Federal Court ruling on R&D Tax

01 August 2019

Nicola Purser, Partner, Research & Development |
Dave Smith, Associate Director, Tax, Research & Development |

Last week, the Full Federal Court ruled against a restricted interpretation of what constitutes 'core R&D activities'.

The restricted interpretations of the legislation were escalated by AusIndustry's compliance activities, with changes largely accepted by the Administrative Appeals Tribunal. 

This judgment is good news for mining and non-lab based technology companies.

The definition of 'core R&D activities' should now be read more broadly to include:

  • A core R&D activity should be assessed as a whole, rather than on the basis of individual experiments. This was highlighted by the Federal Court due to the fact that the phrase 'experimental activities' does not further narrow the definition of core R&D activities beyond the requirements that the activity:
    • Has the outcome which cannot be known or determined in advance; and
    • Is conducted for the purpose of generating new knowledge.
  • 'Experimental activities' may include 'activities having the purpose of generating new knowledge with respect to the application of an existing technology at a new site'
  • The more specific wording of the explanatory memorandum cannot be treated as a substitute for the statutory text, as the meaning of the statutory text is not unclear in this circumstance
  • The individual circumstances of the taxpayer must also be considered in applying the legislative definitions.

The judgement affirms the original purpose of the program which is to 'encourage industry to conduct research and development activities that might otherwise not be conducted because of an uncertain return, in cases where the knowledge gained is likely to benefit the wider Australian economy'.

For more information regarding R&D activities, please contact a member of our specialist team.