INCOME TAX (TRANSITIONAL PROVISIONS) ACT 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-45 - RULES FOR PARTICULAR INDUSTRIES AND OCCUPATIONS  

Division 355 - Research and Development  

Subdivision 355-E - Balancing adjustments for decline in value deductions for assets used in R & D activities  

SECTION 355-320   Balancing adjustment - assets only used for R & D activities  

R & D entity has old law R & D decline in value deductions

355-320(1)  
This section applies to an R & D entity if:


(a) a balancing adjustment event happens in an income year (the event year ) commencing on or after 1 July 2011 for an asset held by the R & D entity; and


(b) the R & D entity cannot deduct an amount under section 40-25 of the Income Tax Assessment Act 1997 (the new Act ), as that section applies apart from:


(i) Division 355 of that Act; and

(ii) former section 73BC of the Income Tax Assessment Act 1936 (the old Act );
for the asset for an income year; and


(c) either or both of the following subparagraphs apply:


(i) the R & D entity can deduct (the old law deductions ) under former section 73BA or 73BH of the old Act an amount for one or more income years for the asset;

(ii) the R & D entity chooses tax offsets under former section 73I of the old Act instead of deductions (also the old law deductions ) under those former sections for one or more income years for the asset; and


(d) the R & D entity is registered under section 27A of the Industry Research and Development Act 1986 for one or more R & D activities for the event year; and


(e) if Division 40 of the new Act applied as described in subsection (2) of this section:


(i) the R & D entity could deduct for the event year an amount under subsection 40-285(2) of that Act for the asset and the balancing adjustment event; or

(ii) an amount would be included in the R & D entity's assessable income for the event year under subsection 40-285(1) of that Act for the asset and the balancing adjustment event.
Note 1:

This section applies even if the R & D entity is entitled under section 355-100 of the new Act to tax offsets for one or more income years for deductions (the new law deductions ) under section 355-305 of that Act for the asset.

Note 2:

Section 40-292 of this Act may apply if paragraph (c), but not paragraph (b), of this subsection is satisfied.

Changed application of Division 40

355-320(2)  
For the purposes of paragraph (1)(e), assume that Division 40 of the new Act applied with the changes described in section 355-310 of that Act, but with these changes to that section.


Changes to be made to section 355-310 of the new Act
Item For a reference in section 355-310 to ... substitute a reference to ...
1 section 355-315 this section
2 the purpose of conducting one or more of the R & D activities to which the R & D deductions (within the meaning of that section) relate both:
(a) the purpose of conducting one or more of the research and development activities (within the meaning of former section 73B of the old Act) to which the old law deductions relate; and
(b) the purpose of conducting one or more of the R & D activities to which the new law deductions (if any) relate

Notional deduction

355-320(3)  
If the R & D entity could deduct for the event year an amount under subsection 40-285(2) of the new Act for:


(a) the asset; and


(b) the event;

if Division 40 of that Act applied as described in subsection (2) of this section, the R & D entity is taken to be able to deduct under subsection 355-315(2) of the new Act that amount for the event year.

Note:

The R & D entity may be entitled to a tax offset under section 355-100 (about R & D) of the new Act for the deduction.

Amount to be included in assessable income

355-320(4)  
If an amount (the section 40-285 amount ) would be included in the R & D entity's assessable income for the event year under subsection 40-285(1) of the new Act for the asset and the event if Division 40 of that Act applied as described in subsection (2) of this section, the sum of:


(a) that amount; and


(b) the following amount;

is taken to be included in the R & D entity's assessable income for the event year under subsection 355-315(3) of the new Act:

formula: assessable income

where:

adjusted section 40-285 amount
means so much of the section 40-285 amount as does not exceed the total decline in value.

old law 1.25 rate deductions
means the sum of the R & D entity's notional Division 40 deductions, and notional Division 42 deductions, (if any) for the asset that were multiplied by 1.25 in working out the old law deductions.

total decline in value
means the asset's cost, less its adjustable value, worked out under Division 40 of the new Act as it applies as described in subsection (2).

Normal rules do not apply for the asset and the event

355-320(5)  
Neither of the following sections:


(a) section 355-315 of the new Act;


(b) former section 73BF of the old Act (as that section applies because of Part 2 of Schedule 4 to the Tax Laws Amendment (Research and Development) Act 2011 );

to the extent that they would otherwise apply apart from this section to the R & D entity for the event, do so apply to the R & D entity for the event.

Note 1:

Section 355-315 of the new Act would otherwise apply for the event in a case where the R & D entity had new law deductions.

Note 2:

Former section 73BF of the old Act would otherwise apply for the event in respect of the old law deductions.


 

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