Impact of Tax Incentives on R&D

This assignment analyzes the influence of taxation ruling 92/2 on listed companies in Australia. It examines how tax incentives encourage investment in research and development (R&D), leading to improved business functionalities, enhanced operational efficiency, and ultimately, stronger financial performance. The analysis also highlights the importance of compliance with income tax provisions and maintaining accurate books of accounts for claiming tax benefits.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

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Scientific Research and development activities get the tax incentives:
Introduction:
The activities of research and development provides the listed with the opportunity of
availing tax incentives and simultaneously encourages the companies in indulging in the
activities of research and development. According to the Australian taxation office listed
companies that executes the activities of scientific research and development is entitled of
receiving tax incentives1. For listed companies the activities of research and development has
two core constituents. The first constituent is related with the obtaining the tax incentives
relating to some kind of eligible entities that have annual turnover over more than $20 million
whereas the second constituents is related with the non-refundable tax offsets for the
companies that are eligible for obtaining tax incentives.
A noteworthy factor concerning the research and development is that it enables the
listed companies in obtaining the tax offset for that are conducting the eligible research and
development by reducing the tax liabilities of the firm2. The tax offset usually ranges from
38.5% to 43.5% which is obtainable in respect of the cost occurred by the companies on the
activities depending upon the annual turnover of the firm.
1 Snape, John, and Jeremy De Souza. Environmental taxation law: policy, contexts and
practice. Routledge, 2016.
2 Cao, Liangyue, et al. "Understanding the economy-wide efficiency and incidence of major
Australian taxes." Treasury WP 1 (2015).

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Discussion:
According to the “Taxation Ruling of TR 92/2”, a business under section 73A of the
act is entitled to claim allowable deductions for the scientific research and development
performed by the entity3. The “Taxation Ruling of 92/2” lay down the description in respect
of the forms of expenses that is occurred by the listed companies in performing the research
and development scientific in nature would be regarded as an allowable deductions under
section “73A (1) of the ITAA 1936”. It is worth mentioning that the deductions for tax
purpose would be only considered allowable for the listed companies under the subsection
73A (1) and the expenditure cannot be considered as allowable under any other section.
For listed companies an allowable deductions can be claimed if the expenses is
occurred on carrying out the scientific research and development and the payment is made to
the approve research institute. In other words allowable deductions relating to tax can be
considered allowable in subsection 73A (1) if the payments is made to the approved research
institute that have the objective of undertaking the scientific research related to the categories
of tax payer business4. For listed companies allowable deductions would be considered
allowable given the expenses is occurred by the taxpayer for its business is possessing capital
nature and is entirely occurred in conducting the research that is related to the taxpayers
business. A noteworthy considered is stated under the “Taxation ruling of TR 92/2” no form
of permissible deductions would be considered under the subsection 73A (1) if it is made to
the bodies that are not approved under the act.
3 Blackstone, William and Thomas McIntyre Cooley, Commentaries On The Laws Of
England(Callaghan and Cockcroft, 2014)
4 Coleman, Cynthia and Kerrie Sadiq, Principles Of Taxation Law 2013

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The enactment of the section 73A has enabled the taxpayer with the amenities of
claiming the allowable tax deductions relating to the expenses occurred on the scientific
research and development5. Simultaneously this could not have been possible or else been
considered as an allowable deduction under section provision of “section 51” of the ITAA
1936. The provision of the act evidently puts forward by stating that a listed company or
business would not be able claim the allowable deductions given it has met the necessary
criteria of section 73A.
As stated under the “Section 73A (1) of the taxation ruling of TR 92/2”, there are
namely two types of payment, which are considered as the permissible deductions for listed
business. Income tax deductions can be claimed by listed organizations that are performing
the business of generating the assessable income6. One important factor in this regard is that
taxpayers generating the assessable income but not executing the business functions will be
barred from claiming allowable deductions. The payments must be made to the institute that
are approved by the Australian taxation office. According to the “taxation ruling of TR 922
under subparagraph 73A (1) (a)(i)” payments that is made by the listed companies with the
objective of performing scientific research and development relating to the taxpayers own
business would be regarded as the permissible deductions7.
Payments that is made to the research institute having the purpose of taking the
scientific research and development relating to the listed companies shall be treated as the
5 Cruz, Ana et al, Fundamentals Of Taxation 2014
6 Gilders, F. M et al, Understanding Taxation Law 2014
7 Hoffman, William H et al, South-Western Federal Taxation 2014 (Cengage Learning, 2012)

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permissible deductions under the “subparagraph 73A (1) (a)(ii)”. The payments are
generally in the form charges related to the trade relation of the listed companies that is
approved institute or the payments made in relation to the exchange of specific advantage that
is available to the listed companies.
“Paragraph 73A (1) (b) of the Taxation ruling 92/2” is associated to the expenses
that is associated to the business. According to the Australian taxation office “Paragraph
73A (1)” takes into the account the scientific research that are of in-house nature and does not
extends to the payments made in contractual form to the non-approved research institutes
with the objective of conducting scientific research8. As stated under the statutory
interpretation the common law of doctrines signifies the interpretation of the statute, which is
not vibrant, and the individual taxpayer is necessarily required to consider the words
surrounding the provision and ignoring the considerations relating to the provision of
isolation. The judgement cited in the case of “Federated Engine Drivers and Firemen’s
Association of Australia v The Broken Hill Proprietary Co Ltd (1911)” where the federal
court have passed their verdict by stating that the appropriate considerations must be paid in
ascertaining the reason of the act.
Taking into the account the explanatory memorandum “subsection 73A (7)” is
applicable to the listed companies under circumstances where the sum that is paid to the
institutions in carrying out the scientific research before those units are once approved as the
research institute9. Therefore, an allowable deduction would be available to the listed
8 Kenny, Paul, Australian Tax 2013 (LexisNexis Butterworths, 2013)
9 Kemmeren, Eric, Tax Treaty Case Law Around The Globe, 2014

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companies if the activities are approved as the scientific research and development carried
out for business purpose in generating the taxable income.
At time of carrying out the business, transactions if the companies that are listed
reports expenses that are associated with the scientific research and development in
generating the taxable income relating to the business would be considered as the permissible
deductions10. The forms of research and development expenses associated for the scientific
purpose is classified under the taxation ruling of TR 921/2 with the objective of ascertaining
the income tax effects on the assessable earnings of the firm. The classification of
expenditure is listed below;
a. Expenses that are reported by the listed firms in respect of the payment that is made to
the ratified scientific institute conducting research.
b. Expenses in the nature of capital reported by the listed firms that are incurred in
carrying out the scientific research and development associated to the business.
c. Expenses reported by the listed firms for purchase the plant and equipment that is
exclusively put into the use in carrying out the scientific research and development.
d. Capital expenses that is occurred in the purchasing the building or extensions of the
building in carrying out the scientific research and development11.
The taxation ruling of TR 92/2 significantly deals with the first items that are stated
above. These relate the payment made for recognizing the scientific institutes and capital
expenses occurred for different scientific reasons. Therefore, the assessable income of the
listed organizations would be falling by the amount of expenses that are reported for different
10 Krever, Richard E, Australian Taxation Law Cases 2013 (Thomson Reuters, 2013)
11 Lang, Michael, ECJ - Recent Developments In Direct Taxation 2014 (Linde, 2015)

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scientific purposes12. This business will claim an acceptable deductions based on the given
expenses that occurred for getting invested in research and development activities that
improves the overall functions of the firm.
The taxpayers should consider two significant business conditions. On the first case in
point, the taxpayers will be requiring the execution of business activities that generates
assessable income. Secondly, the payment should be made with respect to scientific research
and development that is considered for the business activities. Under these circumstances the
listed firms in the section 73A (1) should be able to claim the benefit that is given in such a
manner that the expenses are made within the scope of the act.
The impacts of gaining tax incentive in relation with the expenses on scientific
research are in huge number. This capital expenses involved by the business can be availed
for debuting the expenses incurred within the plant and machineries related to land or
building13. The effects highlighted in section 73A (1) under the taxation ruling of TR 92/2
are described as follows;
Higher degree of emphasis on the research and development undertakings: With respect
to the tax incentives regarding the offer, listed organizations are inspired for spending a bulk
amount to the research and development process. This offering of tax incentive, the business
firms are provided with opening for using this tax shield offered for taxation authority that
lowers the instances of taxable earnings.
12 Morgan, Annette, Colleen Mortimer and Dale Pinto, A Practical Introduction To Australian
Taxation Law (CCH Australia, 2013)
13 Sadiq, Kerrie et al, Principles Of Taxation Law 2014

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Leveraging of tax position: The listed organizations those are functioning within the
country have spent good amount for conducting the research and development that derives
the assessable income which has leveraged the tax position for the organization by making
the use of the benefits laid down under section 73A (1) of the ITAA 1936. Unlike the other
expenses, all the listed organizations are providing with the facilities for setting off the
expenditure involved within the research and development processes14. All the listed
companies can also lower the assessable income and consequently can maintain their position
of tax.
Increasing the operational efficiency: As organizations are encouraged for spending a good
amount for research and development processed related to business, the tax incentives under
the taxation ruling of TR 92/2 and under section 73Aof the ITAA 1936 has been applied by
the organizations for improving their average performance on multiple terms. Because of
these activities, the business performance is improved.
Improvement in the overall performance of the listed companies: In consideration with
the expenses incurred within the research and development process, the enlisted companies
have gained the benefits of improved business functionalities. Subsequently, the entire
financial performance of the listed companies has improved more than other organizations.
The enlisted organizations mainly aim for undertaking the research and development
expenses that strengthen the operational efficiency utilization power of the firm. With respect
to the activities of research and development, the operational effectiveness of the considered
firms has developed with respect to their financial strength.
14 Woellner, R. H et al, Australian Taxation Law 2014

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Compliance with the income tax provision: For obtaining the benefits of tax incentives in
relation with the expenses involved within research and development for listed organizations
this is required to maintain the provision of ITAA. As these listed firms started adhering to
the requirements of tax provisions according to ITAA 1936, this provides the organizations
tax incentives as benefits to their financial conditions15.
Maintenance of appropriate books of accounts: For availing the tax incentive this is
important to maintain the appropriate books of account. The listed companies also should be
aware of this fact. This will help them to keep track on their expenses. For this adherence, the
business will be able to claim necessary income tax benefits. Subsequently, the maintenance
of appropriate books of accounts and appropriate tracking of expenses improved the firms to
maintain their capabilities regarding the financial development among all the listed firms.
Conclusion:
This can be concluded that the provision of taxation ruling of 92/2 creates the
positive impact on the listed companies. This motivational fact improved the financial basic,
which was required for improving the research and development for the business prospects.
Accordingly, the operational activities improved the efficiency of the listed companies that
arranged their financial strength and ultimately that developed their performance within the
firm.
15 Woellner, R. H, Australian Taxation Law 2012 (CCH Australia, 2013)

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Reference List:
Blackstone, William and Thomas McIntyre Cooley, Commentaries On The Laws Of
England(Callaghan and Cockcroft, 2014)
Cao, Liangyue, et al. "Understanding the economy-wide efficiency and incidence of major
Australian taxes." Treasury WP 1 (2015).
Coleman, Cynthia and Kerrie Sadiq, Principles Of Taxation Law 2013
Cruz, Ana et al, Fundamentals Of Taxation 2014
Gilders, F. M et al, Understanding Taxation Law 2014
Hoffman, William H et al, South-Western Federal Taxation 2014 (Cengage Learning, 2012)
Kemmeren, Eric, Tax Treaty Case Law Around The Globe, 2014
Kenny, Paul, Australian Tax 2013 (LexisNexis Butterworths, 2013)
Krever, Richard E, Australian Taxation Law Cases 2013 (Thomson Reuters, 2013)
Lang, Michael, ECJ - Recent Developments In Direct Taxation 2014 (Linde, 2015)
Morgan, Annette, Colleen Mortimer and Dale Pinto, A Practical Introduction To Australian
Taxation Law (CCH Australia, 2013)
Sadiq, Kerrie et al, Principles Of Taxation Law 2014
Snape, John, and Jeremy De Souza. Environmental taxation law: policy, contexts and
practice. Routledge, 2016.
Woellner, R. H et al, Australian Taxation Law 2014
Woellner, R. H, Australian Taxation Law 2012 (CCH Australia, 2013)