Camalic Pty Ltd and Innovation and Science Australia (Taxation) [2020] AATA 1590 (3 June 2020)

July 13th, 2020

Introduction:

A recent case heard in the AAT has affirmed a previous decision by Innovation and Science Australia (AusIndustry), finding that activities registered under the R&D Tax Incentive were not in accordance with the legislative requirements.

Background:

Camalic Pty Ltd V ISA was a dispute in respect of a registration in the FY14 and FY15 periods for development of a software predictive tool that utilises a significantly large number of multiple variables to predict an increase in value based upon the optimal combination of variables.

The key issue in question was whether the R&D entity had conducted (or had planned) a “core R&D activity” in either of the relevant financial years.

AAT Decision:

The AAT found that none of the activities registered in the FY15 or FY16 applications were R&D activities for the purposes of the R&D tax incentive scheme.

Key eligibility concerns identified by the AAT included:

  • “the Applicant never intended to build a bespoke machine learning algorithm. Rather, the weight of the evidence points to the objective of the project being to train an existing machine learning algorithm, using the functionality inherent in the algorithm, to adapt itself to predict increases in shareholder value from board governance variables;
  • there is an obvious obligation on the Applicant to clearly describe the activities that it asserts are R&D activities so the decision maker can apply the legislation. The Applicant has not done so satisfactorily;
  • the Applicant has put forward material that indicates no more than that machine learning algorithms will be tasked to do what they are designed to do, yet it claims novelty in this without explaining how the resulting algorithm would constitute new knowledge or a new process”

Other interesting points to note from this particular case:

  • Activities registered by Camalic Pty Ltd were a continuation of a project previously undertaken by a related entity (Effective Governance International Pty Ltd) which lodged R&D applications in FY12 and FY13 that had also been found ineligible by AusIndustry.
  • Per ASIC records, liquidators were appointed to Camalic Pty Ltd on 15 June 2020, shortly after the AAT decision was handed down.

Conclusion:

The AAT found that none of the activities registered in the FY15 or FY16 applications were R&D activities for the purposes of the R&D tax incentive scheme.

This case highlights the importance of clearly describing the activities throughout the registration and compliance process, and to assess activities in accordance with programme regulator guidance.

Click here to view the Camalic Pty Ltd V ISA case.

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