Private ruling: R&D tax offset
Date of advice: 21 January 2026
Published: 16 March 2026
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are the research and development (R&D) activities conducted by the company from X, pursuant to the Contract Research Agreement (CRA) conducted for the company and not to a significant extent for another entity for the purposes of section 355-210 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: During the 20XX-XX financial year, you incurred expenditure on research and development (R&D) activities. All relevant R&D activities were registered with the Department of Industry, Science and Resources (DISR) pursuant to section 27A of the Industry Research and Development Act 1986 (IRDA). A substantial proportion of the registered R&D activities were conducted pursuant to a Contract Research Agreement (CRA) between you and another entity. A copy of the CRA has been provided. A Deed of Variation was executed on X to remove competing clauses from the original CRA. Given the ambiguity in and incongruity between various provisions of the CRA, written clarification was sought from the other entity. You are also a party to a Patent Licence Agreement (PLA) with another entity. A copy of the PLA has been provided.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 355-210

Reasons for decision: Summary: The Commissioner accepts that from Xthe R&D activities conducted were not to a significant extent for another entity for the purposes of section 355-210 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Section 355-210 of the ITAA 1997 provides the conditions for activities to be recognised as R&D activities. In subsection 355-210(1) of the ITAA 1997, it includes: (1) An R&D activity covered by one or more of the following paragraphs is an activity to which this section applies: a) the R&D activity is conducted for the R&D entity solely within Australia; ... b) the R&D activity is: i. conducted for the R&D entity solely outside Australia; and ii. covered by a finding in force under paragraph 28C(1)(a) of the Industry Research and Development Act 1986 ; c) the R&D activity consists of several parts, with: i. some parts being conducted for the R&D entity solely within Australia; and ii. the other parts being conducted for the R&D entity outside Australia while covered by a finding in force under paragraph 28C(1)(a) of the Industry Research and Development Act 1986 . Subsection 355-210(2) of the ITAA 1997 provides an exclusion to section 355-210 of the ITAA 1997. It states: (2) However, an R&D activity is not an activity to which this section applies if the activity is conducted, to a significant extent, for one or more other entities not covered by any paragraph of subsection (1). In explaining when expenditure on R&D will give rise to a notional deduction, paragraphs 3.52 to 3.55 of the Explanatory Memorandum to the Tax Laws Amendment (Research and Development) Bill 2010 (the EM) explain: 3.53 This retains a key rule from the existing law commonly known as the 'on own behalf' rule. This rule is intended to limit eligibility for a notional R&D deduction to where an R&D entity is the major benefactor from the expenditure it incurs on the R&D activities. In certain situations, the rule also prevents duplication of claims by different R&D entities. [Schedule 1, item 1, section 355-210] 3.54 Determining the major benefactor of expenditure on R&D activities involves examining the extent to which R&D activities are carried out for the R&D entity compared to the extent to which they are carried out for any other entity. This is tested by weighing up three key criteria, namely who: • 'effectively owns' the know-how, intellectual property or other similar results arising from the R&D entity's expenditure on the R&D activities; • has appropriate control over the conduct of the R&D activities; and • bears the financial burden of carrying out the R&D activities. In short, the question of whether an R&D activity is conducted for an R&D entity is a question of fact, determined by whether the activity is conducted in substance to provide the majority of knowledge benefits resulting from the activity, such as access to intellectual property, to this entity. 3.55 Whether an R&D entity has effective ownership involves reviewing all the circumstances surrounding the conduct of the relevant activities and the ownership and control of, and/or ability to utilise, the intellectual property or similar results obtained from the expenditure on the R&D activities. These three key criteria in paragraph 3.54 of the EM apply to the conditions in section 355-210. The first condition concerns whether, in a positive sense, the R&D activities in question have been conducted 'for' the R&D entity (paragraph 355-210(1)(a)). The second condition concerns whether, in a negative sense, those R&D activities have been conducted 'to a significant extent', 'for one or more other entities not covered by any paragraph of subsection (1)' (subsection 355-210(2)). Applying these key criteria from the EM to a particular case requires weighing them up against the relevant facts and circumstances of that case. | Detailed Reasoning - Application to your circumstances: You entered the CRA with another entity to support ongoing research and development of therapeutics to treat rare conditions. Under section 355-210 of the ITAA 1997, eligible R&D activities must be conducted for the R&D entity solely within Australia, or if conducted partly or solely overseas, must be covered by a finding in force under paragraph 28C(1)(a) of the IRDA 1986. Further to this, under subsection 355-210(2) of the ITAA 1997, an eligible R&D activity conducted for an R&D entity cannot be conducted, to a significant extent, for one or more other entities. From X to end of the relevant income year, you were conducting R&D activities as defined by section 355-20 of the ITAA 1997. The R&D activities that you were conducting subject to the CRA with another entity are conducted in Australia. From X, the agreement between yourself and another entity set out that: • You exclusively benefit from the results of the R&D activities • You retain full control over the conduct of these activities. This includes the authority to choose the R&D projects, make major changes in direction, discontinue unproductive lines of research, decide whether to follow up on unexpected results, and ultimately, the power to terminate a project. • Another entity retains ownership of Background IP (BIP) and the other entity patents, which are licensed to you for use. Under paragraphs 3.52 to 3.55 of the EM, in determining the major benefactor of expenditure on R&D activities, the following criteria are examined: • who 'effectively owns' the know-how, intellectual property or other similar results arising from the R&D entity's expenditure on the R&D activities; • who has appropriate control over the conduct of the R&D activities; and • who bears the financial burden on carrying out the R&D activities. In this case, you effectively own the know-how, intellectual property or other similar results arising from your expenditure on R&D activities. Under the CRA, you have appropriate control over the conduct of the R&D activities. Further, the financial burden in connection with R&D activities is born by you. Therefore, it is accepted that from Xthe R&D activities conducted were not to a significant extent for another entity for the purposes of section 355-210 of the ITAA 1997.