(a) when an entity incurs R&D expenditure, consideration has been received, or was reasonably expected to be received:
o as a direct or indirect result of the expenditure being incurred; and
o regardless of the results of the activities on which the expenditure is incurred; and

(b) that consideration is equal to or greater than the expenditure.

The spirit of this provision is to ensure companies only receive an R&D tax benefit where they are bearing the financial risk of the underlying R&D activity.

On 22 December 2021 the ATO released its finalised Tax Ruling, TR 2021/5 (the at risk rule), which followed the release of a draft ruling in June 2021.

The ruling includes a series of examples, and details the commissioner’s view on the relevant inputs to the provision, such as:
· Meaning, scope and quantification of ‘consideration’;
· Nexus to expenditure test;
· Whether something is a ‘Direct or indirect result’;
· Regardless of results test.

The final ruling appears to provide further and clearer examples than was published in the original draft.

The content of the ruling appears in line with widespread understanding and scope of the at risk rule.

Companies and advisors should ensure they review and are up to date with the content of this ruling which has scope where companies may be receiving consideration as a direct or indirect result of undertaking R&D activities.