Private ruling: Grants, assessability and derivation
Date of advice: 26 April 2016
Published: June 2016
Ruling period: 1 January 2014 to 31 December 2014

Ruling: Q1: Is an amount paid in accordance with the Commonwealth's obligations to Company E under the Research Program A Agreement (Research Program A) assessable as ordinary income of Company E under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) in the income year ending 31 December 20XX? | A1: No. | Q2: Are the milestone payments paid in accordance with the Research Program B Agreement (Program B Agreement), assessable as ordinary income of Company E under section 6-5 of the ITAA 1997 in the income year ending 31 December 20XX? | A2: Yes. | Q3: Are the Progress Report payments paid in accordance with the terms of the Research Program C Agreement (Program C Agreement), assessable as ordinary income of Company E under section 6-5 of the ITAA 1997 in the income year ending 31 December 20XX? | A3: No.



Reasons for decision: Summary: The ruling considered whether or not amounts paid by the Commonwealth to Company E in accordance with three specific research program agreements were assessable as ordinary income of Company E under section 6-5 of the ITAA 1997. Further, given the structure of the individual research program agreements, in particular the various contractual conditions embodied in each individual research program agreement, the ruling considered whether the funding provided thereunder was conditional in nature, and to what extent it should be recognised in the income year ending 31 December 20XX. The Commissioner of Taxation ruled that the various payments received by Company E under all three research program agreements were assessable as ordinary income of Company E. The Commissioner of Taxation also ruled that the payments received from the Commonwealth by Company E were contingent upon Company E satisfying the various contractual conditions within each particular research program agreement and as such were conditional in nature. Due to the individual nature of each particular research program agreement, the Commissioner of Taxation ruled that some payments received by Company E were assessable in income years prior to 31 December 20XX, some in the income year ending 31 December 20XX and some after that income year.