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ATO ID 2013/11 Income Tax Research and Development – tax incentive – combination of exempt entities

August 19th, 2014

Will Item 2 of the table in subsection 355-100(1) of the Income Tax Assessment Act 1997 (ITAA 1997) apply to a company when two or more exempt entities who are not affiliates, together beneficially own interests in the company carrying more than 50% of the voting rights or rights to a distribution of income or capital?

Yes. Item 2 of the table in subsection 355-100(1) of the ITAA 1997 will apply to the company where two or more exempt entities, irrespective of their relationship, beneficially own interests in the company carrying more than 50% of the voting rights or rights to a distribution of income or capital.

The shareholders of the company include a number of tax exempt entities.

Individually, no single tax exempt entity holds more than a 50% shareholding.

Together, the total shareholdings of the tax exempt entities exceed 50%.

The shares carry with them voting rights and rights to distributions of income or capital.

The company incurs research and development expenditure during the income year and claims the tax offset under section 355-100 of the ITAA 1997.

Generally, where an R&D entity has engaged in registered R&D activities, subsection 355-100(1) of the ITAA 1997 allows the entity to claim an R&D tax offset at one of two specified rates. Which rate is applicable depends on certain circumstances as detailed in the table in subsection 355-100(1).

Click here for the full ATO Interpretative Decision.

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