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Moreton Resources Ltd and Innovation and Science Australia (Taxation) [2018] AATA 3378 (10 September 2018)

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Moreton Resources Ltd and Innovation and Science Australia (Taxation) [2018] AATA 3378 (10 September 2018) Moreton Resources Ltd and Innovation and Science Australia (Taxation) [2018] AATA 3378 (10 September 2018) Division: General Division File Number: 2016/0604 Re: Moreton Resources Ltd APPLICANT And Innovation and Science Australia RESPONDENT DECISION Tribunal: Deputy President S A Forgie Date: 10 September 2018 Place: Melbourne The Tribunal decides to: affirm the decision of the respondent dated 21 December 2015 confirming its decision dated 21 August 2015 that activities in respect of which Moreton Resources had applied for registration were not R&D activities as defined in s 355-20 of the Income Tax Assessment Act 1997. .................[sgd]....................................................... Deputy President S A Forgie © COMMONWEALTH OF AUSTRALIA 2018 TAXATION – RESEARCH AND DEVELOPMENT TAX INCENTIVE – underground coal gasification pilot project - whether R&D activities – decision affirmed Legislation A New Tax System (Goods and Services Tax) Act 1999 Acts Interpretation Act 1901 s 23(b) Corporations Act 2001 s 249D Environmental Protection Act 1994 (Qld) ss 7, 11, 146(1), 146(2), 147, 147(1), 147(2), 148, 148(1)(c), 148(3) 148(4), 149, 154(2), 155, 156, 187, 188, 193, 193(2), 193(3)(b), 194(2)(b), 358, 360(1)(c), 360(2), 361, 361(1), 361(2), 426, 430, 430(2) and 430(3) Environmental Protection (Greentape Reduction) and Other Legislation Amendment Act 2012 Income Tax Assessment Act 1997 ss 355-5, 355-5(2), 355-20, 355-25, 355-25(1), 355-25(1)(a), 355-25(1)(a )(i); 355-25(1)(a )(ii), 355-25(1)(b), 355-25(1)(f), 355-25(2), 355-25(2)(f), 355-30, 355-30(2), 355-30(2)(a), 355-35(1)(a), 355-100(1), 355-100(2), 355-205, 355-205(1) and 995-1(1) Income Tax Assessment Act 1936 ss 73B, 73B(1), 73B(1)(a) and 73B(2C) Industry Research and Development Act 1986 ss 3, 4(1), 27A, 27A(1), 27A(1)(a), 27A(1)(b), 27A(3)(a), 27A(3)(b), 27B, 27B(1), 27B(2), 27C, 27D, 27D(c), 27F, 27F(2), 27F(3), 27F(4), 27J, 27J(1), 27J(1)(a), 27J(1)(c), 27J(1)(c)(i) to (iv), 27J(1)(d), 27J(2), 27K(2), 27M, 27M(1), 28A, 28A(1), 32A, 32B, 32J and 39J Industry Research and Development Decision‑making Principles 2011 Land Access Code 2010 Mineral Resources Act 1989 (Qld) ss 186 and 208(3) Petroleum and Gas (Production and Safety) Act 2004 Petroleum and Gas (Production and Safety) Regulation 2004 Tax Laws Amendment (Research and Development) Bill 2010 Taxation Administration Act 1953 s 14ZZK(b)(i) Taxation Laws Amendment Act (No 3) 1996 s 3 Tax Laws Amendment (Research and Development) Act 2011 Cases Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; (2009) 239 CLR 27; 260 ALR 1; 73 ATR 256 Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1; (1983) 44 ALR 607; 70 FLR 447; 83 ATC 4015; 13 ATR 825 Blue Metal Industries Limited v Dilley (1969) 117 CLR 651; [1970] AC 827; [1969] 3 All ER 437; [1969] 3 WLR 357 Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 Cabell v Markham (1945) 148 F(2d) 737 CIC Insurance Ltd v Bankstown Football Club Ltd [1997] HCA 2; (1997) 187 CLR 384; (1997) 141 ALR 618 Cougar Energy Limited v Debbie Best, Chief Executive under the Environmental Protection Act 1994 [2011] QPEC 150; [2012] QPELR 370 Deal v Father Pius Kodakkathanath [2016] HCA 31; (2016) 258 CLR 281; 334 ALR 37 Industry Research and Development Board v Coal & Allied Operations Pty Ltd [2000] FCA 979; (2000) 101 FCR 405; 2000 ATC 4477; (2000) 44 ATR 541 Kia Australia Pty Limited v Chief Executive Officer of Customs (1998) 86 FCR 473 Krew v Federal Commissioner of Taxation (1971) 71 ATC 4213; 2 ATR 230 Page 2 of 128 Lansell House Pty Ltd v Commissioner of Taxation [2010] FCA 329; (2010) 76 ATR 19 McCormack v Federal Commissioner of Taxation [1979] HCA 18; (1979) 143 CLR 284; 23 ALR 583; 79 ATC 4111; 9 ATR 61 Macmine Pty Ltd v Federal Commissioner of Taxation (1979) 24 ALR 217; 79 ATC 4133; 9 ATR 638 Newcastle City Council v GIO General Ltd [1997] HCA 53; (1997) 191 CLR 85; 149 ALR 623 Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355; (1998) 153 ALR 490 Re Applicant and Industry Research and Development Board [1999] AATA 468; (1999) 55 ALD 784; (1999) 99 ATC 179; (1999) 42 ATR 1116 Re Babinda Co-operative Sugar Milling Association Ltd and Australian Industrial Research and Development Incentives Board; [1980] AATA 38; (1980) 2 ALD 851 Re DBTL and Innovation Australia; [2013] AATA 573; (2013) 137 ALD 88 Re JLSP and Innovation Australia [2016] AATA 23 Re RACV Sales & Marketing Pty Ltd and Innovation Australia [2012] AATA 386; (2012) 129 ALD 32; (2012) 57 AAR 268; [2012] ATC ¶10-254 Residual Assco Group Ltd v Spalvins [2000] HCA 33; (2000) 202 CLR 629; 172 ALR 366 Sea Shepherd Australia Limited v Commissioner of Taxation [2013] FCAFC 68; (2013) 212 FCR 252; 92 ATR 836 Taylor v Owners-Strata Plan No 11564 [2014] HCA 9; (2014) 253 CLR 531; 306 ALR 547 Secondary Materials Chambers 21st Century Dictionary, 1999, reprinted 2004 (Chambers) Explanatory Memorandum to the IRD Amendment Bill Explanatory Memorandum to the R&D Amendment Bill Explanatory Memorandum to the Tax Laws Amendment (Research and Development) Bill 2010 Macquarie Dictionary; 5th edition, 2009, Macquarie Dictionary Publishers Pty Ltd, Sydney, Australia Shorter Oxford English Dictionary, 5th Edition, 2002, Oxford University Press Statutory Interpretation in Australia; 8th edition, DC Pearce and RS Geddes, LexisNexis Butterworths, Sydney 2014 Stroud’s Judicial Dictionary of Words and Phrases, Seventh Edition, 2006, Sweet & Maxwell, London REASONS FOR DECISION Deputy President S A Forgie 1. Subject to certain conditions, an R&D Tax Incentive is available to an entity if it is an “R&D entity” and conducts “R&D activities” in respect of which it is registered under the Industry Research and Development Act 1986 (IRD Act). The incentive takes the form of a refundable or non-refundable tax offset depending on the annual turnover of the entity. Innovation and Science Australia (ISA), which is also referred to as the “Board” under the Page 3 of 128 IRD Act and was previously known as “Innovation Australia”,1 is responsible for the registration of activities and for determining whether activities are R&D activities. The Commissioner of Taxation (Commissioner) is responsible for determining whether an entity is an R&D entity entitled to apply for an R&D Tax Incentive and for determining the expenditure incurred and claimed. 2. Moreton Resources Ltd (Moreton Resources) is an “R&D entity” as it is a body incorporated under an Australian law.2 Until 16 February 2007, it had been known as Pinnacle VRB Limited and, until 11 October 2013 as Cougar Energy Ltd (Cougar). I will refer to it as “Moreton Resources” regardless of its precise name at the time. It applied to ISA to be registered under s 27A of the IRD Act in respect of some of its activities as R&D activities for each of the income years ending 30 June 2012, 2013 and 2014 (2012, 2013 and 2014 years). The ISA initially registered Moreton Resources. It subsequently decided that the activities in respect of which Moreton Resources had applied for registration were not R&D activities as defined in s 355-20 of the Income Tax Assessment Act 1997 (ITAA97). ISA made that decision on 21 August 2015 and confirmed it on 21 December 2015. 3. I have decided to affirm the decision dated 21 December 2015 confirming the decision dated 21 August 2015 that activities in respect of which Moreton Resources had applied for registration were not R&D activities as defined in s 355-20 of ITAA97. LEGISLATIVE FRAMEWORK Object of Division 355 of ITAA97: Research and Development 4. Division 355 of the ITAA97 is entitled “Research and Development”. Its object is set out in s 355-5: “(1) The object of this Division is to encourage industry to conduct research and development activities that might otherwise not be conducted because of an uncertain return from the activities, in cases where the knowledge gained is likely to benefit the wider Australian economy. (2) This object is to be achieved by providing a tax incentive for industry to conduct, in a scientific way, experimental activities for the purpose of generating new knowledge or information in either a general or applied form (including new knowledge in the form of new or improved materials, products, devices, processes or services).” 1 Reference will be to the ISA or to the Board in these reasons for decision. 2 IRD Act; s 4(1) and Income Tax Assessment Act 1997 (ITAA97); s 355-35(1)(a) Page 4 of 128 Tax incentive takes the form of a tax offset 5. The tax incentive, to which s 355-5(2) refers is provided in the form of a tax offset. Generally speaking,3 provided notional deductions, which are the subject of s 355-205, are at least $20,000: “An *R&D entity is entitled to a *tax offset for an income year equal to the percentage, set out in the table, of the total of the amounts (if any) that the entity can deduct for the income year under any or all of the following provisions: (a) section 355-205 (R&D expenditure); (b) section 355-305 (decline in value of R&D assets); (c) section 355-315 (balancing adjustment for R&D assets); (d) section 355-480 (earlier year associate R&D expenditure); (e) section 355-520 (decline in value of R&D partnership assets); (f) section 355-525 (balancing adjustment for R&D partnership assets); (g) section 355-580 (CRC contributions).
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