• Routine business activities are unlikely to be eligible for the R&D Tax Incentive.
  • Testing that was excessive in terms of scale and time was found to be not conducted for the purpose of acquiring new knowledge.
  • Activities to trial a refined waste oil and diesel mix were not conducted in a systematic manner, did not involve innovation or high levels of technical risk, and were not conducted to acquire new knowledge.
  • Activities to design new excavator buckets were not systematic, experimental or investigative

Rix’s Creek Pty Limited and Bloomfield Collieries Pty Limited are two related mining companies that registered and claimed for the years 2008 to 2012 under the R&D Tax Concession—the predecessor of the R&D Tax Incentive.

Innovation and Science Australia (Innovation Australia at the time) conducted reviews on the claimed activities and found that the majority of the activities were not eligible for R&D assistance. The companies disagreed with the decisions and applied to the Administrative Appeals Tribunal for an independent review.

While this is an R&D Tax Concession case it offers important guidance for companies participating in the R&D Tax Incentive.  There is a lot in this case so to keep this article short we will only look at the key parts that are useful for companies in the R&D Tax Incentive.

The activities that the companies claimed can be grouped into three projects; the Dense Media Sampling, Explosives and Excavator projects.

These activities were undertaken in a production mining environment during the years 2008 through to 2012, with minimal relevant documentation to support eligibility. 

Innovation and Science Australia argued that the companies were trying to characterise ordinary mining processes as R&D activities and that the claimed activities comprised:

  • the routine operation of a coal handling preparation plant (the Dense Media Sampling Project)
  • the substitution of one fuel for another, and not the creation of a new product (the Explosives Projects), and 
  • the customisation of buckets to site-specific conditions (the Excavator Projects). 

Dense Media Sampling (DMS) Project


This set of claimed activities were about the ‘trialling, testing, modification and redesign’ of a prototype device for measuring the density of a liquid used to separate coal from ground waste material. These activities involved the testing of the device in the production environment of coal handling and preparation plants.

The Tribunal decided the activities were ‘only tinkering with the overall design’. The Tribunal also found that the activities were not conducted for the required purpose, because:

  • of the excessive scale of the ‘testing’ – in the words of the expert opinion “grossly excessive not only in extent but also in time” [at para 65], and
  • there were no records that recorded the performance of the variables that the companies claimed to be important. It was claimed that ‘periodic measurements were taken’ but they were not recorded.

Explosives Project


In this set of activities the companies stated they were trying to work out the highest percentage of recycled oil that could be used in the explosive charges that were being used to break up the rock layers above the coal layer without losing the explosive power. The companies conducted extensive trials that:

  • used a refined oil waste and diesel mix in increasing ratios from 50/50 through to a 100 percent replacement.
  • repeated the above ‘trialling’ with a variant of the refined waste oil in which it had been washed with a solvent.

It was claimed that these activities were undertaken “to feel confident with the stability of the mix and its performance across a realistic range of variables” [at para 88]. Those variables included: geography, fragmentation, and weather variables, amount of blast fumes and noise and vibration. However, there was a failure to record any data on these variables.

The Tribunal accepted the expert opinion whose report stated:

The observation and measurements recorded for each stage of the trials involved little, if any, more data than that which would be expected for normal blasting operations [at para 126].

The Tribunal’s assessment of the activities and their documentation highlighted:

Another important example is the lack of any stated or specified end point of the trials, in the sense of criteria for success or failure. At hearing, Mr Mandl [an expert witness] found this “curious” and said:

…a trial is supposed to have an outcome which then informs you to progress on to the standard production. There wasn’t even anecdotally any stated outcome from the trials other than it worked…Part of this involves a whole lot of assumptions and they’re not informed by data that has been converted to information [at para 136].

While documentary evidence is not a statutory requirement, it is logical that documentary evidence would assist in establishing whether or not the activities were conducted in a systematic, investigative and experimental manner. Without such evidence it is impossible, other than by making assumptions, to make any findings on the way in which the trials were conducted and how the results were analysed. Accordingly, I am not persuaded that the Explosives Projects were conducted in a systematic, investigative and experimental fashion [at para 142].

If anything, the evidence shows that the risk associated with fuel replacement is well-known and can be managed by relatively simple analysis and testing [at para 151].

The Tribunal also found that the activities lacked the required purpose of acquiring new knowledge or creating new or improved materials, products, devices, processes or serviceThe Tribunal’s decision that these activities were not eligible as conducted and documented by the companies offers good guidance for the R&D Tax Incentive. The decisions that the activities:

  • were not systematic is directly comparable to the systematic progression of work required in a core R&D activity under the Incentive
  • did not ‘involve innovation or high levels of technical risk’ is comparable to saying that the activities were not eligible because their outcomes could have been known or determined in advance
  • did not have the required purpose is directly comparable to the purpose of generating new knowledge requirement in the R&D Tax Incentive.

Excavator Projects


In this series of activities, the companies claimed activities to design new excavator buckets (the scoop that is attached to an excavator that picks up rocks).  The activities involved changing the configuration and shape of commercially available buckets, including changing the teeth and spacing, to improve digging speeds and effectiveness.  Some work was also undertaken on customised buckets.  The work proceeded by a methodology that changed one variable at a time.

The Tribunal heard expert witness that stated that the ‘one variable at time’ approach would only be effective if all variables were controlled.  On the evidence provided by the companies, there activities were not carried out according to a systematic plan and the variables were not controlled.  The Tribunal noted:

An approach that is incapable of producing meaningful results, and which in fact produces results that cannot be said to be meaningful, is not a systematic, investigative or experimental activity. Dr White states in his expert report dated August 2016, that “the outcome of adopting this OVAT [one variable at a time] approach was inevitably to fail to establish the true relationships of the various affecting factors (variables)” [at para 187].

As a result, these sets of activities were also found to not be eligible for the R&D tax benefit.

The Tribunal’s decision that the activities were not eligible because they were not systematic, experimental or investigative is relevant to companies claiming the R&D Tax Incentive.

If an activity is conducted in a production environment and it is not designed well enough to test the claimed hypothesis, the activity may be found ineligible.

Activities that are undertaken to customise commercially available equipment to local conditions are not likely to be eligible for the R&D Tax Incentive.