Tribunal Member: Andrew Maryniak QC

The research and development (R&D) tax incentive is a program that allows businesses to access tax offsets for the money they spend on R&D activities. These R&D activities must be registered with Innovation and Science Australia (the respondent). The applicant’s registered activities were related to the design and development of an integrated health and fitness program, as well as the design and development of a cloud-based support system.

For an experimental activity to be a ‘core R&D activity’, the outcome of the activity must be unknown and it must be conducted by scientific method. The applicant submitted that their R&D activities had produced several algorithms which were based on software engineering principles which they attempted to connect with scientific method. However, the respondent decided that none of the registered activities in the 2013–14 and 2014–15 financial years satisfied the definition of R&D activities. The AAT was asked to review this decision.

The AAT found that the registered activities had not followed scientific method. For example, the experiment listed for the registered activity was defined as targeting ‘groups of individuals of different ages, sex, personal habits and health status’. It was subsequently discovered that the experiment was completed by only two or three members of the company owner’s family. Without a sufficiently large sample size following a set exercise program, the AAT found that it was difficult to conclude that a scientific method was followed.

The AAT agreed with the respondent and was not satisfied that any of the registered activities identified in the Industry and Research Development Act 1986 (Cth) were conducted by or on behalf of the applicant. The AAT affirmed the decision under review.

Read the full decision on AustLII.