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Real Energy Corporation Limited Provides Update on Status of Innovation Australia R&D Dispute

October 19th, 2020

Within its recent FY20 Annual Report posted to the ASX, Real Energy Corporation Limited (ASX: RLE) has provided an update on the status of the company’s dispute with AusIndustry/ISA over the eligibility of its R&D Activities.

The company had previously received an adverse finding for R&D Tax Registrations during the FY14, FY15 and FY16 periods, with corresponding tax offsets in dispute totalling around $7.2M. Further potential unpaid R&D Tax offsets of around $6.5M are at stake for the FY17 to FY19 periods.

RLE has appealed the adverse findings to the Administrative Appeals Tribunal (AAT) as was previously reported to the market;

The company’s Annual Report noted the following status of the matter:

• RLE directors consider that recognition of a provision is not required in respect of R&D Tax Disputes, however they have disclosed a contingent liability;
• RLE still considers that the recent federal court judgement of Moreton Resources Limited V Innovation and Science Australia (finding in favour of the R&D Entity) supports RLE’s understanding of the law in respect of the R&D Tax Incentive eligibility criteria, and that the Moreton Resources Limited judgement assists RLE’s case;
• Subsequent to year end, ISA has requested a stay on the AAT proceedings.

It is worth noting that other companies with previous disputes on R&D Activities, have reported favourable, or partially favourable settlement outcomes over the past 12 months. These companies include:

• Northern Minerals (ASX: NTU);
• Argent Minerals (ASX: ARD); and
• Strike Energy (ASX: STX).

The above is a reminder that R&D Claims are subject to regulator scrutiny, and that companies should consider guidance material published by AusIndustry and the ATO on R&D Tax Compliance when assessing claims.