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2025 Annual Report for IISA: Update on R&D Tax Legal matters and litigation

Industry Innovation and Science Australia (IISA) is the federal government department responsible for determining whether companies’ activities meet the legislative criteria eligible under the R&D Tax Incentive.

 The 2025 Annual Report for IISA was recently released, and a section of the report provides an update on Legal matters and litigation relevant to the department.

Litigation on R&D activity now usually starts in the The Administrative Review Tribunal of Australia (ART), rather than Administrative Appeals Tribunal (AAT). However, this change is not likely to materially impact the incidence of disputes over R&D activity eligibility.

The 2025 Annual Report notes:

• In 2024–25, 2 new R&DTI ART applications were made seeking review of IISA’s internal review decision. There was one ART decision involving IISA during the 2024–25 period (this being the ART decision in Body By Michael Pty Ltd v Industry Innovation and Science Australia (2025) ARTA 44). There was one R&DTI matter that proceeded to final ART hearing in the 2024–25 financial year (this being Ultimate Vision Invention Pty Ltd v Industry Innovation and Science Australia, Tribunal no 2017/1319, 2018/6110). 
• There was one FCA R&DTI decision in the 2024–25 financial year (Active Sports Management Pty Ltd v Industry Innovation and Science Australia (2024) FCA 1346). There were no new R&DTI applications to the FCA during the 2024–25 financial year.  

When comparing with prior years:

• The 2024 Annual Report notes:
  • Four new R&DTI AAT applications were made seeking review of IISA’s internal review decision. There was one AAT decision involving IISA during the 2023–24 period (this being the AAT decision in Active Sports Management v IISA). A further 2 AAT matters resolved prior to AAT decision (the applicants withdrew their AAT application). There were no R&DTI matters that proceeded to final AAT hearing in the 2023–24 financial year.  
• The 2020 Annual Report notes:
  • At the AAT, ISA was involved in 52 matters (59 applications). Twenty-six matters (32 applications) were resolved in 2019-20. The AAT handed down decisions on four matters (five applications). In each proceeding, it affirmed ISA’s decision. Eleven matters (12 applications) were discontinued or withdrawn by applicants. Ten matters (14 applications) were resolved through consent orders. In one proceeding, the application was dismissed due to the applicant’s failure to appear at the AAT.   

The above litigation statistics relate to IISA matters on activity eligibility only, and not to R&D Tax Disputes involving the ATO (which may include disputes over substantiation of expenditure or contractual eligibility).

This reduction in litigation on R&D activity eligibility is despite the number of registrations not materially declining.

This decline may be attributable to a combination of:

• Companies withdrawing registrations when their eligibility is challenged by IISA, rather than disputing findings;
• Changes to compliance processes by the regulators (including Guidance type compliance engagements);
• Better quality of registrations submitted;
• Companies with ineligible activities refraining from participating in the programme;

Reduction in disputes is a good outcome for both companies and the regulators, and hopefully a sign of improving health of the R&D Tax Incentive overall.

However, with an observed increase in R&D Tax Compliance activity over recent months, and with IISA indicating no more Guidance type compliance activity, the number of eligibility disputes may start to increase.

Companies participating in the R&D Tax Incentive programme should keep up to date with regulator guidance when assessing activities to reduce the likelihood of ending up in costing disputes.

Please get in touch with our office if you require assistance, would like to speak to someone about a potential claim, or check out our website for more information.