Income Tax Assessment Act 1997



Division 355 - Research and Development  

Subdivision 355-D - Notional deductions for R & D expenditure  

SECTION 355-220   R & D activities conducted for a foreign entity  

For the purposes of paragraph 355-210(1)(c) , the conditions for an *R & D activity conducted for one or more foreign residents are as follows:

(a) the R & D activity is conducted solely within Australia;

(b) if the R & D activity is a *supporting R & D activity, each corresponding *core R & D activity must be:

(i) an activity conducted, or to be conducted, solely within Australia; and

(ii) an activity for which the *R & D entity is or has been registered under section 27A of the Industry Research and Development Act 1986 , or could be registered for an income year if that core R & D activity were conducted during the income year;

(c) when the R & D activity is conducted:

(i) each foreign resident is *connected with the R & D entity; or

(ii) for each foreign resident - either the foreign resident is an *affiliate of the R & D entity or the R & D entity is an affiliate of the foreign resident;

(d) the R & D activity is conducted:

(i) in accordance with a written agreement binding on only the R & D entity and each foreign resident; and

(ii) either directly by the R & D entity, or indirectly by another entity under an agreement binding on the R & D entity;

(e) the R & D activity is not conducted in connection with an agreement covered by subsection (2).


An example of conducting an R & D activity indirectly under a contract is conducting the R & D activity under a subcontract, or one of a chain of subcontracts, under the contract.

An agreement is covered by this subsection if:

(a) the agreement is binding on the R & D entity (the first entity ) and an R & D entity that:

(i) is *connected with the first entity; or

(ii) has the first entity as an *affiliate, or is an affiliate of the first entity;
while the *R & D activity is conducted; and

(b) the R & D activity is to be conducted under the agreement by the first entity or by an entity:

(i) who is not bound by the agreement; and

(ii) who is to conduct the R & D activity directly or indirectly under another agreement to which the first entity is, or will become, bound.

One effect of this subsection is that, even if the R & D entity has an agreement with the foreign resident for conducting the R & D activity, the R & D entity cannot deduct expenditure incurred:

  • (a) for conducting the R & D activity as a subcontractor under a subcontract with an affiliated R & D entity; or
  • (b) if the R & D entity is a subcontractor to an affiliated R & D entity - for further subcontracting the conducting of the R & D activity.


    Disclaimer and notice of copyright applicable to materials provided by CCH Australia Limited

    CCH Australia Limited ("CCH") believes that all information which it has provided in this site is accurate and reliable, but gives no warranty of accuracy or reliability of such information to the reader or any third party. The information provided by CCH is not legal or professional advice. To the extent permitted by law, no responsibility for damages or loss arising in any way out of or in connection with or incidental to any errors or omissions in any information provided is accepted by CCH or by persons involved in the preparation and provision of the information, whether arising from negligence or otherwise, from the use of or results obtained from information supplied by CCH.

    The information provided by CCH includes history notes and other value-added features which are subject to CCH copyright. No CCH material may be copied, reproduced, republished, uploaded, posted, transmitted, or distributed in any way, except that you may download one copy for your personal use only, provided you keep intact all copyright and other proprietary notices. In particular, the reproduction of any part of the information for sale or incorporation in any product intended for sale is prohibited without CCH's prior consent.