Private ruling: Incurred
Date of advice: 26 February 2026
Published: 20 April 2026
Ruling period: Income year ended 30 June 20xx | Income year ended 30 June 20xx | Income year ended 30 June 20xx
Date scheme commenced: XX XX 20xx

Ruling: Q1: Has ACo incurred expenditure for the purposes of section 355-205 of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to the project? | A1: No


Relevant legislative provisions: ITAA 1997 section 355-205 | ITAA 1997 section 701-1

Reasons for decision: Summary: ACo has not incurred expenditure for the purposes of section 355-205 in relation to the project under the Draft Project Loan Agreement. | Detailed Reasoning - Detailed reasoning: Section 355-205 states: (1) An R&D entity can deduct for an income year (the present year ) expenditure it incurs during that year to the extent that the expenditure: (a) is incurred on one or more *R&D activities: (i) for which the R&D entity is registered under section 27A of the Industry Research and Development Act 1986 for an income year; and (ii) that are activities to which section 355-210 (conditions for R&D activities) applies; and (b) if the expenditure is incurred to the R&D entity's *associate - is paid to that associate during the present year. (2) This section has effect subject to section 355-225 (excluded expenditure), Subdivision 355-F (integrity rules) and subsection 355-580(3) (CRC) contributions. There is no statutory definition of the term 'incurred'. However, the meaning of the word 'incurred' has been considered by the courts in the context of section 8-1 and the now repealed subsection 73B(14) of the Income Assessment Act 1936 (ITAA 1936), the predecessor to section 355-205. Taxation Ruling TR 97/7 Income Tax: section 8-1 - meaning of incurred- timing of deductions (TR 97/7) sets out the Commissioner's view of the meaning of the term 'incurred' with respect to section 8-1. Broadly, an outgoing is incurred at the time a taxpayer owes a present money debt that they cannot escape. The relevant authorities are set out in paragraphs 16 - 20 and reproduced below: 16. A loss or outgoing may be incurred for the purposes of section 8-1 even though no money has actually been paid out. In W Nevill & Company Ltd v. FC of T (1937) 56 CLR 290 at 302 it was said: 'the word used is 'incurred' and not 'made' or 'paid'. The language lends colour to the suggestion that, if a liability to pay money as an outgoing comes into existence, [the section is satisfied] even though the liability has not been actually discharged at the relevant time... it is only the incurring of the outgoing that must be actual; the section does not say in terms that there must be an actual outgoing - a payment out.' (See also New Zealand Flax Investments Ltd v. FC of T (1938) 61 CLR 179 at 207 (New Zealand Flax); FC of T v. James Flood Pty Ltd (1953) 88 CLR 492 at 506 (James Flood); Nilsen Development Laboratories Pty Ltd & Ors v. FC of T (1981) 144 CLR 616 at 624 (Nilsen Development Laboratories); FC of T v. Firstenberg 76 ATC 4141 at 4148; (1976) 6 ATR 297 at 305.) 17. This proposition was recently confirmed by the High Court in FC of T v. Energy Resources of Australia Limited 96 ATC 4536 ; (1996) 33 ATR 52 (Energy Resources) when, quoting from James Flood, it said (ATC at 4539; ATR at 56): 'Section 51(1) [of the Income Tax Assessment Act 1936] "has been interpreted to cover outgoings to which the taxpayer is definitively committed in the year of income although there has been no actual disbursement".' 18. The liability must be 'more than impending, threatened or expected' - refer New Zealand Flax (CLR at 207). '[W]hat is clearly necessary is that there should be a presently existing liability' - Nilsen Development Laboratories (CLR at 624). It is not a presently existing liability if it is contingent - refer James Flood (CLR at 506); Nilsen Development Laboratories (CLR at 624); Marbren Pty Ltd v. FC of T 84 ATC 4783 at 4788-4789; (1984) 15 ATR 1145 at 1152. | Detailed Reasoning - Defeasible: 19. A taxpayer can be completely subjected to a liability even though it is defeasible by others - refer Commonwealth Aluminium Corporation Ltd (77 ATC 4151 at 4161; (1977) 7 ATR 376 at 386). 20. But, it is to be emphasised that the taxpayer must be definitively committed to the outgoing, even though it may be defeasible. A taxpayer who takes goods on approval for example could not be said to be definitively committed to their purchase. Further guidance on the meaning of the word 'incurred' in the context of section 8-1 is set out in Taxation Ruling TR 94/26 Income tax: subsection 51(1) - meaning of incurred - implications of the High Court decision in Coles Myer Finance (TR 94/26): 6. Whether there is a presently existing pecuniary liability is a question which must be determined in light of the particular facts of each case, and especially by reference to the terms of the contract or arrangement under which the liability is said to arise ( Nilsen Development Laboratories; James Flood (1953) 88 CLR 492; Ogilvy and Mather Pty Ltd v. FC of T 90 ATC 4836; 21 ATR 841; and FC of T v. Woolcombers (WA) Pty Ltd 93 ATC 5170). This may require a careful analysis of such things as contracts ( Ogilvy and Mather Pty Ltd v FC of T 90 ATC 4836; 21 ATR 841; and Woolcombers ), industrial awards ( Nilsen Development Laboratories; James Flood ) or particular statutes. In Commissioner of Taxation v Desalination Technology Pty Ltd [2015] FCAFC 96 ( Desalination ), the Full Federal Court held that no obligation was incurred where the liability was infected by contingencies, such as those attaching to the terms of certain contractual funding arrangements between the parties. Even if an obligation arose, it was so contingent that the taxpayer could not be said to be definitively committed to it. Accordingly, the expenditure was not incurred for the purposes of the now repealed subsection 73B(14) of ITAA 1936. | Detailed Reasoning - JVA and Draft Project Loan Agreement: As it is the intention of the parties that ACo's share of the joint venture expenditure is to be funded by way of a project loan, its obligations with respect to the payment of relevant expenditure under the JVA are considered to arise under the terms of the project loan arrangement, rather than the JVA. To govern the project loan arrangement, the parties have drafted the Draft Project Loan Agreement. This agreement has not been executed and the parties do not intend to execute this agreement until a final investment decision with respect to the project is imminent. Although the Draft Project Loan Agreement is not executed, LoanCo has funded development activities under this agreement, attributing to ACo expenditure that reflects ACo's share of the costs of these development activities. This expenditure constitutes outstanding moneys under the Draft Project Loan Agreement, being all debts and liabilities of ACo under this agreement, including repayable principal amounts. To date, no invoices or billing statements have been issued to ACo, nor have any amounts relating to the outstanding moneys been paid by ACo. However, an amount may still be 'incurred' even though no amount of money has been paid. In determining whether ACo has incurred the relevant expenditure it is necessary to consider the terms of the Draft Project Loan Agreement that govern ACo's repayment obligations. ACo's obligations to repay the outstanding moneys, on both a quarterly basis and on the final repayment date, are affected by a number of contingencies. The quarterly repayment of the outstanding moneys is contingent on there being funds standing to the credit of the Proceeds Account after satisfying prior-ranking obligations. In the absence of such funds, ACo is under no obligation to make a repayment. The liability is not a presently existing obligation, and ACo cannot be said to be definitively committed or completely subjected to the outgoing. ACo's obligation to make full and final repayment of the outstanding moneys is subject to the commencement of production from the project. As such, the obligation is infected by contingencies and lacks sufficient certainty to be regarded as a presently existing liability. The contingencies attached to the repayment of outstanding moneys do not merely impact the timing of an otherwise certain obligation to repay the amounts; they go to the existence of the obligation itself. ACo is not definitively committed to the expenditure, and there is no presently existing liability to pay. Accordingly, ACo has not incurred the relevant expenditure attributed to it under the Draft Project Loan Agreement for the purposes of section 355-205 of the ITAA 1997.

ACo is an Australian incorporated and resident company and head company of an income tax consolidated group (ACo TCG). | Subsidiary members of the ACo TCG include the following entities: | ACo's ultimate parent entity is ParentCo. | LoanCo is an Australian incorporated and resident company and is the head company of a tax consolidated group (LoanCo TCG). | XCo is a wholly owned subsidiary of LoanCo and is a member of the LoanCo TCG. | The project is located in a region of Australia, where mineralisation has developed. | BCo, CCo, DCo and other parties (the Joint Venturers) entered into a joint venture agreement which was varied on a number of occasions (JVA). | Pursuant to the recitals to the JVA: | • BCo was the sole registered holder of a lease and other mining rights. | • CCo was the sole registered holder of a mining right. | • BCo, CCo, DCo and XCo agreed that the XCo may farm-in to acquire a 50% interest in the lease, the BCo mining rights and the CCo mining right (together, the Tenements) by satisfying a farm-in obligation. | • The farm-in obligation required XCo to incur expenditure of $x on exploration or developments of the Tenements and complete various activities to evaluate the economic feasibility of mining minerals on the Tenements. | On XX XX XX, ACo announced that the farm-in obligation had been satisfied and as a result, the joint venture had been formed and an interest in the project was transferred to XCo. | The objects of the JVA were to undertake joint venture activities in relation to the joint venture area, which included the project. The joint venture activities included the maintenance of the Tenements, exploration of the joint venture area for minerals and the development and operation of a mine. | Under the JVA, each of the Joint Venturers are liable for a share of joint venture expenditure, being costs incurred in relation to the joint venture activities, commensurate with their percentage share of ownership. | However, under the JVA, following the establishment of the joint venture, LoanCo agreed to provide the joint venture with funding by way of a project loan for the development of the project (Project Loan).LoanCo agreed to provide the joint venture with a maximum of $x for the development of the project. | It is the intention of the parties that BCo's share of the joint venture expenditure is to be funded by way of this Project Loan. | In XX 20xx, LoanCo, BCo and ParentCo drafted the Draft Project Loan Agreement with the intention of giving effect to the terms of the JVA. | The Draft Project Loan Agreement is to date unexecuted and the parties do not anticipate executing the agreement until a final investment decision with respect to the project is imminent. | Although unexecuted, LoanCo has funded development activities under this agreement, attributing to BCo expenditure that reflects BCo's share of the costs of these development activities.The expenditure is detailed as follows: | • total expenditure of $x on core and supporting activities during the year ended 30 June 20xx | This expenditure constitutes outstanding moneys under the Draft Project Loan Agreement, being all debts and liabilities related to the core and supporting R&D activities of BCo under the Draft Project Loan Agreement, including repayable principal amounts. | The Draft Project Loan Agreement provides that BCo must repay the outstanding moneys in full no later than 11:59pm on the earlier of: | • the final repayment date, being the date that is x years from commencement of production from the project, subject to extensions of time relating to periods where mining is suspended as a result of force majeure | • the termination of the agreement upon the earlier of the loan being repaid in full or an election by LoanCo following a default event. | The Draft Project Loan Agreement provides that BCo must ensure that all revenue and other relevant payments are received, collected and paid directly into an account a proceeds account. On a quarterly basis, payments to satisfy all or part of the outstanding moneys are to be made from amounts standing to the credit of the proceeds account. | Pursuant to the Draft Project Loan Agreement, payments from the proceeds account are to be made in the following order of priority: | • in a specified order of priority, amounts in respect to costs and operating requirements | • then, to LoanCo, amounts to pay accrued interest on the principle outstanding, until all such amounts have been paid in full | • lastly, to LoanCo, repayment of the balance of the outstanding moneys, until all such amounts have been paid in full. | Where there is no amount standing to the credit of the proceeds account available to apply in payment or repayment of any of the outstanding moneys, the Draft Project Loan Agreement provides that BCo is not obliged to make any payment of outstanding moneys, whether interest or principal, on the relevant payment date for the relevant quarter. | The Draft Project Loan Agreement further states that BCo must repay the outstanding moneys to LoanCo at any time on demand, following the occurrence of a default event. | To date, no outstanding moneys have been repaid by BCo. | For the years ended 30 June 20xx to 20xx, BCo and DCo's financial obligations arising under the Draft Project Loan Agreement in relation to their share of the joint operation expenditure are disclosed as 'Other payables' in their respective financial statements, presented as a non-current liability (year ended 30 June 20xx) and a current liability (for the years ended 30 June 20xx and 20xx) payable to LoanCo. | Other matters: This Ruling is confined to consideration of whether the relevant expenditure has been 'incurred' by ACo for the purposes of section 355 205. We have not considered the eligibility of any activities under Division 355, nor the application of any other provision or requirement under Division 355. | Does IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website ato.gov.au/gaar . | Reasons for decision: Legislative references in the following are to provisions of the Income Tax Assessment Act 1997 (ITAA 1997), unless otherwise indicated. | The consolidation provisions in Part 3-90 allow certain groups of entities to be treated as a single entity for income tax purposes. Under the single entity rule (SER) in section 701-1 the subsidiary members of an income tax consolidated group are taken to be parts of the head company. As a consequence, the subsidiary members cease to be recognised as separate entities during the period that they are members of the income tax consolidated group with the head company of the group being the only entity recognised for income tax purposes. | The meaning and application of the SER is explained in Taxation Ruling TR 2004/11 Income tax: consolidation: the meaning and application of the single entity rule in Part 3-90 of the Income Tax Assessment Act 1997 . | As a consequence of the SER, the actions and transactions of the members of the ACo TCG are treated, for income tax purposes, as having been undertaken by ACo as the head company of the tax consolidated group. | This means that references to ACo in the reasoning below are effectively regarding the ACo TCG. | Question 1: Has ACo incurred expenditure for the purposes of section 355-205 in relation to the project?