January 11th, 2016
In the case of Docklands Science Pty Ltd and Innovation Australia  AATA 973, the Administrative Appeals Tribunal (AAT) has determined that activities conducted by the taxpayer were not R&D activities as there was insufficient documentation to support the claim.
- Three projects were registered for work claimed to be conducted with the CSIRO and other contractors:
- geopolymer engineered products; and
- environmental engine.
- AusIndustry conducted a review of the registration and concluded that the activities were not core R&D activities for the purposes of section 27J of the Industry Research and Development Act 1986 (R&D Act).
- AusIndustry concluded:
- Docklands had not provided contemporaneous records to demonstrate that the outcomes of experimental activities could not be known or determined in advance on the basis of current knowledge, information or experience;
- Docklands had not demonstrated that the experimental activities were conducted for the purpose of generating new knowledge;
- Docklands had not provided records which demonstrated it undertook the activities or that they took place within the registration period;
- Docklands had not demonstrated that its activities proceeded from hypothesis to experiment, observation and evaluation, leading to logical conclusions;
- Docklands sought a review of the decision with the AAT.
The AAT upheld AusIndustry’s finding by concluding that the registered activities were not core R&D activities for the purpose of section 355-25(1) of the Income Tax Assessment Act 1997. Senior Member Egon Fice of the AAT, agreed that documentation is necessary to substantiate the R&D activities claimed by an applicant. He noted , ‘Such documents are required for the purpose of evidencing experimental activities whose outcome cannot be known or determined in advance but can only be determined by applying a systematic progression of work based on established science; and which proceeds from hypothesis to experiment, observation and evaluation and leads to logical conclusions.’
Applicants for the R&D Tax Incentive must provide detailed documentation substantiating the process for each conducted activity. This case highlights the importance of:
- Clearly outlining the hypothesis, unknown outcome and knowledge sought to be obtained at the outset of the R&D Activities;
- Being able to substantiate the experimental process of the R&D Activities (observations, conclusions etc) and reference against corresponding technical documentation;
Click here to view the Docklands Science Pty Ltd and Innovation Australia  AATA 973 case.
For more information on eligibility requirements please Contact Us.