INCOME TAX ASSESSMENT ACT 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-45 - RULES FOR PARTICULAR INDUSTRIES AND OCCUPATIONS  

Division 355 - Research and Development  

Subdivision 355-F - Integrity Rules  

SECTION 355-415   Reducing deductions to reflect mark-ups within groups  

355-415(1)  
This section applies to an *R & D entity if:


(a) the R & D entity can deduct an amount under section 355-205 or 355-480 for an income year for one or more *R & D activities; and


(b) one or more other entities (the grouped entities ) incurred expenditure during the income year, or an earlier income year, on one or more of those *R & D activities; and


(c) when each grouped entity incurred the expenditure:


(i) the grouped entity was *connected with the R & D entity; or

(ii) the grouped entity was an *affiliate of the R & D entity or the R & D entity was an affiliate of the grouped entity.
Note:

Section 355-205 is about deductions for R & D expenditure. Section 355-480 is about deductions for earlier year associate R & D expenditure.

Reducing deductions by group mark-ups

355-415(2)  
The amount the *R & D entity can deduct, apart from this section, under section 355-205 or 355-480 for the income year is reduced by the amount (the reduction amount ) worked out as follows: Method statement


Step 1.

For each grouped entity, work out the sum of the amounts derived during the income year, or an earlier income year, by the grouped entity for goods or services relating to one or more of the *R & D activities while:

  • (a) the grouped entity was *connected with the *R & D entity; or
  • (b) the grouped entity was an *affiliate of the R & D entity or the R & D entity was an affiliate of the grouped entity.

  • Step 2.

    From the sum of those amounts, subtract the actual cost to each grouped entity of providing the goods or services that correspond to those amounts.

    If R & D entity has deductions for both R & D expenditure and earlier year associate R & D expenditure

    355-415(3)  
    However, if the *R & D entity can deduct amounts under both sections 355-205 and 355-480 for the income year, those amounts are reduced as follows:


    (a) apply the reduction amount to reduce the amount otherwise deductible under section 355-205 (but not below zero); and


    (b) then apply any remainder of the reduction amount to reduce the amount otherwise deductible under section 355-480 (but not below zero). Disregard mark-ups already taken into account

    355-415(4)  
    For the purposes of step 1 of the method statement in subsection (2), disregard any of the amounts from that step that have already been taken into account under this section for the *R & D entity and the *R & D activities for an earlier income year.


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