ATO ID 2005/84: Research and Development: Deductions under section 73BA of the ITAA 1936 in relation to an asset acquired or constructed pre-29 January 2001
Date of decision: 28 February 2005
Year of income: Year ended 30 June 2004
Business line: Public Groups and International

Issue
Can deductions be claimed under section 73BA of the Income Tax Assessment Act 1936 (ITAA 1936) in relation to a pre-29 January 2001 plant/depreciating asset?

Decision
Yes. Deductions can be claimed under section 73BA of the ITAA 1936 for a pre-29 January 2001 plant/depreciating asset.

Facts
The company is an 'eligible company', as defined in subsection 73B(1) of the ITAA 1936. The company undertook 'research and development activities' within the meaning of subsection 73B(1) of the ITAA 1936 from the 1999-2000 income year to the 2001-02 income year. The company acquired an item of plant/depreciating asset (the asset) prior to 29 January 2001 for use by the company in carrying on its research and development activities. However, the company did not use the asset exclusively for the purposes of carrying on its 'research and development activities' in the relevant income years.

Reasons for decision
Summary: A deduction for 'qualifying plant expenditure' (as defined by subsection 73B(4) of the ITAA 1936) is available under subsection 73B(15) of the ITAA 1936, where, in the year of income, the company has commenced using, or continues to use, a unit of plant 'exclusively' for the purposes of carrying on 'research and development activities' by, or on behalf of, the company. Subsections 73B(4) and 73B(5) of the ITAA 1936, require actual exclusive use of the plant for the purpose of carrying on research and development activities by or on behalf of the company, in order for the company to have an amount of 'qualifying plant expenditure' in relation to that year of income or any succeeding year of income. Section 73BA of the ITAA 1936 allows a deduction in respect of a 'section 73BA depreciating asset' for a year of income (that is, allows a deduction where an eligible company has a notional Division 40 of the Income Tax Assessment Act 1997 (ITAA 1997) deduction in respect of an asset used, or installed ready for use, for research and development). Section 73BA of the ITAA 1936 applies to assessments for the income year in which 1 July 2001 occurs and for later income years. There is no exclusion of the operation of section 73BA of the ITAA 1936 on the basis of the time of the asset's acquisition or construction. Division 40 of the ITAA 1997 can apply to an asset acquired or constructed prior to 29 January 2001 because of the operation of section 40-10 of the Income Tax (Transitional Provisions) Act 1997 , as amended by the New Business Tax System (Capital Allowances - Transitional and Consequential) Act 2001, which states that Division 40 of the ITAA 1997 will apply to assets acquired or constructed prior to 1 July 2001, where Division 42 of the ITAA 1997 applied in respect of that asset. Therefore, an asset which was acquired or constructed prior to 29 January 2001, but which did not meet the requirements for a deduction under section 73B(15) of the ITAA 1936, because it was not used, or installed ready for use, 'exclusively' for research and development, 'will' be eligible for a deduction under section 73BA of the ITAA 1936, to the extent that it has a base value/adjustable value. The deduction for the decline in value will then be based on the notional Division 40 of the ITAA 1997 deduction. However, subsection 73B(20) and 73BA(7) of the ITAA 1936 and section 8-10 of the ITAA 1997 will prevent a deduction for the same expenditure being allowed under more than one provision. Therefore, expenditure in relation to a pre-29 January 2001 asset may be claimed under section 73BA of the ITAA 1936 to the extent that it has a base/adjustable value (if the requirements of that section are met), even where the expenditure previously qualified for a deduction under subsection 73B(15) of the ITAA 1936.

Legislative references: Income Tax Assessment Act 1936 subsection 73B(15) subsection 73B(20) subsection 73B(21) subsection 73B(4) subsection 73B(5) subsection 73B(1) section 73BA
Related ATO interpretative decisions: ATO ID 2005/85
Subject references: Depreciating assets Research and development plant