This Ruling, released Wed 20.2.2012, considers certain aspects of the feedstock adjustment provisions in Subdiv 355-H of the ITAA 1997. Subdiv 355-H reduces the concessional effect of granting R&D tax offsets where the registered R&D activities also involve the production of a tangible product by including an amount in the assessable income of the entity. This is referred to as the “feedstock adjustment”.
The Ruling applies to R&D entities (as defined in s 355-35) conducting registered R&D activities (under ss 355-20, 355-25 and 355-30) that became entitled to a tax offset under s 355-100. Specifically, the Ruling considers the following in detail:
- the application of the expression “expenditure…in acquiring or producing goods, or materials” in para 355-465(1)(a);
- the meaning of the expression “transformed feedstock output” in para 355-465(1)(c);
- the meaning of “applied…to the R&D entity’s own use” and of “other than use for the purpose of transforming that product for supply” in s 355-465(1)(c)(ii);
- determining which of the 2 amounts referred to in s 355-465(2) is the “lesser” amount;
- when an allocation method will show the extent to which certain amounts are “reasonably attributable to the production of the feedstock output”, for the purposes of para 355-465(2)(b);
- when a single calculation might be done under s 355-465(2) of the lesser amount, for a number of feedstock outputs; and
- the meaning of the expression “cost of producing” in s 355-470 for calculating “feedstock revenue”.
The Ruling was previously issued as Draft Taxation Ruling TR 2012/D6 and is largely the same. Among other things, it includes a new definition for feedstock input expenditure, and an extra example on multistage production processes and supply to an associated company.
DATE OF EFFECT: Applies to years of income commencing both before and after its date of issue.
[LTN 34, 20/2/13]