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ATO Release Decision Impact Statement on Auctus Resources Pty Ltd Case (Administrative Recovery of R&D Offset )

Background

On 12 October 2021 the ATO issued a Decision Impact Statement relating to the decision handed down by the Full Federal Court in Auctus Resources Pty Ltd v Commissioner of Taxation [2020] FCA 1096.

The case involved a ‘self-assessed’ claim for an R&D tax offset refund of $2,269,336 made by Auctus Resources Pty Ltd (Auctus Resources) for the 2012-13 financial year. The refund payment was made by the Commissioner of Taxation (the Commissioner) to Auctus Resources using an automated process. However, Auctus Resources’ R&D activities registered within the claim were later found not to be eligible activities by ISA. The ATO then sought, under section 8AAZN of the TAA to recover the R&D offset from Auctus Resources,

Decision

In Auctus Resources Pty Ltd v Commissioner of Taxation [2020] FCA 1096, Steward J of the Federal Court held that the Commissioner could not apply section 8AAZN of the TAA to receive repayment of the payment made to Auctus Resources, finding that the initial payment could not be classified as an “administrative overpayment” as the section defined it.

The Commissioner then made an appeal to the Full Federal Court which was allowed. The Full Federal Court considered section 8AAZN of the TAA and its application to the tax offset refund, namely, if the payment made to Auctus Resources could be seen as an “administrative overpayment” as defined in subsection 8AAZN(3) of the TAA.

The decision was made in favour of the Commissioner citing the following reasons:

• According to its ordinary meaning and read literally, the subsection covers the mistaken payment;
• The words of the definition were not required to be read down as the Federal Court had;
• At the time the payment was made, it was paid by mistake within the meaning outlined in the subsection;
• Regardless of the refund being paid by an automated process without a person involved, the payment was made by mistake as section 8AAZN of the TAA applies to “all mistaken payments to which a taxpayer is not entitled”.

Auctus Resources subsequently applied to the High Court for special leave to appeal the decision but was refused.

Implications of the Decision

The ATO has advised that this decision has no impact on any related advice and guidance as the Full Federal Court’s interpretation of section 8AAZN of the TAA is in line with that of the Commissioner’s.

The circumstances of Auctus Resources Pty Ltd v Commissioner of Taxation [2020] FCA 1096 can also no longer arise as refundable R&D tax offsets have since become part of the assessment and the Commissioner is able to issue an amended assessment for the repayment of any overpaid tax offset refunds.

Regardless of issues related to administrative recovery of R&D offsets, this case highlights the importance of assessing activities in accordance with programme regulator guidance to minimise the risk of costly compliance action.