Schedule 2, item 1, subsection 32(3)]

5.33 It may be necessary for a fee to accompany an application for registration. The amount of the fee, if any, will be specified in regulations and will be determined by reference to the cost of providing the registration service. [Schedule 2, item 1, paragraph 27D(b)]

Findings about applications

5.34 The Board may choose to consider an application in more detail and make a formal finding in relation to all or some of the activities mentioned in the application. These findings may impact on the registration of the R & D entity and its activities. [Schedule 2, item 1, section 27B]

5.35 The Board may make one or more of the following findings in relation to an application by an R & D entity:

·
that all or part of an activity mentioned in the application was a core R & D activity (if the Board is satisfied that the activity meets the definition in section 355-25 of the ITAA 1997) and was conducted during the income year [Schedule 2, item 1, paragraph 27B(1)(a)];
·
that all or part of an activity mentioned in the application was not a core R & D activity (if the Board is not satisfied that the activity meets the definition in section 355-25 of the ITAA 1997) or was not conducted during the income year [Schedule 2, item 1, paragraph 27B(1)(b)];
·
that all or part of an activity mentioned in the application was a supporting R & D activity in relation to an identified core R & D activity (if the Board is satisfied that the activities meet the definitions in sections 355-25 and 355-30 of the ITAA 1997) and was conducted during the income year [Schedule 2, item 1, paragraph 27B(1)(c)]; and/or
·
that all or part of an activity mentioned in the application was not a supporting R & D activity (if the Board is not satisfied that the activity meets the definition in section 355-30 of the ITAA 1997), was not conducted during the income year or was not conducted in relation to past (registered), present (will be registered) or future (could be registered) core R & D activities [Schedule 2, item 1, paragraph 27B(1)(d)].

5.36 In making its findings, the Board is not confined by the manner in which the R & D entity categorises particular actions as 'activities'. If the Board considers that some part of an activity nominated by the applicant as an R & D activity meets the definition but another does not, the Board may make a positive finding in relation to that part of the activity that it considers does meet the definition.

5.37 In addition, in making its finding, the Board is not confined by the R & D entity's classification of an activity as a core R & D activity or a supporting R & D activity. If the Board considers that an activity classified by the R & D entity as a core R & D activity is a supporting R & D activity (or vice versa), the Board may register the activity as appropriate.

5.38 If the Board makes a finding, it may specify in the finding the period during which the finding applies; that is, the times during the income year that it is satisfied the entity was conducting the R & D activity. For example, the entity might have been carrying out an activity for the entire income year, but for only part of that year it was carried out for the dominant purpose of supporting a core R & D activity, and thus it was only an R & D activity for certain times. [Schedule 2, item 1, subsection 27B(2)]

5.39 The Board need not consider every activity in an application for registration. The Board may make findings in relation to some activities nominated in an application, while not making findings about others that, despite not making a finding, the Board is satisfied are R & D activities.

5.40 The activities in the application may be the subject of an earlier advance finding under subsection 28A(1). In this circumstance, the advance finding will prevail over a finding under subsection 27B(1) to the extent of any inconsistency. This means that an R & D entity can rely on an advance finding provided that it conducts the R & D activities as described in that finding. However, if the activities conducted are materially different to those described in an advance finding, the advance finding does not apply to the actual activities conducted and the Board may make a finding under section 27B about those activities without breaching the consistency rule. [Schedule 2, item 1, subsection 27B(3) and section 32B]

Positive findings

5.41 The Board is able to make positive findings in respect of activities within an application; namely, that the activities identified by the applicant are R & D activities. It makes these findings if it is satisfied, on the basis of the information provided, that the activity meets the definitions in section 355-25 or 355-30 of the ITAA 1997, as relevant. The Board may also release policy guidance about how it applies this test.

5.42 In relation to a finding that an activity is a supporting activity, the Board would ordinarily also satisfy itself that the nominated core activity to which the supporting activity relates meet the definition of a 'core R & D activity'. The Board need not make a finding in order to satisfy itself with regards to related core activities.

5.43 The core activity may be undertaken in a past, present or future income year. If the relevant core activity will not be undertaken until a later income year (and hence cannot be registered yet), the Board will need to satisfy itself as to whether, if that nominated core activity were to be carried out in the same income year as the supporting activity, it would meet the definition of a 'core R & D activity'. [Schedule 2, item 1, subparagraph 27B(1)(c)(ii)]

5.44 A positive finding by the Board in respect of particular activities is confirmation of the applicant's self assessment that nominated activities are R & D activities. Once the Board has made such a finding, the Commissioner is bound to treat the activities which are the subject of the finding as R & D activities when determining whether expenditure incurred in relation to the activity in question is R & D expenditure for the purposes of Division 355 of the ITAA 1997. However, the Commissioner may request a review of a finding. [Schedule 1, item 1, subparagraph 355-705(1)(a)(i) and Schedule 2, item 1, subsection 30C(4)]

5.45 It is not necessary for the applicant to have a finding in respect of its activities in order to be eligible to claim a tax offset. It is only necessary that those activities be registered.

Negative findings

5.46 The Board can make negative findings in respect of activities within an application if it is not satisfied that it should make a positive finding; for example, if it is not satisfied that a nominated activity meets the relevant tests in section 355-25 or 355-30 of the ITAA 1997 as noted above.

5.47 There are a number of reasons why the Board might not be satisfied that the activity meets the relevant definition:

·
The Board may be of the opinion that the activity fails one or more components of the tests in the ITAA 1997. For example, an activity may have been nominated as a core activity, but the Board may not be satisfied that it satisfies the definition of core R & D activities in subsection 355-25(1) of the ITAA 1997, or may be satisfied that it is an activity of the type specified in subsection 355-25(2) of the ITAA 1997.
·
For supporting R & D activities, the Board might consider that the dominant purpose of the relevant activity was not to support a core activity. Additionally, if the Board makes a negative finding in relation to particular nominated core R & D activities, any activities conducted in support of those activities would likewise not be eligible for registration as supporting R & D activities.
·
The Board may have insufficient evidence available to it to be satisfied that the activity is an R & D activity. This may be because the applicant did not provide all required information (see paragraphs 1.49 to 1.51), or because the information made available is not sufficient to satisfy the Board in the circumstances of the case.

5.48 The Board may also find that, despite the described activity appearing to meet the definition of R & D activities, the activity was in fact not conducted during the income year. [Schedule 2, item 1, subsection 27B(1)]

Additional information requests

5.49 The Board has the power to request, in writing, that the applicant provide it with any additional information it requires for the purposes of making a decision. The Board can ask that the applicant provide the additional information in a particular format which is acceptable to it in the circumstances. [Schedule 2, item 1, section 27E and subsection 32(2)]

5.50 The Board may require that the information be provided in the approved form within 30 days or a further period allowed in accordance with decision-making principles. [Schedule 2, item 1, section 27E]

5.51 If the Board is still unable to make a positive finding on the information provided, or the applicant does not provide the further information as requested, the Board may reach a negative finding on the basis that it is not satisfied that the activity meets the relevant definition.

Consequence of findings

5.52 If the findings made by the Board confirm all aspects of the application that the Board considered, the Board will register all those activities for the applicant for the income year. Any other activities nominated in the application for the applicant for the income year which are not the subject of a finding are nonetheless registered as they are not the subject of a negative finding. [Schedule 2, item 1, subsection 27A(2)]

5.53 If the findings made by the Board are inconsistent with the application (that is, the Board makes negative findings about some activities nominated by the applicant), the Board will only register the applicant in relation to those activities for which it makes positive findings (that is, activities which the Board is satisfied meet the definition of core R & D activity or supporting R & D activity). [Schedule 2, item 1, subsection 27A(2)]

5.54 If the findings made by the Board are entirely inconsistent with the application (that is, the Board determines that no activities nominated by the applicant are core R & D or supporting R & D activities), the Board will refuse to register the applicant in respect of any activities. [Schedule 2, item 1, subsection 27A(2)]

5.55 The Board must inform an applicant in writing of the Board's decision about an application for registration of activities. Where the Board has registered the nominated activities without making any findings, it is only necessary to provide notice of registration to the applicant. [Schedule 2, item 1, subsection 27C(1)]

5.56 If the Board has made one or more findings as part of the registration process, it must provide a copy of the notice to both the applicant and the Commissioner. The notice must include a certificate in respect of each finding, which sets out:

·
a description of each finding;
·
the Board's reasons for the finding;
·
the activity affected by the finding; and
·
any other matters (if any) specified in the regulations.

[Schedule 2, item 1, subsection 27C(2)]

5.57 The notice must also inform the applicant of its right to have each decision (the decision whether or not to register, and the decision in respect of each finding) reviewed under Division 5. [Schedule 2, item 1, section 30B]

5.58 If the Board fails to comply with these notice requirements, however, it does not affect the validity of the Board's findings. If the Board makes more than one finding in relation to an application, there is no need for the Board to issue separate documents relating to each finding. All certificates can be contained in the same document. [Schedule 2, item 1, section 27C]

5.59 If the Board is in a position to make a finding about activities under both sections 27B and 28A, the Board need not make two separate findings. For example, an R & D entity may apply for an advance finding about completed activities late in an income year, then apply for registration as soon as it is able to in the following income year before the Board has made a finding in relation to the advance finding request.

Post registration process

5.60 The Board is able to examine the registration of an R & D entity with a view to confirming that the registered activities are R & D activities. This examination can take place at any time, in relation to a registration year (that is, the income year in which the activities were conducted). However, a finding by the Board only binds the Commissioner for the purposes of an R & D entity's income tax assessment for the income year if the finding is made within four years after the end of the income year (by operation of subsections 355-705(1) and 355-710(1) of the ITAA 1997).

5.61 There are three circumstances in which the Board would examine a registration:

·
The Board may examine a registration at its own discretion, at any time [Schedule 2, item 1, subsection 27F(2)].
·
The Board must examine a registration if requested to do so by the Commissioner. In these circumstances, the Board will check whether activities that are the subject of the request are registered activities, and if so, make a finding about whether these activities are core or supporting R & D activities. This examination can take place at any time, in relation to a registration year [Schedule 2, item 1, paragraph 27F(3)(a)].
·
The Board must examine a registration if an R & D entity applies (in the approved form, and accompanied by the fee, if any, specified in regulations) for particular findings. In relation to each activity the subject of the request, the Board must either make a finding about the activity, or refuse to make a finding, in response to the application [Schedule 2, item 1, paragraphs 27F(3)(b) and 27F(4)(b) and section 27G].

5.62 A finding made by the Board may differ from that sought (for example, the Board might make a negative finding about an activity where the applicant sought a positive finding, or it might make a positive finding in relation to some but not all of the activity). The Board may also refuse to make a finding that is requested by an R & D entity if that is consistent with the decision-making principles made under section 32A. [Schedule 2, item 1, section 27F]

5.63 As a result of an examination under section 27F, the Board may make one or more of the following findings in relation to the entire registration (that is, all activities registered by the entity), or part of the registration (only some of the activities) of an R & D entity:

·
that all or part of a registered activity was a core R & D activity (if the Board is satisfied that the activity meets the definition in section 355-25 of the ITAA 1997) and was conducted during the income year in which the activity was registered [Schedule 2, item 1, paragraph 27J(1)(a)];
·
that all or part of a registered activity was not a core R & D activity (if the Board is not satisfied that the activity meets the definition in section 355-25 of the ITAA 1997) or was not conducted during the income year in which the activity was registered [Schedule 2, item 1, paragraph 27J(1)(b)];
·
that all or part of a registered activity was a supporting R & D activity in relation to an identified core R & D activity (if the Board is satisfied that the activities meet the definitions in sections 355-25 and 355-30 of the ITAA 1997) and was conducted during the income year in which the activity was registered [Schedule 2, item 1, paragraph 27J(1)(c)]; and/or
·
that all or part of a registered activity was not a supporting R & D activity (if the Board is not satisfied that the activity meets the definition in section 355-30 of the ITAA 1997), was not conducted during the income year or was not conducted in relation to past (registered), present (will be registered) or future (could be registered) core R & D activities [Schedule 2, item 1, paragraph 27J(1)(d)].

5.64 If the Board makes a finding, it may specify in the finding the period during which the finding applies; that is, the times during the income year that it is satisfied the entity was conducting the R & D activity. For example, the entity might have been carrying out an activity for the entire income year, but for only part of that year it was carried out for the dominant purpose of supporting a core R & D activity, and thus it was only an R & D activity for certain times. [Schedule 2, item 1, subsection 27J(2)]

5.65 In some circumstances, the Board may already have considered some or all of the registered activities of an R & D entity (for example, because the Board granted an advance finding in respect of the activities under section 28A). In these circumstances, the earlier finding will prevail over a new finding under subsection 27J(1) to the extent of any inconsistency. This ensures that an R & D entity can rely on a finding, once made, in respect of its activities. [Schedule 2, item 1, section 32B]

5.66 However, if the activities conducted are materially different to those described in an advance finding, the activities conducted are not covered by the finding and the Board may make a finding under section 27J about those activities without breaching the consistency rule.

Positive findings

5.67 The Board is able to make positive findings in respect of the activities it examines; namely, that the activities registered in relation to the R & D entity are R & D activities (either core or supporting). It will make these findings if it is satisfied, on the basis of the information provided, that the activity meets the definitions set out in section 355-25 or 355-30 of the ITAA 1997, as relevant. The Board may also release policy guidance about how it applies this test.

5.68 In relation to a finding that an activity is a supporting activity, the Board would ordinarily also make a finding about the core activity to which the supporting activity relates. If the relevant core activity will not be undertaken until a later income year (and hence cannot be registered yet), the Board will need to satisfy itself that the nominated core activity to which the supporting activity relates meet the definition of a 'core R & D activity'. The Board need not make a finding in order to satisfy itself with regards to related core activities.

5.69 The core activity may be undertaken in a past, present or future income year. If the relevant core activity will not be undertaken until a later income year (and hence cannot be registered yet), the Board will need to decide whether, if that nominated core activity were to be carried out in the registration year (that is, the same income year as the supporting activity), it would meet the definition of a 'core R & D activity'. [Schedule 2, item 1, paragraph 27J(1)(c)]

5.70 A positive finding by the Board in respect of particular activities is confirmation of the applicant's self assessment that nominated activities are R & D activities. Once the Board has made such a finding, the Commissioner is bound to treat the activities that are the subject of the finding as R & D activities when determining whether expenditure incurred in relation to the activities in question is R & D expenditure for the purposes of Division 355 of the ITAA 1997. However, the Commissioner may request a review of a finding. [Schedule 1, item 1, subparagraph 355-705(1)(a)(ii) and Schedule 2, item 1, subsection 30C(4)]

Negative findings

5.71 The Board can make negative findings in respect of activities registered by the entity if it does not have the necessary level of satisfaction to make a positive finding; that is, if it is not satisfied that a registered activity meets the relevant definition in the ITAA 1997.

5.72 There are a number of reasons why the Board might not be satisfied that the activity meets the relevant definition:

·
The Board may be of the opinion that the activity fails one or more components of the tests in the ITAA 1997. For example, an activity may have been nominated as a core activity, but the Board may not be satisfied that it satisfies the definition of core R & D activities in subsection 355-25(1) of the ITAA 1997, or may be satisfied that it is an activity of the type specified in subsection 355-25(2) of the ITAA 1997.
·
For supporting R & D activities, the Board might consider that the dominant purpose of the relevant activity was not to support a core activity. Additionally, if the Board makes a negative finding in relation to particular nominated core R & D activities, any activities conducted in support of those activities would likewise not be eligible for registration as supporting R & D activities.
·
The Board may have insufficient evidence available to it to be satisfied that the activity is an R & D activity. This may be because the applicant did not provide all required information (see paragraphs 1.74 to 1.76), or because the information made available is not sufficient to satisfy the Board in the circumstances of the case.

5.73 The Board may also find that, despite the described activity appearing to meet the definition of R & D activities, activity was in fact not conducted during the income year. [Schedule 2, item 1, subsection 27J(1)]

Additional information about examinations

5.74 To facilitate an examination, the Board may request additional information, or types of information, about an R & D entity's registration from that entity. The request must be in writing and may specify the period within which the additional information it requires must be provided (30 days, or such longer period as the Board allows, in accordance with the decision-making principles). [Schedule 2, item 1, section 27H]

5.75 The Board can ask that the applicant provide the additional information in a particular format which is acceptable to it in the circumstances. [Schedule 2, item 1, subsection 32(2)]

5.76 If the Board is still unable to reach a positive finding on the basis of information provided, or the R & D entity does not provide the further information, the Board may reach a negative finding on the basis that it is not satisfied that the activity meets the relevant definition.

Consequence of findings

5.77 If the findings made by the Board confirm all aspects of a registration that the Board considered, the registration remains unchanged.

5.78 If any findings made by the Board under section 27J are inconsistent with a registration of an R & D entity's activities, the registration is automatically varied so that it is consistent with the finding. Registrations will only be automatically varied as a consequence of a valid finding which is in force. If the Board makes a finding which is deemed to have no effect under section 32B because it is inconsistent with an earlier finding by the Board, this will have no effect on the entity's registration. [Schedule 2, item 1, sections 27L and 32B]

5.79 Automatic variation under section 27L is intended to align an R & D entity's registration with any findings that are made by the Board. For example, if the Board makes a finding under section 27J that particular registered activities are not R & D activities, the entity's registration is automatically varied so that the activity the subject of the finding is not a registered activity. [Schedule 2, item 1, section 27L]

5.80 The Board must inform an R & D entity and the Commissioner in writing of the Board's findings in respect of any of the entity's registered activities which were examined by the Board. [Schedule 2, item 1, subsection 27K(1)]

5.81 The notice must include a certificate in respect of each finding, which sets out:

·
a description of each finding;
·
the Board's reasons for the finding;
·
the registered activity affected by the finding;
·
the effect of the finding on the entity's registration; and
·
any other matters (if any) specified in the regulations.

[Schedule 2, item 1, subsection 27K(2)]

5.82 The notice must also inform the applicant of its right to have each decision (the decision in respect of each finding) reviewed under Division 5. [Schedule 2, item 1, section 30B]

5.83 The Board must also notify an R & D entity in writing of a decision refusing to make a finding in response to an application by the entity. The notice must include the Board's reasons for refusing to make a finding. The reasons for refusing to make a finding must be consistent with the decision-making principles. [Schedule 2, item 1, paragraph 27F(4)(b) , subsection 27K(3) and section 32A]

5.84 If the Board fails to comply with these notice requirements, however, it does not affect the validity of the Board's findings, or the status of the entity's registration as varied by the Board. If the Board makes more than one finding in relation to a registration, there is no need for the Board to issue separate notices relating to each finding. All certificates can be contained in the same document. [Schedule 2, item 1, subsection 27K(4) and section 30A]

Variations of registration

5.85 A registered R & D entity may request a variation to its registration by way of application in the approved form, and payment of the fee (if any) specified in the regulations. This could involve removing particular activities, reclassifying activities as core or supporting activities, or amending the times during which activities were conducted, but cannot involve adding additional activities. Additional activities can only be added through the normal application process.

5.86 If the Board is satisfied that the requested variation is consistent with any valid findings it has made under sections 27B, 27J or 28A, and the variation is justified in accordance with the decision-making principles, the Board may vary the registration. The Board may request additional information from the R & D entity to assist with its decision, if necessary. Such a request may be made in the same way as a request under section 27E (that is, it may request for specified information, or kinds of information, and may ask that the information be given in the approved form and within a prescribed timeframe). [Schedule 2, item 1, section 27M]

5.87 A registration that has been varied, either because of a Board finding or on request of the entity, is deemed always to have existed as varied. This rule reflects the fact that although activities may have been miscategorised by the R & D entity in its registration, the Board's decision does not itself change the nature of the activities. While an entity is able to rely upon self assessment to register activities, if those activities are later found by the Board to have been registered incorrectly, the entity cannot purport to claim expenditure in relation to those activities in the registration year. This rule also prevents administrative complexity resulting from maintaining two or more different variations of the same registration during one income year. [Schedule 2, item 1, section 27L and subsection 27M(4)]

Revoking registrations

5.88 The Board may revoke the registration if it is satisfied that there was no time at which an entity was an R & D entity when a registered activity was conducted. It may also revoke an entity's registration on request of the R & D entity. Such a request must be in the approved form, and accompanied by the fee, if any, prescribed in the regulations. [Schedule 2, item 1, section 27N]

5.89 The revoking of a registration for an income year has the effect that the activities that are the subject of the registration are taken never to have been registered. This reflects the fact that a registration is in respect of a particular year of income. If an entity was not eligible to be registered by the Board at any time, or the entity does not wish to be registered for an income year, the entity cannot purport to claim expenditure at any time in relation to any activities in that income year. [Schedule 2, item 1, subsection 27N(4)]

5.90 A decision by the Board to revoke a registration is reviewable. The Board must notify the entity and the Commissioner if it revokes a registration and the reason for the revocation. [Schedule 2, item 1, sections 27N, 30A and 30B]

Other findings

5.91 In addition to findings about applications to register and findings about registration, the Board may also make findings under Division 3 in relation to:

·
advance findings - whether an activity:

-
that has been completed (but is not yet able to be registered);
-
is being conducted in the income year in which the application for the finding is made; or
-
that has yet to be conducted (but it is reasonable to expect that the activity will be conducted in the income year in which the application for the finding is made or the next two income years), is an R & D activity;

·
findings in relation to overseas activities - whether an activity cannot be conducted in Australia or the external Territories; and
·
findings in relation to core technology - whether a particular technology is core technology for R & D activities.

5.92 R & D entities (and, in some circumstances, entities specified in regulations under section 28B acting on behalf of R & D entities) may apply to the Board to make any or all of the above findings. All applications for these findings under must be in the approved form and accompanied by a fee (if any) specified in the regulations. [Schedule 2, item 1, section 28G]

5.93 The Commissioner may request that the Board make findings in relation to core technology. The Board must comply with such a request. [Schedule 2, item 1, subsection 28E(3)]

5.94 The Board has the power to request that any additional information it requires to make a finding under Division 3 be provided to it. It can require that this information be provided in the approved form, and within 30 days after the request was given or any further period allowed (in accordance with the decision-making principles). [Schedule 2, item 1, section 28H]

5.95 The Board must give notice to an R & D entity about each of its decisions in relation to the nature of activities (advance findings under section 28A, whether an activity cannot be conducted in Australia or the external Territories (findings under section 28C) or decisions about core technology (findings under section 28E). This includes a decision to make one or more findings, or a decision to refuse to make a finding.

5.96 The notice must include a certificate in relation to each finding (if any) that sets out:

·
a description of the finding;
·
the Board's reasons for the finding;
·
a description of the activity or technology affected by the finding; and
·
any other matters (if any) specified in the regulations.

5.97 The Board must give the Commissioner a copy of the notice if the notice includes one or more certificates. If the Board makes more than one finding, there is no need for the Board to issue separate documents relating to each finding. All certificates can be contained in the same document. [Schedule 2, item 1, section 28F]

5.98 The notice must also advise the applicant of its review rights in respect of the decision (whether that is a decision to make or refuse to make a finding). [Schedule 2, item 1, section 30B]

5.99 If the Board fails to comply with these notice requirements, however, it does not affect the validity of the Board's findings. [Schedule 2, item 1, subsections 28F(5) and 30B(3)]

Advance findings

5.100 An R & D entity may apply to the Board for an advance finding in relation to activities that are not yet able to be registered.

5.101 An R & D entity may request that the Board make an advance finding in relation to one or more activities that have been completed during the income year. This occurs where an R & D entity completes an activity in an income year and, in that same income year, wishes to apply to the Board for a finding in order to seek certainty about the nature of the activity. This application can only be made before it is possible to register the activity under section 27A. [Schedule 2, item 1, paragraph 28A(2)(a)]

5.102 An R & D entity may also request that the Board make an advance finding in relation to activities that are in the process of being conducted, but is not completed within the year in which the R & D entity applies for an advance finding, or which it has not yet conducted. The Board will only give an advance finding in relation to activities that have not yet been conducted if it is satisfied that, on an objective basis, it is reasonable to expect that the activities will be conducted in the current or next two income years. [Schedule 2, item 1, subsection 28A(2)]

5.103 Where the Board makes an advance finding about an activity that has been completed or is being conducted within the year in which the R & D entity applies for an advance finding, the Board may specify in the finding the period during which the finding applies; that is, the times during the income year that it is satisfied the entity was conducting the R & D activity. [Schedule 2, item 1, subsection 28A(3)]

5.104 Additionally, an entity (or a class of entity) specified in the regulations will be able to apply for an advance finding on behalf of one or more R & D entities, provided that the entity has the written consent of the R & D entity or entities. Such an entity may make a single application on behalf of multiple R & D entities, where the application relates to the same activity, and that application is treated as if each R & D entity had made a separate application. In these circumstances, the Board would, for example, issue findings to each R & D entity, and give notice of decisions to the R & D entities. For example, regulations might be made which permit a Research Service Provider to make such an application, so that the Research Service Provider can provide certainty to R & D entities for whom it carries out a particular activity that the activity is an R & D activity and can be registered by the entities under section 27A. [Schedule 2, item 1, section 28B]

5.105 The Board may make one or more of the following findings in respect of an activity:

·
that the activity is a core R & D activity (if it is satisfied that the activity meets the definition in section 355-25 of the ITAA 1997);
·
that the activity is a supporting R & D activity (if it is satisfied that the activity meets the definition in section 355-30 of the ITAA 1997) in relation to one or more core R & D activities for which the R & D entity is or could be registered; or
·
that the activity is neither a core R & D activity nor a supporting R & D activity (if it is not satisfied that the activity meets the definition of core R & D activity or supporting R & D activity).

[Schedule 2, item 1, subsection 28A(1)]

5.106 In making a decision in response to an application, the Board is not confined by the characterisation of actions by the R & D entity as a particular 'activity'. If the Board considers that only part of what is described by the R & D entity in its application as a single 'activity' satisfies the requirements set out in subsection 28A(1), the Board may make a finding in relation to the part of the activity it considers meets the requirements. This part then becomes 'the activity' for the purposes of the positive finding and the entity's registration.

5.107 The Board may refuse to make an advance finding that is requested by an R & D entity in relation to all or part of an activity if it is justified in accordance with the decision-making principles. [Schedule 2, item 1, paragraph 28A(1)(d)]

5.108 An advance finding remains in force for the income year in which it is made, and the next two income years.

5.109 An advance finding is not the same as registration and is not a substitute for registration. The R & D entity will need to register the activities that are subject to the advance finding in relation to each income year in which the activities are conducted in order to be eligible to claim an R & D tax offset in relation to expenditure on those activities. The Board must register the activities consistently with any advance findings that it has made under section 28A. [Schedule 2, item 1, subsection 27A(2)]

5.110 Once made by the Board, an advance finding binds the Commissioner for the year the application was made, and the next two income years, by operation of subsection 355-705(2) of the ITAA 1997. For example, assuming that other requirements for claiming the R & D tax offset are met, if the Board makes a positive advance finding (that activities are R & D activities) and those activities are later registered, the Commissioner is bound to treat the activities as R & D activities when making a decision about whether expenditure associated with the activity is R & D expenditure for the purposes of new Division 355 of the ITAA 1997.

5.111 A finding is only binding in respect of the assessment of the R & D entity. It cannot be used by another entity in relation to activities conducted by that other entity. [Schedule 2, item 1, subsection 27A(2)]

5.112 An advance finding only relates to the activity nominated by the R & D entity and which is made subject to a finding by the Board. If the R & D entity, having received an advance finding, conducts an activity which differs materially from that described in the advance finding, the advance finding will not apply to the activity conducted. The R & D entity cannot rely on that finding in respect of this new activity (nor is the Commissioner bound to treat it as an R & D activity).

5.113 While an advance finding in respect of particular activities made by the Board under section 28A is in force, a later finding in respect of those activities has no effect to the extent of any inconsistency. This applies to a later, inconsistent, finding under section 28A (Advance findings), section 27B (Findings about applications for registration) or section 27J (Findings about a registration). [Schedule 2, item 1, section 32B]

5.114 However, if the activities are materially different ('different activities') to those described in an advance finding (for example, the R & D entity changes its plans in relation to activities to be conducted), the R & D entity may apply for an advance finding in relation to the different activities.

5.115 That an activity conducted is materially different to the activity described in the advance finding has no bearing on whether the activity conducted is or is not an R & D activity. The Board need not make findings about the activity conducted in determining whether to register the activity conducted, but may do so without breaching the consistency rule in section 32B.

Findings about activities to be conducted outside Australia

5.116 Generally, the R & D tax incentive is intended to support activities conducted in Australia or the external Territories. However, in certain circumstances, a tax offset is available for activities conducted outside Australia or its external Territories.

5.117 An R & D entity may only claim a tax offset in respect of expenditure on R & D activities conducted outside Australia or the external Territories if it has a finding from the Board under section 28C in relation to those activities (paragraph 355-210(1)(d) of the ITAA 1997). Upon application to the Board by an R & D entity in relation to an activity, the Board must either:

·
make a finding that that all specified conditions are met in relation to all or part of the activity (the overseas activity) [Schedule 2, item 1, paragraph 28C(1)(a)];
·
make a finding that that one or more of the specified conditions are not met in relation to all or part of the activity [Schedule 2, item 1, paragraph 28C(1)(b)]; or
·
refuse to make a finding about the activity (if a refusal is justified in accordance with the decision-making principles) [Schedule 2, item 1, paragraph 28C(1)(c)].

5.118 The effect of the first kind of finding (a finding that all conditions are satisfied - a positive finding) is that a tax offset may be available in respect of expenditure in relation to those activities from the time the finding is in force.

5.119 A finding under section 28C is in force in the income year in which the application for the finding is made and is valid for the duration of the overseas activity. The tax offset will not be available in respect of expenditure on those activities if the Board makes a negative finding or refuses to make a finding, or for activities which are completed before any finding under section 28C is in force. [Schedule 2, item 1, subsections 28C(2)]

5.120 In order to make a positive finding, the Board must be satisfied that the activity meets certain criteria:

·
The Board must be satisfied, at the time it makes a finding about an activity under section 28C, that the activity is covered by a positive finding under paragraph 28A(1)(a) or (b) (an advance finding that an activity is an R & D activity). In practice, seeking a finding under section 28C will involve seeking a finding under section 28A simultaneously [Schedule 2, item 1, subsection 28D(1)].
·
The Board must be satisfied that the overseas activity has a significant scientific link to one or more Australian core R & D activities:

-
Australian core activities are activities that have been conducted, are in the process of being conducted, or are to be conducted within Australia or its External Territory. The activities must be registered under section 27A for an income year, or the Board must be satisfied (on an objective basis) that they are reasonably likely to be conducted and be registered under section 27A for an income year [Schedule 2, item 1, subsection 28D(2)].
-
The presence of a significant scientific link means that the Australian core activities cannot be completed without the overseas activity being conducted, and the conditions (if any) specified in the regulations are met [Schedule 2, item 1, subsection 28D(3)].

·
The Board must be satisfied that the activity cannot be conducted in Australia or its external Territories, for one or more of the following reasons [Schedule 2, item 1, subsection 28D(4)]:

-
conducting the activity requires access to a facility, expertise or equipment that is not available in Australia or the external Territories;
-
the activity is precluded from being conducted in Australia or the external Territories due to the operation of quarantine laws;
-
conducting the activity requires access to a population of humans, fauna or flora not available in Australia or the external Territories;
-
conducting the activity requires access to a geographical or geological feature not available in Australia or the external Territories; or
-
any other reasons (if any) specified in regulations.

·
The Board must be satisfied that the Australian core activities and supporting activities will entail a greater financial commitment than the total overseas activities. That is [Schedule 2, item 1, subsection 28D(5)]:

-
the total amount (including actual and reasonably anticipated amounts in all income years) to be spent by any entity on any overseas activities (core and supporting activities) and other activities conducted overseas which have a significant scientific link to the Australian core activities;

must be less than

-
the total amount (including actual and reasonably anticipated amounts in all income years) to be spent on the Australian core activities, and supporting R & D activities conducted or to be conducted to which those overseas activities are linked under the significant scientific link test, and activities which are supporting R & D activities in relation to those core activities.

5.121 The total amount, including actual and reasonably anticipated amounts in all income years, on activities conducted overseas includes expenditure incurred on:

·
overseas activities (that is, activities which satisfy all conditions under section 28D) [Schedule 2, item 1, paragraph 28D(5)(a)]; and
·
activities to be conducted overseas which also have a significant scientific link to the Australian core activities, but which are not overseas activities as defined (for example, because they are anticipated to be conducted outside the timeframe required by paragraph 28A(2)(c)) [Schedule 2, item 1, paragraph 28D(5)(b)].

5.122 In making a finding under subsection 28D(1), the Board is not confined by the characterisation of actions by the R & D entity as a particular 'activity'. If the Board considers that only part of what is described by the R & D entity in its application as a single activity satisfies the requirements set out in subsection 28D(1), the Board may make a finding in relation to the part of the activity that it considers meets the requirements. This part then becomes the 'overseas activity' for the purposes of the finding.

Core technology findings

5.123 An R & D entity or the Commissioner may apply to the Board for a finding that particular technology is or is not core technology. Upon request by the R & D entity or the Commissioner in relation to R & D activities, the Board must do one of the following things:

·
make a finding that the technology is core technology for the R & D activities;
·
make a finding that technology is not core technology for the R & D activities; or
·
refuse to make a finding about the technology and the R & D activities (if justified in accordance with the decision-making principles).

[Schedule 2, item 1, subsection 28E(1)]

5.124 Technology is core technology for R & D activities if:

·
a purpose of the R & D activities was or is:

-
to obtain new knowledge based on that technology; or
-
to create new or improved materials, products, devices, processes, techniques or services to be based on that technology; or

·
the R & D activities were or are an extension, continuation, development or completion of the activities that produced the technology.

[Schedule 2, item 1, subsection 28E(2)]

5.125 Unlike other positive findings under this Part, a finding by the Board that technology is core technology is disadvantageous to the R & D entity concerned, because the effect of the finding is that the tax offset will not be available for expenditure incurred on acquiring the technology or the right to use the technology (see subsection 355-225(2) of the ITAA 1997).

5.126 The Board must make a finding if requested to do so by the Commissioner. The Board may also make a finding in respect of the technology and the activities on its own initiative. [Schedule 2, item 1, subsections 28E(3) and (4)]

5.127 The Commissioner might seek a finding in the course of determining the availability of an offset for expenditure on the R & D activities, or an R & D entity might seek a negative finding to obtain certainty that its expenditure will not be excluded.

Registration of entities as Research Service Providers

5.128 The Board has a role in the R & D tax incentive to ensure a minimum standard of capability in the provision of contracted R & D by Research Service Providers. It will make the list of Research Service Providers publicly available for the use of R & D entities wishing to access Research Service Provider services.

5.129 R & D entities which use the services of a Research Service Provider are not required to meet the $20,000 expenditure threshold requirement for R & D expenditure by operation of section 355-100 of the ITAA 1997. This is intended to enable R & D entities to access expertise in Australia's public and private R & D organisations, to reduce unnecessary duplication of R & D facilities, and to improve the overall effectiveness of Australia's R & D effort through collaboration.

5.130 The Board ensures this minimum standard by granting registration to entities that satisfy the criteria set out in the regulations. Registration is given in respect of specified fields of research which the organisation has shown that it is capable of undertaking. [Schedule 2, item 1, section 29A]

5.131 Entities wishing to become Research Service Providers must apply to the Board for registration as a Research Service Provider qualified to provide services in one or more specified research fields to registered R & D entities. An application for registration must be in the approved form and be accompanied by a fee (if any) prescribed in regulations for this purpose. [Schedule 2, item 1, section 29B]

5.132 Upon receipt of an application by an entity, the Board must decide whether to register or refuse to register the entity as a Research Service Provider. Regulations will specify the criteria the entity must meet to satisfy the Board that it is capable of providing services to R & D entities in one or more specified fields of research. Specified fields of research will be prescribed in the regulations. [Schedule 2, item 1, section 29A and item 22]

5.133 The Board may request that further information be provided about an application for a Research Service Provider registration and may request that information be provided within 30 days after the request was given. If the applicant fails to comply with the request, the Board can refuse to consider the application. The Board will make a decision about whether to accept information outside the period specified in the notice in accordance with the decision-making principles. [Schedule 2, item 1, section 29C and subsection 29F(3)]

5.134 The Board may also need to make inquiries for the purpose of determining whether the applicant meets the criteria for a Research Service Provider registration in relation to an application for registration. It may notify the entity in writing of its intention to do so and may require that the entity pay up to $1,000 (or any higher amount prescribed by regulations) towards the cost of determining whether the applicant meets the criteria for registration. The Board may refuse to consider the application for registration or variation until this fee is paid. [Schedule 2, item 1, section 29D and subsection 29F(3)]

5.135 Registrations are valid up until the end of the financial year in which the application is lodged. However, if an applicant becomes registered as a Research Service Provider in May or June of a financial year, then the registration will be valid until the end of the following financial year. [Schedule 2, item 1, subsection 29E(1)]

5.136 At least two months before the end of each financial year, the Board must give a notice to each Research Service Provider, asking if it wishes to continue to be registered under section 29A, and attaching an approved continuation of registration form. The form will include a statement about whether the Research Service Provider wishes to continue and is capable of continuing to be a Research Service Provider, and whether there is any variation to the approved fields of research in relation to which it wishes to be registered. The Board may revoke the registration in question if the Research Service Provider does not return the completed form within 30 days or any further period allowed by the Board (in accordance with the decision-making principles). Revocation will take effect at the end of that financial year. [Schedule 2, item 1, subsections 29E(2) and (3)]

5.137 In certain cases Research Service Providers may wish to vary their registrations. This might occur where a Research Service Provider wishes to change the fields of research in relation to which it is registered. For example, a senior researcher who specialises in a particular research field for a Research Service Provider retires and the Research Service Provider is unable to find a replacement. As the Research Service Provider is no long able to provide research services in that particular field, it applies to the Board to vary its registration as a Research Service Provider under section 29F. The variation would involve the removal of the particular research field from the Research Service Providers listed fields of research.

5.138 The Board may vary the registration where the Research Service Provider applies for the variation and the Board is satisfied that the Research Service Provider would still meet the eligibility criteria in the regulations if the registration were varied as requested. [Schedule 2, item 1, subsection 29F(1)]

5.139 Applications for variation of registrations must be in the approved form and accompanied by the fee (if any) specified in the regulations. [Schedule 2, item 1, subsection 29F(2)]

5.140 The Board may request information about an application for variation of registration, or make inquiries about such an application, in the same manner as in relation to applications for registration. [Schedule 2, item 1, subsection 29F(3)]

5.141 The Board may also vary a registration without the request of the Research Service Provider if it is satisfied that the Research Service Provider does not meet the criteria for registration in the regulations in so far as those criteria relate to a research field for which the provider is registered. For example, a Research Service Provider may be unable to provide a service to an R & D entity in a research field for which it is registered. Upon being made aware of this situation, the Board may investigate the Research Service Provider to form its own conclusion as to the Research Service Provider's capability in relation to the particular research field. Although the Board may reach agreement with the Research Service Provider in relation to the Research Service Provider's capability in relation to the particular research field, the Board may also conclude that the Research Service Provider is not capable of providing services in relation to the particular research field and vary the Research Service Provider's registration accordingly under section 29G. [Schedule 2, item 1, section 29G]

5.142 The Board may also revoke a registration if a Research Service Providers requests the Board to do so, or if the Board is satisfied that the Research Service Provider:

·
no longer meets the criteria for registration in relation to any field of research; or
·
has breached a requirement of registration prescribed in the regulations.

A revocation or variation of a registration of a Research Service Provider is prospective. This is, a decision by the Board to revoke or vary the registration of a Research Service Provider will have effect from the date of the notice, taking account of the application of section 29 of the Acts Interpretation Act 1901 . [Schedule 2, item 1, section 29H]

5.143 The Board is required to notify a Research Service Provider in writing of any decision whether or not to register the entity, or a decision to vary or revoke its registration. The notice must also set out the reasons for the Board's decision in question and inform the Research Service Provider of its right to have the decision reviewed. [Schedule 2, item 1, section 30B]

5.144 The Board is also required to maintain a register of Research Service Providers, which must include details of registrations in force and registrations that have been revoked under Division 4 (in the current or previous financial year). It is intended that the register will contain the name of each registered Research Service Provider, the field of research for which it has been approved, and contact details. This register must be made available to the public via the Internet, and published in the Board's annual report. The keeping of this register may assist R & D entities in decisions about subcontracting R & D activities. Subsection 29J(2) notes that the register is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003 . The register is merely an administrative record and is not legislative in character. [Schedule 2, item 1, section 29J and item 37]

5.145 As a transitional arrangement for 2010-11, entities registered on 30 June 2010 as Australian research agencies under section 39F of the current IR & D Act will be deemed to be registered as Research Service Providers, for the fields of research they were registered, from the commencement of this Part. From the 2011-12 income year onwards, these entities will need to be registered under Division 4 in order to continue to operate as Research Service Providers. [Schedule 4, item 17]

Review of the Board decisions

5.146 Most decisions made by the Board in its function relating to the R & D tax incentive can be reviewed through an internal review process. The list of reviewable decisions in this regard is set out in section 30A. Examples of reviewable decisions include:

·
decisions relating to applications by R & D entities to register activities as R & D activities;
·
decisions relating to registration of R & D activities, including variations and revocations of registrations;
·
decisions relating to findings that activities are or are not R & D activities;
·
decisions relating to applications or registrations of Research Service Providers (including variation, revocation and extensions of time); and
·
decisions to provide an extension of time for making an application or for providing further information.

An example of a non-reviewable decision is a decision to allow a different amount of addition time to that requested by an R & D entity. [Schedule 2, item 1, section 30A]

5.147 When the Board makes a reviewable decision, as listed under section 30A, it is required to give written notice of the making of the decision, the reasons for the decision and the entity's right to have the decision reviewed under Division 5. However, a failure of the Board to give such notice does not affect the validity of the underlying decision.

5.148 Some provisions of the IR & D Act already expressly require notice to be given of a particular decision which is a reviewable decision (such as the notices required under section 27C, 27K, or 28F). These notices will fulfil the requirements of section 30B if they include the information listed in that section (that is, it is not necessary to provide a second notice under section 30B). Where the provision relating to a particular decision does not expressly provide for the notice requirement, however, the notice must be given in accordance with section 30B. [Schedule 2, item 1, section 30B]

Applications for internal review of reviewable decisions

5.149 An application for internal review of a decision can be made by or on behalf of an entity affected by a reviewable decision. This application must be made in the approved form, within 28 days after the entity to which the decision relates, is notified of the Board's decision, unless the Board has allowed an extension to this time period in accordance with the decision-making principles. [Schedule 2, item 1, section 30C]

5.150 The Commissioner may also apply for a review of a reviewable decision at any time after the reviewable decision is made. [Schedule 2, item 1, subsection 30C(4)]

5.151 In reviewing its decision, the Board is not limited to considering only the information it had at the time the reviewable decision was made. It is able to consider new information that has come to light since the reviewable decision was made. Any new information that an entity wishes to be considered as part of the review should be provided to the Board as part of the application for internal review. [Schedule 2, item 1, subsection 30C(3)]

5.152 If the Board receives an application for review of a reviewable decision, it must review the original decision and make a decision to:

·
confirm the reviewable decision;
·
vary the reviewable decision; or
·
set aside the reviewable decision and make a new one in its place.

[Schedule 2, item 1, subsection 30D(2)]

5.153 If the Board does not make a decision within 90 days of receiving an application for review, then the Board is taken to have made a decision confirming the reviewable decision. Where a decision is taken to have been made for this reason, the Board is required to notify the entity that sought the review. However, the deemed decision is disregarded if the Board makes a decision after the expiration of the 90 days, and an application for review of the deemed decision by the AAT has yet to be made. [Schedule 2, item 1, subsections 30D(3) and (4)]

5.154 Under the Administrative Appeals Tribunal Act 1975 (AAT Act), notice of an internal review decision must be given to any person whose interests are affected by the decision. Additionally, written notice of an internal review decision, including reasons for the decision, must be given to the Commissioner specifically under subsection 30D(6).

5.155 The Board's decisions determine the entity's registration status or the nature of an entity's activities for a particular year of income. As decisions, including review decisions, have impact for an entire year of income, it is necessary that internal review decisions take effect on the day on which the original reviewable decision took effect. [Schedule 2, item 1, subsection 30D(5)]

Review by the Administrative Appeals Tribunal

5.156 Where the Board has made, or is taken to have made by the operation of subsection 30D(3), an internal review decision, applications may be made to the AAT for review of that internal review decision in accordance with section 29 of the AAT Act. Where the Board is taken to have made a decision because of the operation of subsection 30D(3), applications must be made within 28 days starting on the day on which the internal review decision is taken to have been made. This ensures that the lack of a decision by the Board does not prevent entities having recourse to the AAT. [Schedule 2, item 1, subsection 30E(3)]

5.157 Due to the commercially sensitive nature of R & D conducted by entities, hearings of proceedings for review of internal review decisions are to be held in private. The AAT may also give directions as to who may be present during all or part of a hearing of the proceedings and also give directions of a kind mentioned in paragraphs 35(2)(aa), (b) or (c) of the AAT Act, which relate to the publication or disclosure of information.

5.158 Variations or substitutions of internal review decisions by the AAT take effect from the day on which the reviewable decision took effect (that is, the decision is treated as if it were always made in the form made by the AAT). [Schedule 2, item 1, section 30E]

Other matters

Research and development entities joining and leaving consolidated groups

5.159 For administrative simplicity, it is intended that only the head company of a consolidated or MEC group will be considered to be the R & D entity with respect to R & D activities conducted by any entities in the group for an income year. To facilitate this, only that head company, and not any of the subsidiary companies, will be recognised as registered under section 27A in respect of activities conducted by any member of the group. This is the case even if the activities are conducted entirely by a subsidiary member of the group. [Schedule 2, item 1, subsection 31(1)]

5.160 In addition, a finding, made for an R & D entity which is a subsidiary of a consolidated or MEC group with a head company which is an R & D entity, has no effect in relation to activities conducted while the subsidiary is a member of the group. [Schedule 2, item 1, subsection 31(2)]

5.161 Because of these two rules, there is no value in an R & D entity which is a subsidiary of a consolidated or MEC group seeking registration or findings while it is a subsidiary of a consolidated or MEC group.

5.162 When an R & D entity (the joining entity) joins a consolidated or MEC group part way through an income year, it can be registered in respect of the R & D activities that it has carried out only in relation to that part of the year that it was not part of the corporate group. The head company will need to register in respect of the activities for the part of the year that they were conducted by an entity in its group.

5.163 Additionally, findings which related to the joining entity are deemed to apply to the head company. For example, if the Board has made an advance finding (the actual finding) in relation to an activity to be conducted by the joining entity, a corresponding advance finding (the deemed finding) will apply to the head company from the time the joining entity joins the consolidated group. That deemed finding would cease to apply to the head company if the joining entity leaves the group. [Schedule 2, item 1, section 31A]

Example 5.1 : Registration and findings when joining a consolidated or MEC group Company A, which is an R & D entity, receives a positive advance finding in relation to a particular activity. It begins conducting that activity on 1 July 2012 and completes the activity on 30 June 2013. It is wholly acquired by another R & D entity (Company B) on 1 October 2012. Together, the two entities form a consolidated group with Company B as the head company.Section 31 operates so that Company A may register its activity and rely on the advance finding to claim expenditure in relation to the activity between 1 July 2012 and 30 September 2012. Section 31 treats the activity as if it is not registered, and the finding is not in effect, 1 October 2012 onwards.Company B may also register the activity. Section 31A operates to create a deemed finding which Company B can rely on from 1 October 2012 to 30 June 2013. Company B is able to claim expenditure in relation to the activity between from 1 October 2012 to 30 June 2012.

5.164 Similarly, when an entity leaves a consolidated or MEC group (the leaving entity) and becomes an R & D entity in its own right (that is, section 31 no longer prevents registration or any findings in relation to that R & D entity being effective), findings that were made while the leaving entity was a member of the group, in respect of activities to be conducted by the leaving entity, are taken to apply to the leaving entity. The original finding will then cease to apply to the head company. [Schedule 2, item 1, section 31B]

5.165 For example, if the Board has made an advance finding in relation to an activity, if the leaving entity conducts the activity after it leaves the group, the advance finding will apply to the leaving entity from the time it leaves the consolidated group and will cease to apply to the consolidated group.

Example 5.2 : Registration and findings when leaving a consolidated group Company Y is a wholly owned subsidiary of Company X. Together, the two entities form a consolidated group with Company X as the head company.Company X receives an advance finding in relation to activities conducted by Company Y from 1 July 2012 to 30 June 2013 as part of the consolidated group. On 1 December 2012, Company Y is sold to another entity, which is not an R & D entity.Company X may register the activity and rely on the advance finding to claim expenditure in relation to the activity between 1 July 2012 and 30 November 2012. Paragraph 31B(2)(c) operates to cease the effect of the finding as at 1 December 2012.Company Y may also register the activity, and rely on the continuing finding which comes into effect under paragraph 31B(1)(a), to claim expenditure in relation to the activity between 1 December 2012 and 30 June 2013.

Approved forms

5.166 There is a requirement for certain things to be in the relevant approved form in several provisions in Part III. For example, applications for registration of R & D activities under section 27D, and applications of internal review under section 30C. The Board may also choose to require that particular information be given in the approved form in certain circumstances (for example, further information requested under section 27E).

5.167 A thing is in the approved form if it is in writing in a form approved by the Board, and includes the information required by the form and any other material required by the form (including documents). [Schedule 2, item 1, subsection 32(2)]

5.168 The Board may approve a form in writing. Regulations may also specify information or other material which must be required by the form. For example, the regulations might require approved forms to provide registration data such as R & D expenditure on core and supporting R & D activities, which should be recorded consistently over time. [Schedule 2, item 1, subsection 32(3)]

5.169 Forms approved by the Board are not legislative instruments as defined by section 5 of the Legislative Instruments Act 2003 as they are administrative in nature.

Decision-making principles

5.170 The Minister is empowered to make principles with which the Board must comply in making certain decisions under Part III. These decisions are:

·
whether to allow a further period for something to be given other than the specified period in Part III;
·
whether refusing to make a finding sought under Part III is justified; and
·
whether a proposed variation under section 27M is justified.

5.171 The Minister will make these decision-making principles by way of a legislative instrument. [Schedule 2, item 1, section 32A]

Inconsistency between findings

5.172 A finding made under Part III in relation to an R & D entity has no effect to the extent of any inconsistency with a finding already in force in relation to the R & D entity. This means that entities can rely on earlier findings made by the Board, as these findings cannot be overridden by later findings under the same or a different provision. [Schedule 2, item 1, section 32B]

5.173 For example, if the Board makes an advance finding under subsection 28A(1) that particular activities proposed to be conducted by an R & D entity are core R & D activities, a later finding by the Board under subsection 27B(1) that those activities are supporting R & D activities when they are registered the following year has no effect. The registration is automatically varied to be consistent with the advance finding.

Consequential amendments

5.174 Part 2 of Schedule 2 introduces a number of defined terms to subsection 4(1) of the IR & D Act. These terms are required for the operation of the new Part III of the IR & D Act, and many rely on definitions in the ITAA 1997. [Schedule 2, items 5, 7 to 9, 12, 14 to 19, 22 to 27]

5.175 Part 2 of Schedule 2 repeals the following obsolete terms from subsection 4(1) of the IR & D Act:

·
approved research institute;
·
company;
·
finance scheme guidelines; and
·
research and development activities.

5.176 These terms are no longer required under the new R & D tax incentive. [Schedule 2, items 4, 6, 13, 20]

5.177 As a consequence of the new Part III, the reporting requirements in the Board's annual report have been amended. The Board will now report on the number of applications for registration under section 27A of the IR & D Act and the amount of offsets involved. Its report must also include an analysis of the R & D tax offset scheme for the financial year, and provide a list of current Research Service Providers and their fields of research, as well as Research Service Providers deregistered in the current and previous income years, as at the end of the year. [Schedule 2, items 36 and 37]

5.178 Amendments to the information-sharing provisions of the IR & D Act will permit the Board to disclose information to other government agencies, in particular the Australian Taxation Office, to facilitate whole-of-government input, as necessary, for administration of the R & D tax offset. [Schedule 2, items 38 to 41]

5.179 Regulations may specify fees for making applications to the Board under Part III and a method for indexing the fees. These fees must not amount to taxation. [Schedule 2, item 43]

Application and transitional provisions

5.180 Part III of the IR & D Act will apply in relation to income years commencing on or after 1 July 2010. Section 29E of the IR & D Act (as inserted by Schedule 2) applies in relation to financial years commencing on or after 1 July 2010. [Schedule 4, item 1]

5.181 The R & D Tax Concession will be discontinued from 1 July 2010. However, the Board will still require powers in relation to the R & D Tax Concession after this date, and some provisions in Part IIIA will be preserved in transitional arrangements. The Board will, for example, continue to register R & D activities that were conducted in the 2009-10 income year under section 39J of Part IIIA. In the income years following 2009-10, the Board will continue to undertake assessments and reviews under Part IIIA as necessitated by circumstances. [Schedule 4, items 2 and 3]

5.182 Entities registered as Australian research agencies under section 39F of the current IR & D Act on 30 June 2010 are taken to be registered under new section 29A as Research Service Providers. [Schedule 4, item 17]


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