House of Representatives

Taxation Laws Amendment Bill (No. 5) 1992

Taxation Laws Amendment Act (No. 5) 1992

Income Tax (Dividends and Interest Withholding Tax) Bill 1992

Income Tax (Dividends and Interest Withholding Tax) Amendment Act 1992

Explanatory Memorandum

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

Appendices To Chapter 13

Detailed explanation of R & D rollover relief

Appendix 1

Research and development rollover relief - plant

Summary of the existing law

A1.1 Expenditure on plant used exclusively in R & D activities is deductible over three years, commencing in the first year of that exclusive use. Broadly, annual deductions are calculated as one third of expenditure incurred in acquiring or constructing plant (qualifying expenditure), increased by a concessional component of up to 50% depending on the annual level of R & D expenditure.

A1.2 If the property is pilot plant acquired or commenced to be constructed before 20 August 1992 and its cost exceeds $10M, the amount of qualifying expenditure is limited to the first $10M. The excess cost would be deductible under the plant depreciation provisions in years subsequent to the initial three year deduction period where the pilot plant is used for income-producing purposes. This $10M limit does not apply to pilot plant acquired or commenced to be constructed after 19 August 1992.

A1.3 A cessation of exclusive R & D use of plant in the first three years terminates an entitlement to further R & D deductions. However, the undeducted portion of the cost of the property would be depreciable under the plant depreciation provisions if used in income-producing activities.

A1.4 Balancing adjustments may arise on the disposal of plant for which R & D deductions have been allowed. If deductions have also been allowed under the plant depreciation rules, then those rules (section 59 of the Act) would apply to the disposal. If the disposal was between companies within a wholly-owned company group and CGT rollover relief was obtained, then depreciation rollover relief would be available under section 58 of the Act.

A1.5 However, if the plant depreciation rules have not applied to the property, the R & D disposal rules would apply. An assessable recoupment of deductions would accrue if the actual or deemed consideration for disposal of plant exceeded its written down value (the portion of the cost of property which has not been deductible). Similarly, a deductible loss is available where the consideration for disposal is less than written down value.

Threshold conditions for rollover relief

A1.6 R & D rollover relief will automatically apply on the disposal of plant, for which R & D deductions have been allowed or are allowable, between eligible companies within a wholly-owned company group if capital gains tax (CGT) rollover relief applies to the disposal. CGT rollover relief applies when a valid election for CGT rollover relief is made under section 160ZZO of the Act. [New subsection 73E(1)]

A1.7 R & D rollover relief is not necessary on the disposal of plant to which the R & D provisions have applied if the plant depreciation provisions have also applied - a similar form of rollover relief is already available under section 58 of the plant depreciation rules.

A1.8 Successive R & D rollover relief is to be available; that is, R & D rollover relief can be obtained for successive disposals of particular R & D plant between companies within wholly owned company groups.

A1.9 The threshold requirement that a transferor has obtained, or can obtain, deductions for plant under the R & D provisions will only apply to the first of successive transferors. [New subsection 73E(11)]

A1.10 That measure will facilitate rollover relief where subsequent successive transferors have not obtained deductions; for example, group company reorganisations that necessarily involve successive transfers of plant within a single year.

A1.11 It will also facilitate rollover relief for transfers of property which had been fully written off before the transferor acquired it.

Consequences for the transferor

Disposal rules not to apply

A1.12 Where rollover relief is obtained in relation to a disposal of R & D plant, the balancing adjustment provisions of subsections 73B(23) & (24) will not apply to the company disposing of the property. Any consideration received by the transferor for the disposal will be ignored. [New subsection 73E(2)]

Termination of R & D deduction entitlements

A1.13 Under the usual rules, a taxpayer disposing of R & D plant is not entitled to any R & D deduction that would have otherwise been available in the disposal year or later year. That rule will not change. Instead, as explained below, the transferee is to "inherit" the transferor's R & D deduction entitlements.

Termination of depreciation entitlements

A1.14 In some cases, plant eligible for deduction under the R & D provisions could also be eligible for deduction under the plant depreciation provisions. That is, the R & D activities of a company may also constitute income producing activities. In those situations, it is not appropriate to allow deductions under both provisions and depreciation deductions are not available.

A1.15 However, unlike the R & D provisions, the plant depreciation provisions do permit deductions in the year that eligible plant is disposed of, calculated by reference to the period of time the property is owned and used for producing income in the year of disposal. Accordingly, it is appropriate under normal circumstances to allow depreciation deductions in the year that R & D plant is disposed of where its use in R & D activities is such that it is also eligible for depreciation deductions.

A1.16 Under R & D rollover relief, transferees are to inherit transferors' R & D entitlements and so it would not be appropriate for transferors to obtain depreciation deductions in the disposal year for the period up to the time of disposal. Accordingly, pro rata depreciation deductions will not be available to a transferor of plant to which R & D rollover relief applies. [New subsection 73E(3)]

Consequences for the transferee

Actual expenditure ignored

A1.17 The actual expenditure incurred by the transferee company in acquiring the plant will be ignored. [New subsection 73E(4)]

A1.18 Instead, the transferee is to "inherit" any deduction entitlements of the transferor.

Inheritance of qualifying plant expenditure

A1.19 Deductions in respect of plant are calculated by reference to the amount of "qualifying plant expenditure" in relation to that plant; that is, the cost of plant that is taken to be an amount of qualifying plant expenditure in relation to that plant in the year in which the plant is first used exclusively in R & D activities and in relation to each of the next 2 succeeding years.

A1.20 Deductions in each of those 3 years are calculated as one third of the amount of qualifying plant expenditure, increased by up to 50% depending on the amount of relevant R & D expenditure.

A1.21 So, if at the time of the disposal, there is an amount of qualifying plant expenditure in relation to the property in the disposal year or the subsequent year and the transferee immediately commences to use the property exclusively in R & D activities, the transferee will inherit the transferor's qualifying plant expenditure in respect of the same years.

A1.22 That is achieved by specifying that:

·
the transferee is taken to have acquired the plant for an amount equal to the transferor's qualifying plant expenditure; and
·
that amount is qualifying plant expenditure in relation to the transferee in the disposal year and, where appropriate, the subsequent year.

A1.23 The effect of that inheritance mechanism is to place the transferee in the same position as the transferor for the purposes of calculating R & D deductions for the transferred plant. [New paragraphs 73E(5)(a) - 5(c)]

A1.24 A precondition for the transferee to inherit the transferor's qualifying plant expenditure is that the transferee immediately commence to use the plant exclusively in R & D activities. If that does not happen, the transferee may instead be entitled to depreciation deductions.

Depreciation deductions

A1.25 Plant for which R & D deductions have been allowed can become eligible for depreciation deductions in respect of that portion of cost which is not deductible under the R & D rules. That can occur either where the exclusive R & D usage of plant ceases before its cost has been fully deducted or the plant is pilot plant costing to which the $10M limit applied (the amount exceeding $10M becomes eligible for depreciation after the end of the 3 year deduction period where the plant is used in income-producing activities).

A1.26 Consistent with those rules, depreciation deductions are to be also available to a transferee for any portion of the original cost of plant which has not been allowed as deductions.

A1.27 The amount to be eligible for depreciation is to be based on the plant's "modified written down value" at the relevant time (that is, the original cost of the property less the portion of that cost which has been allowed as a deduction to both the transferee and transferor, or prior transferors in the case of multiple rollovers). [New paragraphs 73E(5)(d) & (5)(e), new paragraphs 73E(6)(a) & (6)(b) and new subsection 73B(9)]

A1.28 The following are situations where depreciation could become available to a transferee of plant to which R & D rollover relief has applied:

·
a transferee acquires pilot plant, to which the $10M limit applied in the hands of the transferor, in either the second or third year of the three year period during which R & D deductions are available; the transferee obtains deductions in the remaining 1 or 2 deduction years in relation to the first $10M and then becomes entitled to depreciation deductions for the excess cost;
·
a transferee acquires pilot plant, to which the $10M limit had applied in the hands of the transferor, which has been fully written off by the transferor for R & D purposes but which has not become eligible for depreciation deductions; the transferee would not inherit any R & D entitlements, but would be entitled to depreciation deductions for the excess cost if the plant is subsequently used for income producing purposes;
·
a transferee acquires plant which ceased to be eligible for R & D deductions in the hands of the transferor before the end of the 3 year deduction period because of a cessation of exclusive R & D usage but which had not become eligible for depreciation deductions; the transferee would be entitled to depreciation deductions for the undeducted portion of the cost of the plant if it is subsequently used in income-producing activities;
·
a transferee acquires plant and inherits an entitlement to R & D deductions but subsequently becomes disentitled because of a cessation of exclusive R & D usage before the end of the period for which R & D deductions are available; the plant is then, or later, used in income-producing activities and so eligible for depreciation deductions; and
·
a transferee acquires plant for which the transferor was entitled to R & D deductions but the transferee does not immediately commence to use it exclusively in R & D activities and the transferee is therefore not entitled to the otherwise available R & D deductions; instead, the plant is used for income producing purposes and eligible for depreciation deductions.

Depreciation deductions where transferee not entitled to continue with transferor's R & D deduction entitlement in disposal year

A1.29 There could be instances where a transferee acquires plant for which there is an R & D deduction entitlement but the transferee is not entitled to R & D deductions in the disposal year but is nevertheless entitled to depreciation deductions. That could occur either where the transferee does not immediately commence to use the property exclusively in R & D activities or subsequently terminates that exclusive use before the end of the disposal year.

A1.30 It was explained at paragraphs A1.14-16 that, where R & D rollover relief applies, a transferor of plant would not be entitled to depreciation deductions in the disposal year in lieu of the lost entitlement to R & D deductions, because the transferee would inherit the transferor's R & D deduction entitlements.

A1.31 Under the normal depreciation rules, the transferee would be only entitled to deductions for the period after the transferee acquired the property. That would not be appropriate if the transferor would have been entitled to depreciation deductions in the disposal year but for the rule mentioned in the previous paragraph.

A1.32 In those circumstances, a transferee's depreciation entitlement in the disposal year is to be calculated by reference to both the transferor's and transferee's income-producing use of the property in that year. [New paragraph 73E(6)(c)]

Disposal of property by transferee where rollover relief does not apply

A1.33 Paragraph A1.12 explained that a consequence of R & D rollover relief is that transferors will not be required to calculate balancing adjustments on the disposal of plant.

A1.34 Instead, transferees will assume an obligation to account for any subsequent recoupment of the cost of the property that has been allowed as deductions to the transferor or, in the case of successive rollovers, prior transferors.

A1.35 So, if the amount received by a transferee for the disposal, loss or destruction of plant exceeds its written down value, the transferee will be assessable on that excess to the extent that it does not exceed that portion of the cost of the property that has been allowed as deductions to both the transferee and transferor(s).

A1.36 If the plant depreciation provisions have not applied to such property in the hands of the transferee, the R & D disposal rules, sections 73B(23) and (24), will operate in a modified manner to give effect to the rollover. [New subsections 73E(7) & (9)]

A1.37 However, if the plant depreciation provisions have applied to the property in the hand of the transferee, then the disposal rules under those provisions will instead apply.

A1.38 Those rules make taxpayers who have obtained deductions for the cost of a particular item of plant under both the R & D and depreciation provisions assessable on any subsequent recoupment of the plant's cost that has been allowed as deductions under both of those provisions.

A1.39 That is achieved by specifying, in effect, that the cost of property that has been allowed as a deduction to a taxpayer under the R & D provisions is to be taken to be an amount allowed to that taxpayer in respect of depreciation (subsection 59(2AA) of the Act).

A1.40 A similar rule will apply for depreciation purposes on the disposal, loss or destruction of property for which deductions have been allowed under both the R & D provisions and depreciation provisions to two or more companies and either R & D rollover relief or depreciation rollover relief applied on the transfer of that property between those companies.

A1.41 In such cases, the cost of the property that has been deductible to those companies under the R & D provisions will be treated as depreciation allowed to the last company for the purposes of calculating balancing adjustments on the disposal, loss or destruction of the property. [New subsection 59(2AB)]

Recoupment of expenditure

A1.42 Deductions for R & D expenditure are either disallowed or reduced on the receipt of amounts representing either a grant or a recoupment of the expenditure (sections 73C and 73D of the Act). Similarly, deductions can be disallowed for certain expenditures that are not "at risk" (proposed section 73CB). (The Commissioner of Taxation has, or is proposed to have, unlimited time to amend assessments to give effect to those provisions (subsection 170(10) of the Act).

A1.43 There may be instances where a company obtains R & D rollover relief on the disposal of plant to another company and subsequently receives a grant or recoupment amount in respect of expenditure on that plant. That company's assessments would be amended, as described in the preceding paragraph.

A1.44 However, the taxation position of the transferee may also need to be adjusted to reflect the adjustments made to the transferor's assessments. For example, the transferee may have sold the plant and been assessed on a recoupment of expenditure allowed as a deduction to the transferor but which was subsequently disallowed.

A1.45 Accordingly, the Commissioner is to have unlimited time to also amend transferees' assessments to reflect adjustments made to transferors' assessments on the recoupment of expenditure which has been allowed as deductions. [New subsection 73E(11)]

Motor vehicles not eligible for CGT rollover relief

A1.46 Certain motor vehicles, such as ordinary cars, utilities and passenger vans, are not assets for CGT purposes and as CGT rollover relief is not necessary it cannot be made. Such vehicles could qualify for deduction under the R & D provisions and ought to qualify for R & D rollover relief in circumstances where CGT rollover relief would be available if such vehicles were subject to CGT.

A1.47 R & D rollover relief is to be available for disposals of such vehicles and can be obtained by making an election for CGT rollover relief under section 160ZZO as if those vehicles were assets for CGT purposes. [New subsection 73E(12)]

Appendix 2

Research and development rollover relief - buildings

Summary of the existing law

Nature of the concession

A2.1 The R & D concession provides a three year write-off for capital expenditure on buildings (including alterations, extensions or improvements) used exclusively in R & D activities, commencing with the first year of that exclusive use.

A2.2 The concession is now largely redundant as it is only available to eligible companies where either the building was acquired under a contract made before 21 November 1987 or, if the building was constructed by or for the company, construction either commenced before 21 November 1987 or the contract for construction was made before that date.

A2.3 Expenditure on buildings commenced to be constructed on or after 21 November 1987 for use in R & D activities is evenly deductible over 40 years at the rate of 2.5% per annum under Division 10D of the Act.

Disposals of buildings

A2.4 Different rules apply on the disposal of an R & D building depending on whether the disposal occurs within five years of the building first being used exclusively in R & D activities or later.

A2.5 If the disposal occurs within that five year period, deductions allowed under the R & D rules in respect of a building can be withdrawn. Deductions can also be withdrawn if the exclusive R & D usage ceases within five years.

A2.6 Where deductions are withdrawn in that manner and the building would have otherwise qualified for deduction under another provision - for example, under one of the mining provisions or under division 10D as an income-producing building - alternative deductions are then available under that other provision.

A2.7 If the disposal of an R & D building occurs after the end of the 5 year period, the consideration for the disposal is assessable to extent it does not exceed the cost of the building (that is, the amount for which deductions have been allowed).

A2.8 However, if deductions would have been allowable under the income-producing building provisions (Division 10D) had the R & D concession not applied, the amount otherwise assessable on the disposal is reduced by the sum of the deductions that would have been otherwise allowable under those provisions.

Destruction of buildings

A2.9 Separate rules apply on the destruction of buildings. Unlike disposals, no distinction is made as to the time of the destruction.

A2.10 If any amount received in respect of the destruction of a building, such as insurance proceeds, exceeds the amount of undeducted building expenditure, the excess is assessable to the extent of the sum of deductions allowed in respect of the building.

A2.11 Similarly, if any amount received in respect of the destruction is less than the undeducted building expenditure, the deficiency is deductible.

Threshold conditions for rollover relief

A2.12 R & D rollover relief will apply on the disposal of buildings, for which deductions have been allowed under the R & D provisions, between eligible companies within a wholly-owned company group if capital gains tax (CGT) rollover relief applies to the disposal; that is, a valid election for CGT rollover relief is made under section 160ZZO of the Act. [New subsection 73F(2)]

A2.13 Successive R & D rollover relief is to be available; that is, R & D rollover relief can be successively obtained for successive disposals of a building between companies within wholly owned company groups.

A2.14 The threshold requirement that a transferor has obtained, or can obtain, building deductions under the R & D provisions will only apply to the first of successive transferors. [New subsection 73F(14)]

A2.15 That measure will facilitate rollover relief where subsequent successive transferors have not obtained deductions; for example, group company reorganisations that necessarily involve successive transfers of property within a single year (transferors are not entitled to deductions in the year of disposal).

A2.16 It will also facilitate rollover relief for transfers of property where its cost had been fully written-off by the time it was acquired by the transferor.

Consequences for the transferor

Disposal rules not to apply

A2.17 If the disposal occurs within 5 years of the building first being used exclusively in R & D activities, there will be no clawback of previously allowed deductions. [New subsection 73F(4)]

A2.18 Where the disposal occurs after the end of the five year period, the balancing adjustment provisions will not apply to the company disposing of the property. Any consideration received by the transferor for the disposal will be ignored. [New subsection 73F(3)]

Termination of R & D deduction entitlements

A2.19 There may be instances where buildings are still eligible for R & D deductions despite the limitation of the concession to buildings that were (broadly speaking) acquired before 21 November 1987, commenced to be constructed before that date or, if construction commenced after that date, the construction contract was made before that date.

A2.20 For example, a company may have committed itself to the construction of a major R & D facility before 21 November 1987. It might be some years later before construction was completed and R & D activities commenced, meaning that the company is still eligible for deductions.

A2.21 Consistent with the usual rule, a company disposing of an R & D building will not be entitled to any R & D deduction that would have otherwise been available in the disposal year or later year. Instead, as explained below, the transferee will "inherit" the transferor's R & D deduction entitlements.

Consequences for the transferee

Actual expenditure ignored

A2.22 The actual expenditure incurred by a transferee company in acquiring a building will be ignored. [New subsection 73F(5)]

A2.23 Instead, the transferee will "inherit" any deduction entitlement of the transferor.

Inheritance of qualifying building expenditure

A2.24 R & D deductions for buildings are calculated by reference to the amount of "qualifying building expenditure" in relation to that building. The capital cost of building becomes qualifying building expenditure in relation to the building in the year in which the plant is first used exclusively in R & D activities and in relation to each of the next 2 succeeding years.

A2.25 Deductions in each of those 3 years are calculated as one third of the amount of qualifying building.

A2.26 So, if at the time of the disposal, there is an amount of qualifying building expenditure in relation to the building in the disposal year or the subsequent year and the transferee immediately commences to use the building exclusively in R & D activities, the transferee will inherit the transferor's qualifying building expenditure in respect of the same years.

A2.27 That is achieved by specifying that:

·
the transferee is taken to have acquired the building for an amount equal to the transferor's qualifying building expenditure; and
·
that amount is qualifying building expenditure in relation to the transferee in the disposal year and, where appropriate, the subsequent year.

A2.28 The effect of that inheritance mechanism is to place the transferee in the same position as the transferor for the purposes of calculating R & D deductions for the transferred building. [New subsections 73F(6) and (7)]

Disposal of building by transferee within 5 years where rollover relief does not apply or cessation of use within 5 years

A2.29 As discussed at paragraph A2.5 , either a disposal of a building or a cessation of its exclusive R & D usage, within 5 years of it first being used exclusively in R & D activities, can result in a withdrawal of previously allowed deductions. Where that happens, deductions will instead be available under any other relevant provision.

A2.30 Where R & D rollover relief applies to the disposal of a building, that 5 year rule will not apply where the disposal has occurred within the five year period. However, the transferee will be subject to that rule.

A2.31 For the purposes of applying that 5 year rule to a transferee, the 5 year period will commence from the date that the transferor or, if there have been successive rollovers, the first of those transferors, first used the building exclusively in R & D activities. [New subsection 73F(8)]

A2.32 If a transferee does not immediately commence to use a building exclusively in R & D activities, the transferee will be taken to have ceased using that building exclusively in R & D activities immediately after acquiring it. [New subsection 73E(9)]

Adjustments where 5 year deduction disallowance rule applies to a transferee

A2.33 Where the 5 year rule applies, the transferee's assessable income for the year in which the transferee acquired the building will include the sum of the deductions allowed to the transferor or prior successive transferors in respect of the building. [New paragraph 73F(10)(c)]

A2.34 Also, any deductions allowed to the transferee will be disallowed in respect of the income years in which they were allowed (that follows from existing law and no amendment is necessary).

A2.35 As an offset, if the use of the building by the transferor or prior successive transferors was such that deductions would have otherwise been available to them under another provision, the transferee will obtain a deduction in the year in which the transferee acquired the building for an amount equal to the sum of those otherwise allowable deductions. [New paragraph 73F(10)(d)]

A2.36 The transferee will also obtain deductions in the years in which its use of the building entitle it to deductions under another provision. Those deductions will be based on the cost of the building to the transferor, or first of prior successive transferors, not the actual cost of the building to the transferee. [New subparagraph 73F(10)(e)(i)]

A2.37 If the disallowance was due to a cessation of the exclusive R & D use of the building, the transferee will be able to continue with deductions under that other provision.

A2.38 If the deduction disallowance was triggered by the transferee's disposal of the building, the balancing adjustment rules, if any, under that other provision will apply to the disposal.

A2.39 Deductions allowed to a transferee under another provision in respect of the transferor's or transferors' period of ownership of the property will be taken to be deductions allowed to the transferee under that other provision (to ensure that such amount are subject to any relevant balancing adjustments rules under that other provision). [New subparagraph 73F(10)(e)(ii)]

Example of application of 5 year rule

Company A incurs $3M pre-21 November 1987 expenditure in constructing a building. The building is first used exclusively in R & D activities in the 1990/91 income year and deductions of $1M are obtained by A in each of the 1990/91 and 1991/92 income years.

The building is sold to group company B in the 1992/93 income year for $2.5M (which is ignored under the rollover provisions). An election is made for CGT rollover relief to apply and R & D rollover relief therefore applies.

Company B immediately commences to use the building in R & D activities and continues to do so until the building is sold to a third party in the 1994/95 income year, within 5 years of A first using it for R & D activities.

The deduction disallowance rules would operate as follows:

·
Bs 1992/93 assessment would be amended to include $2M, representing a disallowance of the deductions of $1M allowed to A in each of the 1990/1991 and 1991/1992 income years; and
·
B's 1992/93 assessment would be amended to disallow the $1M deduction obtained in that year as the result of B inheriting A's remaining deduction entitlement, under the rollover rules.

A and B both carried on prescribed mining operations in the relevant years and the R & D activities were in connection with those operations. Expenditure on buildings in such activities is evenly deductible over the lesser of the life of mine or ten years.

Assuming that the life of the mine was greater than 10 years, an annual deduction of $.3M over 10 years would have been available under the mining provisions but for the application of the R & D provisions to the building.

Accordingly:

·
B would obtain a deduction of $.6M in 1992/93 for the amounts that would have otherwise been allowed to A under the mining provisions in 1990/1991 and 1991/1992 (ie. 2 x $.3M = $.6M); and
·
B's assessments for the 1992/93 and 1993/94 will each be amended to allow a deduction for $.3M.

As B has sold the building, B will not obtain any deduction in the disposal year. B may derive an assessable balancing charge, or incur a deductible balancing loss, depending on the amount received from the sale of the building.

Disposal of buildings after 5 years

A2.40 It was explained at paragraph A2.7 that on the disposal of an R & D building after the end of the 5 year period, the consideration for the disposal is assessable to extent it does not exceed the amounts allowed as deductions. The assessable amount is reduced to the extent deductions would have been allowable under Division 10D if the R & D provisions have not applied.

A2.41 Transferees will assume an obligation to account for any subsequent recoupment of the cost of the property that has been allowed as deductions to the transferor or, in the case of successive rollovers, prior transferors.

A2.42 However, they will be able to reduce such recoupments by any amount that would have been allowable to the transferor (or prior successive transferors) under Division 10D as well as any amounts that would have similarly been allowable to them. [New subsection 73F(11)]

Destruction of buildings

A2.43 Paragraph A2.10 explained that any amount received in respect of the destruction of a building that exceeded the amount of undeducted building expenditure, is assessable to the extent of the sum of deductions allowed in respect of the building.

A2.44 Where rollover relief has applied, amounts allowed to the transferor (or prior successive transferors) will be treated as deductions allowed to the transferee. [New subsection 73F(12)]

Recoupment of expenditure

A2.45 Deductions for R & D expenditure are either disallowed or reduced on the receipt of amounts representing either a grant or a recoupment of the expenditure (sections 73C and 73D of the Act). The Commissioner of Taxation has unlimited time to amend assessments to give effect to those provisions (subsection 170(10) of the Act).

A2.46 There may be instances where a company obtains R & D rollover relief on the disposal of a building to another company and subsequently receives a grant or recoupment amount in respect of expenditure on that building. That company's assessments would be amended, as described in the preceding paragraph.

A2.47 However, the taxation position of the transferee may also need to be adjusted to reflect the adjustments made to the transferor's assessments. For example, the transferee may have subsequently sold the building and been assessed on a recoupment of expenditure that had been disallowed as a deduction to the transferor.

A2.48 Accordingly, the Commissioner is to have unlimited time to also amend transferees' assessments to reflect adjustments made to transferors' assessments on the recoupment of expenditure which has been allowed as deductions. [New subsection 73F(13)]

Appendix 3

Research and development rollover relief - industrial property

Summary of the existing law

A3.1 Where deductions have been obtained for expenditure on R & D activities, the R & D rules (section 27A) treat as assessable income, amounts received either in respect of the results of those activities or attributable to the expenditure having been incurred.

A3.2 Such amounts could be in respect of the disposal of assets to which the CGT provisions apply. For example, the amount received could be for the disposal of a patent (one form of industrial property) arising from R & D activities or a patent that was acquired for use as "core technology" in R & D activities.

R & D rollover relief

A3.3 R & D rollover relief will apply on the disposal of a unit of industrial property, if the consideration for the disposal would have been assessable income under section 73B(27A), between eligible companies within a wholly owned company group if capital gains tax (CGT) rollover relief applies to the disposal; that is, a valid election for CGT rollover relief is made by the companies under section 160ZZO of the Act. [New subsection 73G(1)]

A3.4 Successive R & D rollover relief is to be available; that is, R & D rollover relief can be successively obtained for successive disposals of industrial property between companies within wholly owned company groups. [New subsection 73G(5)]

A3.5 Where rollover relief is obtained, the amount received by the transferor company for the disposal of the property will not be assessable income. [New subsection 73G(2)]

A3.6 The amount paid by the transferee company to acquire the property will not be deductible under any provision for the Act. [New subsection 73G(3)]

A3.7 The transferee company will be assessable on any amount received from a subsequent disposal of the property if R & D rollover relief does not also apply to that disposal. [New subsection 73G(4)]


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