Eligibility asks whether an activity is R&D. The conducted-for rule asks a different question: for whom? Section 355-210 allows notional deductions only for activities conducted for the claimant, which stops two entities claiming the same work.
The major benefit test
The ATO treats an activity as conducted for the entity that receives the major benefit, judged by:
- Effective ownership of the know-how, intellectual property or other results, in practice as well as on paper.
- Control appropriate to the work, which can exist even when an expert contractor does it.
- Financial risk: who bears the cost if the experiment fails.
Under subsection 355-210(2), an activity conducted to a significant extent for another entity fails, even when the claimant also benefits.
The exceptions
- Work for a related foreign company (s 355-210(1)(c)). The Australian R&D entity can claim R&D conducted for one or more foreign companies if each is incorporated under a foreign law and resident in a country with a comprehensive tax treaty with Australia (s 355-210(1)(c)) and, under s 355-220, each is connected with or affiliated with the R&D entity, the work is done solely in Australia, and it follows a written agreement binding only the R&D entity and each foreign resident. A subcontractor to a related Australian R&D entity cannot use this route.
- Permanent establishments (s 355-210(1)(b)). A foreign company carrying on business through an Australian permanent establishment can claim R&D done solely in Australia for the company, but not for the purposes of the establishment, with written evidence of that.
- CRC contributions. Monetary contributions to a Cooperative Research Centre do not need the test at all.
These exceptions decide whose claim it is. The activity still has to be core or supporting R&D.
Where it bites
Intercompany development agreements are the main risk: see companies with an overseas parent. The ATO's TA 2023/4 targets groups where an associated service entity does and funds the work while a separate company claims it. For a domestic payer, a fee paid regardless of results engages the at-risk rule, but section 355-405(4) switches that rule off for work covered by the foreign exceptions. Work done overseas is a different question: it counts only when conducted for the Australian entity itself and covered by an overseas finding, and TA 2023/5 describes claims where such work was in substance for a foreign related entity. Work bought from a research service provider must still be conducted for the company that pays.