Document ID: chunk:federal_register_of_legislation:C2025C00029:section:2:p5
Version: federal_register_of_legislation:C2025C00029
Segment Type: section
Provision Reference: s 2 (pt 5/7)
Character Range: 5176289–5179008

income year;
 (c) when the R&D activity is conducted:
 (i) each foreign resident is *connected with the R&D entity; or
 (ii) for each foreign resident—either the foreign resident is an *affiliate of the R&D entity or the R&D entity is an affiliate of the foreign resident;
 (d) the R&D activity is conducted:
 (i) in accordance with a written agreement binding on only the R&D entity and each foreign resident; and
 (ii) either directly by the R&D entity, or indirectly by another entity under an agreement binding on the R&D entity;
 (e) the R&D activity is not conducted in connection with an agreement covered by subsection (2).
Note: An example of conducting an R&D activity indirectly under a contract is conducting the R&D activity under a subcontract, or one of a chain of subcontracts, under the contract.
 (2) An agreement is covered by this subsection if:
 (a) the agreement is binding on the R&D entity (the first entity) and an R&D entity that:
 (i) is *connected with the first entity; or
 (ii) has the first entity as an *affiliate, or is an affiliate of the first entity;
  while the *R&D activity is conducted; and
 (b) the R&D activity is to be conducted under the agreement by the first entity or by an entity:
 (i) who is not bound by the agreement; and
 (ii) who is to conduct the R&D activity directly or indirectly under another agreement to which the first entity is, or will become, bound.
Note: One effect of this subsection is that, even if the R&D entity has an agreement with the foreign resident for conducting the R&D activity, the R&D entity cannot deduct expenditure incurred:
(a) for conducting the R&D activity as a subcontractor under a subcontract with an affiliated R&D entity; or
(b) if the R&D entity is a subcontractor to an affiliated R&D entity—for further subcontracting the conducting of the R&D activity.

355‑225  Expenditure that cannot be notionally deducted

Expenditure on buildings, certain assets and interest
 (1) Sections 355‑205 (deductions for R&D expenditure) and 355‑480 (deductions for earlier year associate R&D expenditure) do not apply to the following expenditure:
 (a) expenditure incurred to acquire or construct:
 (i) a building or a part of a building; or
 (ii) an extension, alteration or improvement to a building;
 (b) expenditure included in the *cost of a tangible *depreciating asset for the purposes of Division 40 (as that Division applies as described in section 355‑310 or otherwise);
 (c) expenditure incurred for interest (within the meaning of Division 11A of Part III of the Income Tax Assessment Act 1936) payable to an entity.
Note 1: Expenditure covered by paragraph (a) may be deductible under Division 43 (capital works).
Note 2: The