Home » News » New Federal Court Decision re: Active Sports Management Pty Ltd finds R&D Activities not eligible

New Federal Court Decision re: Active Sports Management Pty Ltd finds R&D Activities not eligible

An AAT decision handed down in December 2023 (Active Sports Management Pty Ltd and Industry Innovation and Science Australia) previously found that activities in respect of development of a customised basketball shoe were not eligible under the R&D Tax Incentive.

It was found in the AAT case that, “none of the Claimed Activities were core R&D activities within the meaning of subsection 355-25(1) of the ITAA 1997..”

ACTIVE SPORTS MANAGEMENT PTY LTD applied to the federal court to appeal the decision and the Federal Court ordered 25 November 2024 that:

1. The appeal be dismissed.
2. The applicant pay the respondent’s costs of the appeal.

The Federal Court decision is lengthy and detailed, but ultimately concluded that:

 ” None of the Claimed Activities were core R&D activities within the meaning of subsection 355-25(1) of the ITAA 1997. Rather, the Claimed Activities consisted of the modification of previously known athletic shoe design features to suit the personal preferences or requirements of an individual player, namely Matthew Dellavedova. Accordingly, none of those Activities can be supporting R&D activities for the purposes of subsection 355-30(1) of the ITAA 1997″.

The case serves as a reminder of several points, notably:

• Core R&D Activities must have technical or scientific uncertainty, and companies should keep evidence to show the existing state of knowledge;
• There must be contemporaneous evidence showing that the hypothesis was created prior to experimentation, and there should be direct correlation between the hypothesised outcomes, testing and evaluation process, and conclusions drawn. Documentation and evidence submitted to support the application must also be for the purpose of testing the hypothesis, and not for another purposes, such as promotion;
• Experimentation must be based on established scientific principles, rather than akin to a ‘trial and error’ process.
• New knowledge must sought to be generated from the hypothesis, and must not be a mere application of existing knowledge.

Additionally, while this case looked solely at the eligibility of the activities, it’s also important to note that if any R&D activity was undertaken overseas, companies must lodge and attain an overseas finding approval.

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 dispute with the regulators.

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