Federal Register of Legislation - Australian Government

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Guides & Guidelines as made
These Guidelines revise the requirements to be met by companies seeking certification for overseas research and development activities.
Administered by: Industry
Registered 18 Mar 2008
Tabling HistoryDate
Tabled HR27-May-2004
Tabled Senate15-Jun-2004
Gazetted 13 May 2004
Date of repeal 19 Mar 2014
Repealed by Spent and Redundant Instruments Repeal Regulation 2014

The Industry Research and Development Board makes this Instrument under subsection 39EB (3A) of the Industry Research and Development Act 1986.

Dated 11 May 2004

DAVID MILES

Industry Research and Development Board


1              Name of Instrument

                This Instrument is the Industry Research and Development Board (Overseas Research and Development Activities) Guidelines 2004.

2              Commencement

                This Instrument commences on the date of its notification in the Gazette.

3              Replacement of Guidelines

                The Guidelines set out in Schedule 1 replace the Guidelines made under section 39EB of the Industry Research and Development Act 1986 on 15 February 1995.


Schedule 1        Guidelines

(section 3)

  

1              Authority for these Guidelines

                These Guidelines are made by the Industry Research and Development Board under section 39EB of the Industry Research and Development Act 1986.

2              Definitions

         (1)   In these Guidelines:

applicant means an eligible company that applies under section 39EC of the IRD Act for a provisional certificate.

IRD Act means the Industry Research and Development Act 1986.

IRD Board means the Industry Research and Development Board.

R&D means research and development.

R&D activities means research and development activities as defined in subsection 73B (1) of the Tax Act.

R&D Tax Concession means the research and development tax concession under sections 73B, 73BA, 73BH, 73C, 73CA, 73CB, 73D, 73I and 73Y of the Tax Act and Part IIIA of the IRD Act.

Tax Act means the Income Tax Assessment Act 1936.

         (2)   Subject to subsection (1), expressions used in these Guidelines and in Part IIIA of the IRD Act have the same meaning in these Guidelines as they have in that Part.

3              Purpose of the IRD Act and Tax Act provisions dealing with provisional certificates and claims relating to overseas R&D activities

         (1)   One of the factors contributing to increased indigenous innovation and competitiveness is increased R&D activity. 

         (2)   A major purpose of the R&D Tax Concession provisions relating to overseas R&D activities is to recognise that Australia does not have all the necessary R&D expertise and facilities to meet industry needs, and that Australian companies should not be disadvantaged in seeking world class R&D wherever it may be located.

Note   Section 39AA of the IRD Act provides that the object of the research and development tax concession is to provide a tax incentive, in the form of a deduction, to make eligible companies more internationally competitive by:

(a)   encouraging the development by eligible companies of innovative products, processes and services; and

(b)   increasing investment by eligible companies in defined research and development activities; and

(c)   promoting the technological advancement of eligible companies through a focus on innovation or high risk in defined research and development activities; and

(d)   encouraging the use by eligible companies of strategic research and development planning; and

(e)   creating an environment that is conducive to increased commercialisation of new processes and product technologies developed by eligible companies.

The benefits of the tax incentive are targeted by being limited to particular expenditure on certain defined activities.

         (3)   An applicant may apply for a provisional certificate so that the applicant may make a claim under the R&D Tax Concession in respect of certain R&D activities conducted overseas if the applicant who proposes to undertake the activities meets the criteria set out in these Guidelines. 

         (4)   An applicant is not eligible for the concession in respect of further actual expenditure above the 10% limit incurred on overseas R&D activities in connection with a project of R&D activities.

         (5)   In order to claim the R&D Tax Concession in respect of R&D activities proposed to be carried on overseas, an eligible company must tell the IRD Board in writing that it proposes to carry on those activities before it incurs expenditure in relation to those activities.

4              Expenditure incurred overseas on an Australian R&D project

         (1)   Paragraphs 16 and 17 of IT 2442, issued by the Commissioner of Taxation in 1987, deal with ancillary or incidental activities carried on overseas in relation to an Australian R&D project.  These paragraphs no longer apply as they relate to a definition of research and development activities that was amended in 1994.

         (2)   However, since 1994 the Commissioner of Taxation has administratively adopted a practice similar to that mentioned in IT 2442, accepting minor amounts of expenditure on overseas R&D activities as being deductible without a provisional overseas certificate. 

         (3)   The kinds of expenditure accepted for this purpose are expenditures on overseas R&D activities that are incidental to, or de minimus of, an Australian R&D project. 

         (4)   The IRD Board understands that this practice will continue unless advice to the contrary is issued by the Australian Tax Office.

Example of activities

Sending staff overseas to observe techniques or attend relevant seminars or conferences, or to access overseas information databases.

5              Criteria to be met by applicant for provisional certificate in relation to proposed overseas R&D activities

         (1)   For subsection 39ED (5) of the IRD Act, an applicant must satisfy the following criteria in relation to proposed overseas R&D activities:

                (a)    the applicant must demonstrate that the proposed overseas R&D activities cannot be carried on in Australia or in the external Territories;

               (b)    the applicant must demonstrate that the R&D activities undertaken overseas will form part of a larger R&D project in Australia and the results of the overseas R&D activities will be exploited by the applicant for the benefit of the Australian economy;

                (c)    the applicant must demonstrate that the expenditure on overseas R&D activities for which the applicant proposes to claim a deduction under section 73B, 73BA, 73BH or 73Y, or a tax offset under section 73I, of the Tax Act, will not exceed 10% of the total expenditure that the applicant has incurred or proposes to incur on the project.

         (2)   For paragraph (1) (a), proposed overseas R&D activities cannot be carried on in Australia or in the external Territories if:

                (a)    the scientific and technical resources required to carry out the activities are not accessible in Australia or in the external Territories; and

               (b)    the cost of establishing the required facilities, trained personnel and research databases in Australia or in the external Territories is prohibitive.

6              Matters concerning applications for provisional certificates

         (1)   The matters set out in this section are additional to the requirements for a valid application for a provisional certificate set out in section 39EC of the IRD Act which also provides that the Board may require other information to be provided for such applications.

         (2)   In order to constitute a valid application, the application must state the following:

                (a)    the R&D activities of the total R&D project and the associated expenditure;

               (b)    the overseas R&D activities forming part of the total R&D project and the associated expenditure;

                (c)    that part of the overseas R&D activities and the associated expenditure for which the applicant seeks the provisional certificate.

7              Other matters concerning the R&D Tax Concession

         (1)   The matters set out in this section:

                (a)    relate to general matters of eligibility for the R&D Tax Concession provided for in the IRD Act and in the Tax Act; and

               (b)    are not criteria that the Board must be satisfied of for the purpose of granting an application for a provisional certificate.

         (2)   An eligible company must be able to demonstrate that the R&D activities it proposes to carry on will be undertaken:

                (a)    under the ownership and control of the eligible company; and

               (b)    in accordance with a plan that complies with guidelines in force under section 39KA of the IRD Act.

         (3)   An eligible company must be able to demonstrate that the Australian R&D activities have an adequate Australian content according to guidelines in force under section 39E of the IRD Act.

         (4)   For an R&D activity that is funded by a finance scheme — an eligible company must be able to demonstrate that the scheme is not an ineligible finance scheme according to the finance scheme guidelines in force under section 39EA of the IRD Act.

         (5)   An eligible company must be able to demonstrate that the results of all the R&D activities will be exploited for the benefit of the Australian economy consistent with the requirements of section 39M of the IRD Act.

Note   Unconnected R&D activities are not to be treated as part of a project given that, under the statutory concept of “project”, only those activities that have a sufficient connection with a project can be regarded as part of that project.

8              Further information

                More detailed information can be found in the following:

                (a)    Guide to the R&D Tax Concession 2003;

               (b)    section 73B of the Tax Act;

                (c)    Part IIIA of the IRD Act.