2008-2009-2010

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

SENATE

SUPPLEMENTARY EXPLANATORY MEMORANDUM

Amendments to be moved on behalf of the Government

(Circulated by the authority of the

Treasurer, the Hon Wayne Swan MP)

General outline and financial impact............................................................ 5

Chapter 1            Amendments 1 and 2......................................................... 7

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

1.1                   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

1.2                   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.

1.3                   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

1.4                   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. 

1.5                   ‘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.