AAT decision – Coal of Queensland Pty Ltd
AAT decision in Coal of Queensland Pty Ltd and Innovation and Science Australia provides clarification about when activities fall under the mining exclusion and are not core R&D activities. The AAT also determined that an extension of time to pursue an internal review should not be granted because the failure to apply was entirely the fault of the Applicant and within its control.
- The AAT’s decision supports the department’s position that when activities fall under the mining exclusion, this is sufficient by itself for those activities to not to be core R&D activities.
- Key points from the AAT’s decision include:
- The activities fell under the mining exclusion in subsection 355-25(2), which also applies to coal, because the activities were focused on determining the size and quality of the coal deposit and at determining more precisely the expected variability in coal quality.
- Documentation assists to demonstrate that activities are carried out by applying a systematic progression of work based on principles of established science; that proceeded from hypothesis to experiment, observation and evaluation, leading to logical conclusions.
Federal Court decision – Coal of Queensland Pty Ltd v Innovation Science and Australia
On 23 April 2021, the Full Federal Court dismissed the appeal by Coal of Queensland Pty Ltd from the AAT decision that the claimed activities were not “R&D activities” within the meaning of the Income Tax Assessment Act 1997.
The key findings of the Full Court include:
- There is a distinction to be made between the outcome of an activity, and values data and results generated by an activity, when considering whether the outcome of an activity can be known or determined in advance based on current knowledge, information or experience. While the precise data that an activity may generate may not be able to be known in advance, it does not necessarily follow that the outcome of the activity is not able to be known or determined in advance.
- The nature of an activity, and the novelty and predictability of the results of that activity, may assist in determining whether the purpose of the activity is to generate new knowledge.
- It is correct to approach making findings by considering the eligibility of the activities registered in the relevant income year as core or supporting R&D activities, and not evaluating a multi-year project as a whole.
- There is no mutual exclusivity between s355-25(1) and (2) of the Income Tax Assessment Act 1997 – an activity may be conducted for the purpose of generating new knowledge, however if it falls within one of the matters set out in s355-25(2), the exclusion will apply.
High Court decision – Coal of Queensland Pty Ltd v Innovation Science and Australia
On 2 September 2021, the High Court dismissed Coal of Queensland’s application for special leave to appeal the Full Federal Court’s decision. The High Court found that the application did not raise any question of general principle sufficient to warrant the grant of special leave to appeal.
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