Australian R&D tax incentive draft ruling clarifies ‘at risk’ rule

A draft tax ruling issued by the Australian Taxation Office on June 25 explains the circumstances in which a company’s research and development (R&D) tax offset could be denied or reduced as a result of the R&D expenditures not being “at risk.”

The ruling is intended to provide certainty to taxpayers regarding when the “at risk rule” is satisfied, including when R&D activities are carried out under commercial contracts for the supply of goods or services.

Under the “at risk rule,” R&D tax offset claims may be denied or reduced in certain circumstances, such as when the expenses are fully or partially reimbursed. The draft ruling discusses the tests for determining when expenditures are at risk and includes examples of when the rule applies.

In drafting the ruling, the Australian Taxation Office took into account comments it received on an earlier draft ruling consultation, although the new draft ruling is broader in scope.

Comments on the current draft ruling will be accepted until July 23.

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