INTELLECTUAL PROPERTY: RESEARCH

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1 INTELLECTUAL PROPERTY: RESEARCH AND DEVELOPMENT (R&D) CONCESSIONS BY BRIAN RICHARDS FCPA, RICHARDS ADVISORY Introduction The role of the accountant is pivotal to the whole IP journey: understanding the clients activities and whether they are within the ambit of core R&D activities structuring the activities, registration, and accounting for the R&D expenditure related to the R&D activities protection by registration of any IP generated by the R&D activities assisting with the commercialisation of the IP. Accountants as with all areas of tax law need to be sufficiently cognizant of the issues involved. There is adequate information on the Australian Taxation Office (ATO) and AusIndustry websites to provide guidance. If, however, you have questions not answered by these sites and your own reading of the legislation, there are specialist R&D consultants who can assist you. This guide presents general and technical issues related to R&D concessions. A small business must innovate to ensure future viability and profitability. Innovation is central and the R&D concessions provide significant cost offsets in relation to what are referred to as R&D activities. Any company can claim the R&D incentive. It is not necessary for the entity to be scientific, so long as its activities for which it is claiming the R&D tax offset are scientific. Understanding the R&D rules is critical to ensure that the business can access the concessions. This guide should be read in conjunction with the recorded webinar on R&D concessions, which is available free to CPA Australia members.

2 General and technical issues Case study: Smartread Smartread manufactures tyres. It also conducts an ongoing research program testing new compounds with a view to developing improved products that it can exploit commercially. The test tyres are produced using Smartread s normal production facilities (which only allow one compound to be used in a given production run). The production aspects of the compounds (such as how they function during the moulding process) were not at issue for Smartread s tests. Smartread s research program does not produce any marketable outputs. Core R&D activities Although the research has an overriding commercial objective, the relevant purpose of Smartread s experimental activities is to create knowledge in the form of product improvements. Accordingly, Smartread s experimental activities can satisfy the tests for core R&D if they are part of a valid application of the scientific method to address a knowledge gap. Supporting R&D activities The cost of the activities involved in actually manufacturing the test tyres (such as running the production line) will be determined in the same way as a normal production run, using normal accounting principles. That is, plant costs, floor space rent, labour and corporate overheads will be attributed to the cost of the activity of manufacturing the test tyres. This activity of manufacturing the test tyres is directly related to the experiments but constitutes a production activity, so the dominant purpose test applies. In the context of Smartread s experimental plan, the manufacture of the test tyres does not have the prospect of producing commercial outputs. The dominant purpose test is satisfied so the activity is a supporting R&D activity and Smartread is eligible for a tax offset on the costs attributable to the activity. Claiming R&D expenditure Section ITAA 1997 (Entitlement to tax offset) provides that a taxpayer is entitled to a tax offset if their notional R&D deductions are between $20,000 and $100 million. If the total notional deductions are less than $20,000, the entity will only be able to obtain the R&D tax offset for: expenditure incurred to a Research Service Provider (RSP) for services within a research field for which the RSP is registered under the IR&D Act, where that RSP isn't an associate of the R&D entity expenditure incurred as a monetary contribution under the Co-operative Research Centre (CRC) program. 1) An R&D entity is entitled to a tax offset for an income year equal to the percentage, set out in the table, of the total of the amounts (if any) that the entity can deduct for the income year under any or all of the following provisions: a. section (R&D expenditure); b. section (decline in value of R&D assets); c. section (balancing adjustment for R&D assets); d. section (earlier year associate R&D expenditure); e. section (decline in value of R&D partnership assets); f. section (balancing adjustment for R&D partnership assets); g. section (CRC contributions).

3 Section When notional deductions for R&D expenditure arise 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: for which the R&D entity is registered under section 27A of the Industry Research and Development Act 1986 for an income year; and that are activities to which section (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. If the R&D entity's aggregated turnover for the income year is less than $20 million the tax offset is currently 45% of their R&D expenditure. The offset is refundable if the taxpayer has no net income (for example, makes a loss). If the entity has no revenue it can still claim R&D expenditure provided it has eligible R&D expenditure. Refer to Section ITAA The franking account impact of receiving a tax offset is provided by (2)(b). There will be no franking debit attributable to a R&D tax offset : 2) Despite item 2 of the table in subsection (1), no debit arises on that part of the refund that is attributable to any of the following: a. a payment of income tax in relation to either or both of the following: an FHSA component an RSA component b. a tax offset that is subject to the refundable tax offset rules because of section (about R&D). Claiming R&D on IT developer costs when setting up website businesses The expenditure relating to a website business will generally not qualify as R&D expenditure unless you can satisfy the requirements to be core R&D activities. Note that the R&D tax incentive is focused on the generation of new ideas and concepts. The threshold issue is whether the taxpayer is undertaking core R&D activities, not whether there is a new business. Further it is the nature of the activities that are critical. In relation to software the threshold question is whether the activities related to the software development constitute either core R&D activities or support R&D activities. The relevant ITAA provision defines R&D activities as follows. 1) Core R&D activities are experimental activities: a. whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that: is based on principles of established science and proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions and b. that are conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes or services).

4 2) However, none of the following activities are core R&D activities: a. market research, market testing or market development, or sales promotion (including consumer surveys) b. prospecting, exploring or drilling for minerals or petroleum for the purposes of one or more of the following: discovering deposits determining more precisely the location of deposits determining the size or quality of deposits c. management studies or efficiency surveys d. research in social sciences, arts or humanities e. commercial, legal and administrative aspects of patenting, licensing or other activities f. activities associated with complying with statutory requirements or standards, including one or more of the following: maintaining national standards calibrating secondary standards routine testing and analysis of materials, components, products, processes, soils, atmospheres and other things g. any activity related to the reproduction of a commercial product or process: by a physical examination of an existing system or from plans, blueprints, detailed specifications or publically available information h. developing, modifying or customising computer software for the dominant purpose of use by any of the following entities for their internal administration (including the internal administration of their business functions): the entity (the developer ) for which the software is developed, modified or customised an entity connected with the developer an affiliate of the developer, or an entity of which the developer is an affiliate. It would be necessary to determine whether the website business activities can come within the above core R&D activities. The incentive is not merely aimed at new business, but more particularly new knowledge. If the activities qualify as core R&D activities, the statutory requirement provides the following conditions for R&D activities: 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 or an external Territory. In this regard, expenditure incurred on R&D activities, will include expenditure on overseas activities covered by an advance finding from Innovation Australia, amounts paid to associates and expenditure to a RSP. Dominant purpose means the prevailing or most influential purpose. Implicit in the dominant purpose test is the acknowledgment that activities can serve, or be conducted for, more than one purpose. Accordingly, the fact that an activity serves a commercial objective as well as being directly related to R&D does not preclude it from qualifying as supporting R&D. Software products In relation to software the threshold question is whether the activities related to the software development constitute either core R&D activities or support R&D activities. In this regard you should note section (2)(h) excludes the following from acceptable core R&D activities:

5 a. developing, modifying or customising computer software for the dominant purpose of use by any of the following entities for their internal administration (including the internal administration of their business functions): i. the entity (the developer) for which the software is developed, modified or customised; ii. an entity connected with the developer; iii. an affiliate of the developer, or an entity of which the developer is an affiliate. The introductory explanatory memorandum to the new Division 355 made the following comments in relation to computer software Software is subject to the same eligibility tests as other forms of R & D, with the exception of certain 'inhouse' software The existing exclusion for 'in-house' software comprising a 'multiple sales' requirement, has been removed, reflecting the fact that ongoing developments in e-commerce and software distribution methods have meant it no longer adequately reflects the original policy intent A new software core R & D exclusion is incorporated into the exclusions list. The exclusion clarifies that activities related to the development, modification or customisation of software are not eligible core R & D where the software is developed for the dominant (or sole) purpose of internal business administration by the entity (or connected entities) for which it was developed, modified or customised The exclusion encompasses software that is for use in the day-to-day administration of the business such as business application, management information system and enterprise resource planning software. The exclusion reflects the fact that such software activities are site-specific, can usually be expected to be undertaken by the relevant business without an incentive, and that, consequently, the additional public benefit from subsidising such activities is limited The exclusion does not extend to software developed in-house that is of an applied nature, forming an integral part of an electrical or mechanical device, such as home appliances or industrial equipment. Similarly, the exclusion does not apply to software activities undertaken to support a larger R & D project, and which may qualify as supporting R & D activity. The ITAA specifically provides that if the expenditure falls within eligible R&D expenditure it must be claimed / treated pursuant to Division 355 and not other ITAA provisions. Refer to section Section Implications for other deductions and tax offsets 1. If an R&D entity is entitled under section to a tax offset for an income year for expenditure it can deduct under section , or , that expenditure: a. cannot be taken into account by any entity in working out a deduction under any other Division of this Act for any income year; and b. cannot be taken into account by any entity in working out a tax offset under any other Division of this Act for any income year. Note: Section is about R&D expenditure, section is about earlier year associate R&D expenditure, and section is about CRC contributions. 2. If an R&D entity is entitled under section to a tax offset for an income year for a deduction under section , , or of an amount equal to the decline in value of an asset, that decline in value:

6 a. cannot be taken into account by any entity in working out a deduction under any other Division of this Act (other than section or ) for any income year; and b. cannot be taken into account by any entity in working out a tax offset under any other Division of this Act for any income year; to the extent that the decline in value is attributable to the use of the asset for the purpose of conducting one or more of the R&D activities to which the deduction relates. Note 1: A deduction may be available under section to the extent that the asset's decline in value is attributable to another purpose. If so, that deduction under section will not take into account the asset's decline in value to the extent that it is attributable to the R&D activities (see also subsection 40-25(2)). Note 2: Section is about the decline in value of R&D assets, section is about balancing adjustments for R&D assets, section is about the decline in value of R&D partnership assets, and section is about balancing adjustments for R&D partnership assets. Note 3: Sections and deal with balancing adjustments when deductions have been available for the asset's decline in value both under this Division and section Interest income, trust distributions and aggregated turnover The term aggregated turnover as used in the R & D concession is defined by section ITAA Relevantly that definition requires the aggregation of the annual turnover of the taxpayer and connected entities. Annual turnover is defined as follows: Section (1) An entity's annual turnover for an income year is the total ordinary income that the entity derives in the income year in the ordinary course of carrying on a business. The ordinary income is that which is generally produced by the business that is being carried on, and would usually include interest generated by the business activities in relation to monies held for the business purposes. It is most likely that the trust distribution will not be regarded as ordinary income but it is highly likely that the trust and the taxpayer entity would be connected and accordingly the trust s business turnover would be included in the calculation of the aggregated turnover. R&D entities Section outlines R&D entities. With regard to Co-operatives: 1. Each of the following is an R&D entity: a. a body corporate incorporated under an Australian law If the co-operative is a taxpaying entity, registered and its activities satisfy the R&D activities, the entity can access the R & D incentive. Exempt entities are excluded. A company will be an eligible R&D entity if it is a company incorporated in Australia. If a company is a normal taxpaying company, the company is entitled to the tax offset, subject to the entity complying with the registration requirements and incurring R&D expenditure attributable to its R&D activities. If a company has three legal entities which are part of a tax consolidated group, the parent entity is treated as the R&D entity. The group s turnover would be the determining basis for the extent of the tax offset and whether it is refundable or otherwise. If the companies are not part of a tax consolidated group, each entity will be entitled to claim their

7 R&D expenditure, BUT if determining each entities turnover, A,B & C are connected (refer to section ITAA 1997) and accordingly the aggregated turnover would include the turnover of all connected entities. If a trust pays all the R&D expenses on behalf of R&D company, the essential issue is whether the R&D company has a legal obligation to make payment for the expenditure. It would be important to ensure that the company has directed the Trust to incur the expenditure on behalf of the company and to make the payment from monies otherwise payable to the company. There will be taxation issues if the R&D assets are kept in a separate entity to the one which conducts business operations unless the entities are part of a tax consolidated group. R&D entities are only entitled to a tax offset for R&D activities conducted for itself and not for some other entity. This requirement is intended to limit claims to cases where the entity is a major benefactor from its expenditure on those activities. The ITAA provides in Section : 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 or an external Territory; Determining whether the entity is the major benefactor can be assessed by considering who: effectively owns the know-how, intellectual property or other similar results arising from the entity s expenditure on the R&D activities has appropriate control over the way the R&D activities are conducted; bears the financial burden of carrying out the R&D activities. Whether an R&D activity is conducted for the claimant company is a matter of fact. It is 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 the claimant company. Claiming salary costs outside of Australia If the activities qualify as core R&D activities, the statutory requirement provides that: 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 or an external Territory In this regard, expenditure incurred on R&D activities will include expenditure on overseas activities covered by an advance finding from Innovation Australia, amounts paid to associates and expenditure to a RSP. There are four conditions to be met for a finding to be made that R&D activities conducted overseas are eligible under the R&D Tax Incentive: Condition 1 The overseas activity must be covered by an advance finding that the activity in question is an eligible R&D activity. Condition 2 The overseas activity must have a significant scientific link to one or more core R&D activities conducted in Australia or the external Territories (Australian core activities). Those Australian core activities must be registered with Innovation Australia, or reasonably likely to be conducted and registered in future. Condition 3

8 The overseas activity must not be able to be conducted within Australia or the external Territories because: conducting it requires access to a facility, expertise or equipment not available in Australia or the external Territories; conducting it in Australia or the external Territories would contravene a law relating to quarantine; conducting it requires access to a population (of living things) not available in Australia or the external Territories; or conducting it requires access to a geographical or geological feature not available in Australia or the external Territories. Condition 4 The amount (actual and reasonably anticipated) to be spent in all income years by the company and any other entities on: the overseas activities that meet the four conditions; and each other activity conducted wholly or partly overseas that has a significant scientific link to the Australian core activities, is less than the total amount (actual and reasonably anticipated) to be spent in all income years on: the Australian core activities; and the supporting R&D activities in relation to the Australian core activities. Note that if the payments are made to the entities employees as a salary in relation to the R&D activities carried out on behalf of the Australian entity, then the expenditure would qualify. Claiming administrative costs Accountancy fees relating to the submission of a R&D claim and the costs of lodging IP are not regarded as eligible expenditure, this is expenditure which is of an administrative nature. Core R&D activities exclude inter alia: Section (2)(e) commercial, legal and administrative aspects of patenting, licensing or other activities. Administration expenses can be claimed to the extent that they relate to either core R&D activities or support R&D activities. The following guide is provided by the ATO website that deals with the R&D tax incentive: You may incur a number of administrative costs and overheads as a result of conducting R&D activities and employing R&D staff. For example, you may have overheads, such as rent, light and power, property rates and taxes, cleaning and certain types of insurance, to the extent they are expenditure incurred on eligible R&D activities. The expenses which you can claim as R&D expenditure are limited to the extent they are incurred on R&D activities. The type of expenditure that qualifies for a notional deduction under Division 355 of the ITAA 1997 depends on the facts of each particular case. Administrative costs and overheads may be incurred on R&D activities where there is a direct link between the R&D activities and the expenditure incurred. Ineligible expenses are those without sufficient link to the R&D activities, particularly where they relate to general company operating or marketing expenditure that would be incurred regardless of the R&D activities.

9 Depreciation The acquisition of assets for the purposes of R&D activities can be depreciated (section ) and the depreciation costs form part of the R&D expenditure. Section An R&D entity is entitled to a tax offset for an income year equal to the percentage, set out in the table, of the total of the amounts (if any) that the entity can deduct for the income year under any or all of the following provisions: b. section (R&D expenditure); c. section (decline in value of R&D assets); d. section (balancing adjustment for R&D assets); e. section (earlier year associate R&D expenditure); f. section (decline in value of R&D partnership assets); g. section (balancing adjustment for R&D partnership assets); h. section (CRC contributions). Section provides that a company cannot notionally deduct the following types of expenditure under the R&D tax incentive: interest expenditure (within the meaning of interest in the withholding tax rules) expenditure that is not at risk core technology expenditure expenditure included in the cost of a depreciating asset (however the decline in value notional deductions may apply) expenditure incurred to acquire or construct a building (or part of a building or an extension, alteration or improvement to a building). The Bill s EM provides the following regarding expenditure not at risk: Expenditure that is not at risk (for example, if there is guaranteed return under a financing arrangement or an indemnity) is not eligible for a notional R&D deduction but the ordinary deduction rules may apply. [Schedule 1, item 1, section ] Expenditure is not at risk to the extent that, when the expenditure is incurred, the R&D entity (or an associate) could reasonably be expected to receive an amount of consideration: as a result of the expenditure being incurred or because of anything that happened before then; and irrespective of the results of the activities on which the entity incurs the expenditure. [Schedule 1, item 1, section ] The inclusion of the requirement that the entity reasonably expects to receive the amount of consideration irrespective of the results of the activities on which the entity incurs the expenditure is consistent with the way the Commissioner has administered the existing law about expenditure not at risk. For example, the Commissioner would not apply the existing law where the expectation of receiving consideration under a contract for the development and sale of a product was based both on the terms and conditions of that contract and also the entity s experience and technical capability concerning the degree of confidence about successfully performing that contract. Where this product development involved R&D activities it cannot be said that the expectation of receiving consideration under this contract exists irrespective of the results of these activities. [Schedule 1, item 1, section ]

10 Payments made to Associates Under Section payments made to Associates will only be included as notional expenditure where they satisfy the prima facie requirement that they relate to core R&D activities or support R&D activities. That the services provided by the associate are in respect of services linked to the R&D activities. When notional deductions for R&D expenditure arise is depended on when ordinarily when the expenditure is incurred but where the expenditure is in relation to a service paid by an associate (refer to section 3118 ITAA 1936 for that definition) the expenditure is brought to account when it is actually paid. 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 (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. Further the ITAA has integrity measures to ensure the level of expenditure cannot be exaggerated. Section Expenditure incurred while not at arm's length If: a. an R&D entity incurs expenditure to another entity on all or part of an R&D activity; and b. either: i. when the R&D entity incurs the expenditure, the R&D entity and the other entity do not deal with each other at arm's length; or ii. the other entity is the R&D entity's associate; and c. the expenditure exceeds the market value of the relevant R&D activity or part (as appropriate); for the purposes of this Division, the R&D entity is treated as if the amount of expenditure it incurred on the relevant R&D activity or part (as appropriate) were equal to that market value. Any payment to a director would come within the ambit of payments to Associates. The directors are not assessable on any amount until they actually receive the payment (Section 6 ITAA 1997). The following explanation provided by the Bill s EM outlines the options / choices available for the R&D entity: 3.77 If the R&D entity incurs an amount of expenditure to an associate and pays the amount in the same year, that amount is deductible in that year (assuming other conditions are satisfied). Payment has its general legal meaning in the income tax law, which includes constructive payment. Therefore, in working out whether an R&D entity has paid an amount to another entity, and when the payment is made, the amount is taken to be paid to the other entity when the R&D entity applies or deals with the amount in any way on the other s behalf, or as the other directs. [Schedule 1, item 1, section ] 3.78 However, if the R&D entity does not pay the amount incurred until a later income year, the entity has a choice. The entity can choose to deduct an amount (or, if relevant, obtain a non-r&d tax offset) under the normal income tax provisions (for example, the general deduction provision, section 8-1). The entity must make the choice by the time it lodges its income tax return for the most recent income year before the income year in which it paid the amount.

11 3.79 It would usually do this by claiming a deduction (or a non-r&d tax offset) in its income tax return (although it could also do so by requesting an amendment of an assessment to deduct the expenditure in the income year it was incurred). Having claimed the deduction (or obtained a tax offset) for this expenditure, the R&D entity foregoes any entitlement to a notional R&D deduction in the year of payment. This cannot be reversed, for example, by later requesting an amendment of the assessment to disallow the deduction claimed. [Schedule 1, item 1, sections and ] 3.80 If the entity does not choose to deduct the amount under the normal income tax provisions and pays the amount to the associate in an income year after it was incurred, the entity is entitled to a notional R&D deduction in the year of payment. [Schedule 1, item 1, section ] Example 3.7: Expenditure incurred to an associate but not paid until a later income year Ingenious Plans Pty Ltd, a corporation incorporated in Australia, carries on a business in Australia that includes R&D activities. In the income year Ingenious Plans incurs expenditure of $20,000 to an associate for the associate to carry out R&D activities on its behalf. However, Ingenious Plans does not pay the $20,000 until the income year. Ingenious Plans is registered for the activities for the income year in which they were conducted. The expenditure also satisfies the various conditions in section for the expenditure to be deductible. Nevertheless, Ingenious Plans cannot deduct the expenditure to the associate in the income year because the amount was not paid in that income year. In lodging its income tax return for the income year Ingenious Plans did not take the expenditure to the associate into account in working out the amount of a deduction under any provision outside Division 355 or any entitlement to a tax offset. Ingenious Plans is entitled to a notional R&D deduction for the expenditure of $20,000 for the income year. The term associate is defined by section 318(2) ITAA For the purposes of this Part, the following are associates of a company (in this subsection called the primary entity): a. a partner of the primary entity or a partnership in which the primary entity is a partner; b. if a partner of the primary entity is a natural person otherwise than in the capacity of trustee--the spouse or a child of that partner; c. a trustee of a trust where the primary entity, or another entity that is an associate of the primary entity because of another paragraph of this subsection, benefits under the trust; d. another entity (in this paragraph called the controlling entity ) where: i. the primary entity is sufficiently influenced by: A. the controlling entity; or B. the controlling entity and another entity or entities; or ii. a majority voting interest in the primary entity is held by: A. the controlling entity; or B. the controlling entity and the entities that, if the controlling entity were the primary entity, would be associates of the controlling entity because of subsection (1), because of subparagraph (i) of this paragraph, because of another paragraph of this subsection or because of subsection (3); e. another company (in this paragraph called the controlled company ) where:

12 Section 318(6) says: i. the controlled company is sufficiently influenced by: A. the primary entity; or B. another entity that is an associate of the primary entity because of another paragraph of this subsection; or C. a company that is an associate of the primary entity because of another application of this paragraph; or D. 2 or more entities covered by the preceding sub-subparagraphs; or ii. a majority voting interest in the controlled company is held by: A. the primary entity; or B. the entities that are associates of the primary entity because of subparagraph (i) of this paragraph and the other paragraphs of this subsection; or C. the primary entity and the entities that are associates of the primary entity because of subparagraph (i) of this paragraph and the other paragraphs of this subsection; f. any other entity that, if a third entity that is an associate of the primary entity because of paragraph (d) of this subsection were the primary entity, would be an associate of that third entity because of subsection (1), because of another paragraph of this subsection or because of subsection (3). (b) a company is sufficiently influenced by an entity or entities if the company, or its directors, are accustomed or under an obligation (whether formal or informal), or might reasonably be expected, to act in accordance with the directions, instructions or wishes of the entity or entities (whether those directions, instructions or wishes are, or might reasonably be expected to be, communicated directly or through interposed companies, partnerships or trusts); and (c) an entity or entities hold a majority voting interest in a company if the entity or entities are in a position to cast, or control the casting of, more than 50% of the maximum number of votes that might be cast at a general meeting of the company. Technical risk versus commercial risk The very essence of core R&D activities is the risk of not knowing the answer before you start the R&D activities. That is a different risk to commercial risk. The EM to the Bill provides an appropriate explanation: 2.13 The requirement for the scientific method establishes a threshold for the knowledge gap and the degree of uncertainty that an eligible experiment must seek to address. The threshold will not be met if the knowledge of whether something is scientifically or technologically possible, or how to achieve it in practice, is deducible by a competent professional in the field on the basis of current knowledge, information or experience Further, the nature of the eligible experiment is such that there will be a clear risk that the outcome of the experiment will not be the desired one. The potential for this risk to deter firms from undertaking knowledgegenerating R&D underpins the rationale for the R&D tax incentive.

13 Further information CPA Australia and IP Australia have available a range of resources, including recorded webinars and a number of guides. To access these go to CPA Australia s Intellectual Property dedicated web page. About the author: Brian Richards FCPA is the principal consultant of Richards Advisory, which is a specialist small business tax advisory consultancy. Brian has been providing taxation advice for some 40 years with a focus on the establishment, transactional and exit strategies for small to medium enterprises. Intellectual property is the asset of the new economy and Brian has some 20 years experience in advising start up entities and SMEs on how to deal with the structuring of IP, the taxation issues when introducing new partners and the disposal of intellectual property rights. Copyright Brian Richards, Richards Advisory (RichardsB Pty Ltd), Intellectual Property: R&D concessions has been reproduced by CPA Australia with the permission of the author. DISCLAIMER: the above material is only general in nature and not intended to be specific to the reader s circumstances. Further, as laws change frequently, all practitioners, readers, viewers and users are advised to undertake their own research or to seek professional advice before making any decisions or relying on the information provided. September 2015

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