Ultimate Vision Inventions Pty Ltd and Innovation and Science Australia (Taxation) [2019] AATA 1633 (27 June 2019)

July 9th, 2019

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.

The case: Ultimate Vision Inventions Pty Ltd and Innovation and Science Australia (Taxation) [2019] AATA 1633 refers to a company that registered R&D activities for the FY14 and FY15 periods.

Background

The project related to the development of an integrated health and fitness program and cloud-based decision support systems. The project’s core activities in the relevant period were as follows:

  • Design of fitness management algorithms for calorie consumption measurement;
  • Design of health management algorithms for calorie intake measurement;
  • Conceptual design and evaluation of a potential implementation of Cloud-based decision support systems.

An AusIndustry examination of the R&D Registrations in the relevant periods found that the activities were not eligible, due to the R&D entity having not had sufficient evidence of the process of conducting the registered activities, as well as the need to conduct experiments.

AAT Decision

The AAT upheld AusIndustry’s finding that the activities were not eligible.

The Administrative Appeals Tribunal member appeared to find particular deficiencies with the R&D Registration in respect of:

  • The R&D entity not consistently describing the activity undertaken throughout the compliance review process, and not having supporting documents to substantiate the R&D activity;
  • The R&D entity maintaining insufficient evidence that the activities registered were actually conducted;
  • Documentation and witness statements provided being inconsistent or irrelevant, such as showing little progression in the work, or having dates outside the registration period;
  • Reported activities not being conducted in a systematic way or following a science method such as:

                    o    Recording of vague results;

                    o    Collecting only a minute sample of data;

                    o    No meaningful analysis of results;

  • Failing to document how the outcome of the R&D Entity’s registered activities could not be known or determined in advance on the basis of current knowledge, information or experience.

Learnings from Decision

The decision highlights the importance of:

  • Ensuring R&D Entities’ registrations clearly detail:

                    o    The knowledge generating purpose of conducting the activity;

                    o    Why the outcome of the activity cannot be determined in advance;

                    o    The systematic process of conducting the activity;

  • Ensuring documentation maintained is contemporaneous and consistent with the specific R&D Activities registered;
  • Providing a clear and consistent description of R&D Activities (supported by records) to regulators in the event of a compliance review.

Click here to view or download the full case

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