The R&D Tax Incentive includes a related party integrity provision whereby if a company incurs R&D expenditure to an associate, it must pay that amount in the same year to claim a notional deduction for that amount in that year (provided all other eligibility requirements for the R&D tax incentive are met).

Associates are those entities that, by reason of family or business connections, might appropriately be regarded as being associates of the R&D entity, and relevant examples of the scope of these provisions are included on the ATO website.

In particular, payments are not considered to be validly made under the when:

• a payment is made via or converted to a loan;
• ‘round robin’ payments are made, where payment is returned so that a subsequent payment can be made in a cyclical nature. For example, where a company uses the same amount (e.g. $10,000) cycled multiple times as multiple payments and loans, the payments are NOT valid for the purposes of the R&D Tax Incentive;
• loans are being used as contingent payments where payment is expected after an anticipated or possible future event;
• payment is made by consideration, including issuing of shares in the company. This is dealt with and disallowed by TR 2008/5.

Companies should ensure that they keep up to date with the  R&D Tax associate entity payment guidance on the ATO website.

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