Commonwealth of Australia Explanatory Memoranda

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TAX LAWS AMENDMENT (RESEARCH AND DEVELOPMENT) BILL 2010

                               2008-2009-2010





               THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA











                                   SENATE











           Tax Laws Amendment (Research and Development) Bill 2010














                    SUPPLEMENTARY EXPLANATORY MEMORANDUM








             Amendments to be moved on behalf of the Government








                     (Circulated by the authority of the
                      Treasurer, the Hon Wayne Swan MP)



Table of contents


General outline and financial impact    5


Chapter 1    Amendments 1 and 2   7








General outline and financial impact

Amendments 1 and 2


         The Government proposes two related amendments to Schedule 1 to the
         Tax Laws Amendment (Research and Development) Bill 2010.  The
         amendments clarify that the new research and development tax offset
         can extend to experimental activities for the purpose of generating
         knowledge in the applied form of new or improved materials,
         products, devices, processes or services.


         The amendments give effect to recommendations 1 and 2 of the Senate
         Economics Legislation Committee's report Tax Laws Amendment
         (Research and Development) Bill 2010 [Provisions] and Income Tax
         Rates (Research and Development) Bill 2010 [Provisions] of
         15 June 2010.


         Proposal announced:  The amendments have not previously been
         announced.


         Financial impact:  Nil


         Compliance cost impact:  Nil



Chapter 1
Amendments 1 and 2

      1. The Government proposes two related amendments to Schedule 1 to the
         Tax Laws Amendment (Research and Development) Bill 2010 to
         implement recommendations 1 and 2 of the Senate Economics
         Legislation Committee's report Tax Laws Amendment (Research and
         Development) Bill 2010 [Provisions] and Income Tax Rates (Research
         and Development) Bill 2010 [Provisions] of 15 June 2010.


Amendment 1 - clarification of objects clause


      2. Amendment 1 is to subsection 355-5(2) of the Income Tax Assessment
         Act 1997, which explains that the new R&D incentive is the means by
         which the policy object set out in subsection 355-5(1) is to be
         realised.


      3. This amendment includes additional words to confirm that the
         incentive can extend to experimental activities for the purpose of
         generating knowledge in the applied form of new or improved
         materials, products, devices, processes or services.


Amendment 2 - clarification of scope of core R&D activities


      4. Amendment 2 clarifies that the creation of new or improved
         materials, products, devices, processes or services is not
         precluded from being a core R&D activity.


      5. 'Core R&D activities' extend to experimental activities for the
         purpose of generating knowledge in the practical form of knowledge
         or information about creating new or improved materials, products,
         devices, processes or services.  Where experimental activities
         occur in the context of normal production activities, the
         experiments may entail the direct production or use of an actual
         material, product, device, process or service.  'Factory floor' R&D
         often takes the form of experimental development, drawing on
         existing knowledge gained from research and/or practical
         experience, which is directed to producing new materials, products
         or devices.