Home » News » New AAT Case (LAKES OIL) finds Hydraulic Fracturing Activities NOT eligible under the R&D Tax Incentive

New AAT Case (LAKES OIL) finds Hydraulic Fracturing Activities NOT eligible under the R&D Tax Incentive

May 8th, 2023

A recent AAT Decision dated 26 April 2023 (LAKES OIL NL and INNOVATION AND SCIENCE AUSTRALIA (Taxation) ) has found a company’s registered activities were not eligible under the R&D Tax Incentive.

The project under scrutiny in the case is entitled “Project 1 – LAK2006 ‘Hydraulic Fracturing Technology for Gippsland Tight Gas’”.

The dispute was focused on a registration in the FY14 and FY15 period.

During the case INNOVATION AND SCIENCE AUSTRALIA contended that:

1. the activities undertaken were not experimental activities;
2. almost all of the activities fall within an exclusion, namely the exclusion for exploring, prospecting or drilling stated in section 355.25(2);
3. there is insufficient evidence some of the claimed activities and the expenditure on those activities took place either within a registration year or at all.

The AAT found that the claimed activities fall within the scope of the exclusion provision for exploring, prospecting or drilling stated in section 355.25(2), and that the Claimed Activities are not core or supporting R&D activities.

The directors also released an update to the ASX on 18 April 2023 following the decision stating that:

• The Company is currently considering whether to appeal the AAT decision to the Federal Court within 28 days.
• The Company is currently required to repay an outstanding amount of $605,000, being the balance of the $1.02m grant that was originally received in respect of the Company’s 2013/14 R&D activities, including general interest charges to date and a shortfall penalty assessment. The Company has been conditionally repaying $20,000 per month while the AAT decision, for proceedings that were heard by the AAT in late 2020, was awaited.

This case again highlights the importance of documenting and assessing activities in accordance with programme regulator guidance so as to minimise the likelihood of ending up in a lengthy and costly dispute with the regulators. The AusIndustry guide to interpretation documents include guidance on how the regulators will apply the exclusion provisions in 355.25(2) ITAA97.

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