House of Representatives

Taxation Laws Amendment Bill (No. 2) 1992

Taxation Laws Amendment Act (No. 2) 1992

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon John Dawkins, M.P.)

Chapter 7 Exemption from Clawback provisions of Grants or Recoupments made under the Co-operative Research Centres Program

Clauses: 12,13 and 14

Overview

Prevents the application of the research and development (R & D) clawback provisions to certain eligible companies where a grant or recoupment is made by the Commonwealth under the Co-operative Research Centres Program;

Ensures that an eligible company, which is a partner in a partnership designated as a Co-operative Research Centre (CFC), which is eligible for an R & D deduction as a result of expenditure incurred under the Program, is excluded from the application of the R & D clawback provisions; and

Provide that an eligible company which is a partner in a partnership not designated as a CRC, which is eligible for an R & D deduction as a result of expenditure incurred under the Program, is not excluded from the application of the clawback provisions.

Exemption from Clawback provisions of Grants or Recoupments made under the Co-operative Research Centres Program

Exemption from Clawback provisions of Grants or Recoupments made under the Co-operative Research Centres Program

Summary of the proposed changes

7.1. This Bill deals with the clawback provisions which currently apply, under section 73C or 73D, to a grant or recoupment received in relation to expenditure on R & D activities forming or forming part of a particular project carried on by or on behalf of an eligible company.

7.2. The proposed changes will have three important effects. They will:

·
exclude application of the clawback provisions from certain eligible companies where a grant or recoupment is made by the Commonwealth under the Co-operative Research Centres Program (the Program);
·
ensure that an eligible company, which is a partner in a partnership designated as a Co-operative Research Centre (CRC), and eligible for an R & D deduction as a result of expenditure incurred under the Program, is excluded from the application of the R & D clawback provisions; and
·
ensure that an eligible company, which is a partner in a partnership not designated as a CRC and which is eligible for an R & D deduction as a result of expenditure incurred under the Program, is not excluded from the application of the R & D clawback provisions.

7.3. Basically, the new clawback exclusion provisions, when applicable, will ensure that expenditure incurred by an eligible company under the Program is eligible for up to the maximum R & D deduction. The clawback provisions will continue to apply to any grant or recoupment received by a company, which is participating in the Program, from a source outside the Program, in relation to the particular project being undertaken under the Program or any other project. The new arrangements will not apply where a grant or recoupment is made under the Program to a syndicate of jointly registered eligible companies in a situation where the syndicate is a partnership which is not designated as a CRC.

7.4. The amendments in relation to clawback apply to recoupments or grants made on or after 1 July 1991. Those relating to a partnership designated as a CRC apply in relation to expenditure incurred on or after 1 March 1991.

Background to the legislation

Current law applying to grants and recoupments - Sections 73C and 73D.

7.5. Under the existing provisions clawback applies where a grant or recoupment is received by an eligible company in relation to expenditure on R & D activities forming or forming part of a particular project carried on by or on behalf of the company. The clawback provisions operate to reduce the maximum R & D deduction available to the company. Where a company receives a grant or recoupment the rate of R & D deduction is reduced, by the operation of a multiplier, to 100% for the expenditure affected by the multiplier.

7.6. The proposed amendments to sections 73C and 73D will exclude this effect when a grant or recoupment is from the Commonwealth under the Co-operative Research Centres Program.

7.7. These measures are being introduced for Co-operative Research Centres to lift the nation's R & D effort and to increase the involvement of the private sector in this effort. The amendments are intended to encourage individual companies, public research bodies and tertiary institutions to come together to carry out high quality long term strategic research to support the development of internationally competitive industry sectors.

Explanation of the proposed amendments

How will the exclusion from the clawback provisions operate?

7.8. Clawback provisions (sections 73C and 73D) apply where a grant or recoupment is received in relation to expenditure on R & D activities. These amendments will prevent the application of the clawback provisions to an eligible company, other than an eligible company which is a partner in a partnership not designated as a Co-operative Research Centre (CRC), when a grant or recoupment is made by the Commonwealth under the Co-operative Research Centres Program (proposed subsections 73C(2A) and 73D(2A)).

Who will enjoy the exclusion from the clawback provisions?

7.9. The exclusion from the clawback provisions (proposed subsections 73C(2A) and 73D(2A)) will apply only to an eligible company and where:

·
a recoupment or grant is made by or from the Commonwealth;
·
the recoupment or grant is under the Co-operative Research Centres Program; and
·
the company is a partner in a partnership designated as a CRC or the company incurs expenditure directly to a CRC which is not a partnership.

Will partnerships of eligible companies also enjoy the exclusion from the clawback provisions?

7.10. The proposed amendments to section 73B address both the situation that an eligible company is a partner in a partnership designated as a CRC and the situation that an eligible company is a partner in a partnership not so designated. Thus -

·
if the partnership is designated as a CRC under the Program and subsection 73B(3A) applies, a partner which is an eligible company will be able to claim an R & D deduction but will be excluded from the application of the clawback provisions in section 73C or 73D; and
·
the exclusion from the clawback provisions (proposed subsections 73C(2A) and 73D(2A)) does not apply to expenditure taken to have been incurred by a partner where the partnership is not designated as a CRC. This allows a partner in such a partnership a normal deduction under section 73B but clawback will apply where any grant or recoupment, including a grant or recoupment under the Program, is made.

What happens if the Co-operative Research Centre (CRC) is a partnership ?

7.11. If the CRC is a partnership to which subsection 73B(3A) applies, that is a partnership where at least one partner is an eligible company and each other partner is an eligible company or a body corporate that is a registered research agency, or at least one partner is an eligible company and the partnership is designated as a CRC, then an eligible company (but only an eligible company) which is a partner in the CRC will be able to claim a deduction for R & D expenditure calculated in accordance with the subsection. Proposed subsection 73C(2A) or 73D(2A) will apply, as appropriate.

What happens if the CRC is not a partnership ?

7.12. If the CRC is, for example, an unincorporated body other than a partnership or is a company -

·
an eligible company which satisfies the provisions of section 73B will be able to claim a deduction under the section and proposed subsection 73C(2A) or 73D(2A) will apply to exclude the operation of the clawback provisions; or
·
if the eligible company is a partner in a partnership not designated as a CRC which incurs R & D expenditure under the Co-operative Research Centres Program, the company will be able to claim a deduction calculated in accordance with subsection 73B(3A), as amended by proposed paragraph 73B(3A)(da), and proposed subsection 73C(2A) or 73D(2A) will not apply.

Commencement Date

7.13. The amendments in relation to clawback apply in relation to recoupments or grants made on or after 1 July 1991.

7.14. The amendments relating to a partnership designated as a CRC apply in relation to expenditure incurred on or after 1 March 1991.

Clauses involved in the proposed amendments

Clause 12:

·
Enables access to the R & D deduction by an eligible company which is a partner in a partnership comprising at least one such company and designated as a Co-operative Research Centre (CRC) under the Co-operative Research Centres Program.
·
Ensures that an eligible company, which is a partner in a partnership not designated as a CRC, which is eligible for an R & D deduction as a result of expenditure incurred under the Program, is not excluded from the application of the R & D clawback provisions.

Clause 13: Prevents the application of the R & D clawback provisions to certain eligible companies where a recoupment or grant is made by the Commonwealth under the Co-operative Research Centres Program.

Clause 14: Prevents the application of the R & D clawback provisions to certain eligible companies where a non-assessable recoupment or grant is made by the Commonwealth under the Co-operative Research Centres Program.


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