In the matter of BAE Systems Australia Pty Ltd v Commissioner of Taxation, the Federal Court of Australia (FCA) reviewed whether the applicant, BAE Systems, is entitled to deductions under s 73B of the Income Tax Assessment (ITA) Act 1936.
The applicant taxpayer appeals from the Commissioner’s disallowance of objections made by the applicant in respect of amended income tax assessments issued by the Commissioner for the years of income ending on 31 March of 1993, 1994 and 1996.
The deductions claimed are for expenditure incurred in each of the relevant years of income in carrying on R&D activities in respect of the Jindalee Operational Radar Network Project (‘Jindalee Project’).
The Commissioner accepted that the expenditure was incurred in respect of R&D but alleges that the applicant is not entitled to the deduction because the R&D work was carried out “on behalf of” another person within the meaning the meaning of s 73B(9) or the applicant was not “at risk” in relation to the expenditure within the meaning of s 73CA of the ITA Act.
The court ordered that the motion filed by BAE Systems be dismissed.
The Commissioner concludes that the “overall effect” of these provisions was that the applicant did not bear any financial risk, or at least any material financial risk, associated with the R&D.