Commonwealth Consolidated Acts

INCOME TAX ASSESSMENT ACT 1997 - SECT 355.220

  (1)   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).

Note:   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.

  (2)   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.

Note:   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.