Active Sports Management Pty Ltd and Industry Innovation and Science Australia

Active Sports Management Pty Ltd (the applicant) sought to have a decision of Industry Innovation and Science Australia (the respondent) reviewed by the Administrative Appeals Tribunal. The dispute concerned whether certain activities undertaken by the applicant in developing a basketball shoe for a professional player constituted eligible research and development activities under the *Industry Research and Development Act 1986* (Cth) and the *Income Tax Assessment Act 1997* (Cth). The applicant contended that the development of a new and improved basketball shoe, described as a "signature shoe," resulted in new knowledge and information.

The Tribunal was required to determine whether the activities undertaken by the applicant qualified as core research and development activities, and consequently, as supporting research and development activities, for the purposes of the relevant tax legislation. Specifically, the court had to consider whether the activities were excluded under subsection 355-25(2) of the *Income Tax Assessment Act 1997* because they produced goods or services, or were directly related to producing goods or services, unless undertaken for the dominant purpose of supporting core R&D activities. A key consideration was whether the activities were undertaken for the purpose of generating new knowledge, with an emphasis on the systematic progression of work and the availability of contemporaneous documentation.

The Tribunal reasoned that the applicant failed to demonstrate that the claimed activities were conducted for the purpose of generating new knowledge. It found that the activities primarily involved the modification of existing athletic shoe design features to meet the personal preferences of an individual player, rather than pursuing technical or scientific uncertainty. The Tribunal noted inconsistencies in the evidence regarding prototypes and found that the descriptions of modifications were vague. Furthermore, expert evidence suggested that many aspects of the shoe's development, such as the availability of low-cut basketball shoes and research into modifications for functionality, were already known within the industry. The absence of persuasive contemporaneous documentation evidencing a systematic progression of work was also a significant factor.

Consequently, the Tribunal concluded that none of the claimed activities constituted core R&D activities, nor could they be considered supporting R&D activities. The decision under review was affirmed.