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INCOME TAX (TRANSITIONAL PROVISIONS) ACT 1997 - SECT 355.325

Balancing adjustment--R&D partnership assets only used for R&D activities

Partner has old law R&D decline in value deductions

             (1)  This section applies to an R&D entity (the partner ) 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 an R&D partnership; and

                     (b)  the R&D partnership cannot deduct an amount under section 40-25, as that section applies apart from:

                              (i)  Division 355 of the Income Tax Assessment Act 1997 (the new 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 partner 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 partner 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 partner 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 partnership 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 partnership'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 partner 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 355-520 of that Act for the asset.

Note 2:       Section 40-293 of this Act may apply if paragraph (c), but not paragraph (b), of this subsection is satisfied.

Changed application of Division 40

             (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

3

R&D entity

R&D partnership

Notional deduction

             (3)  If the R&D partnership 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 partner is taken to be able to deduct under subsection 355-525(2) of the new Act the partner's proportion of that amount for the event year.

Note:          The partner 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

             (4)  If an amount (the section 40-285 amount ) would be included in the R&D partnership'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)  the partner's proportion of that amount; and

                     (b)  the following amount;

is taken to be included in the partner's assessable income for the event year under subsection 355-525(3) of the new Act:

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 partner'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).

Amount to be included in assessable income may be reduced if notional deductions exceeded $100 million

          (4A)  For the purposes of subsection (4), the partner may choose to reduce the adjusted section 40-285 amount in that subsection if:

                     (a)  subsection 355-100(3) of the Income Tax Assessment Act 1997 applied to the partner for an earlier income year or the event year (the excess year ); and

                     (b)  the partner's deductions for the excess year included deductions covered by paragraph (1)(c) of this section for the asset.

          (4B)  Subsection 355-720(3) of the Income Tax Assessment Act 1997 applies to the partner as if a reduction under subsection (2) of that section for the present year included a reduction under subsection (4A) of this section for the event year.

          (4C)  The way the partner prepares its income tax returns is sufficient evidence of the making of a choice under subsection (4A).

          (4D)  A choice under subsection (4A) is irrevocable.

Normal rules do not apply for the asset and the event

             (5)  Neither of the following sections:

                     (a)  section 355-525 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 partner for the event, do so apply to the partner for the event.

Note 1:       Section 355-525 of the new Act would otherwise apply for the event in a case where the partner had new law deductions.

Note 2:       Former section 73BF of the old Act may otherwise apply for the event in respect of the old law deductions.



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