Body by Michael Pty Ltd and Industry Innovation and Science Australia (Taxation and business) [2025] ARTA 44 (24 January 2025)
Applicant:Body by Michael Pty Ltd
Respondent: Industry Innovation and Science Australia
Tribunal Number: 2023/3490
Tribunal:General Member J Dunne
Place:Melbourne
Date:24 January 2025
Decision:The Tribunal varies the decision under review so that:
1. The decision that paragraph 355-25(2)(d) of the Income Tax Assessment Act 1997 (Cth) applies is set aside; and
2. The decision under review is otherwise affirmed.
……..……………[SGD]……………………
General Member J DunneCatchwords
TAXATION – Research and development tax offset – registration of activities relating to development of an integrated ‘six pillars’ program and an associated app – Whether any activities were ‘‘core R&D activities’’ or ‘‘supporting R&D activities’’ – Meaning of “outcome cannot be known or determined in advance” – Meaning of “based on principles of established science” – Whether there is a necessity for documentary evidence – Whether there is a necessity for contemporaneous evidence – Whether Applicant’s activities excluded as “research in social sciences, arts or humanities” – Meaning of “social sciences” – Analysis of expert evidence – GENERAL – use of artificial intelligence at the Tribunal
Legislation
Acts Interpretation Act 1901 (Cth), s 15AA
Administrative Review Tribunal Act 2024 (Cth), s 54
Administrative Review Tribunal (Consequential and Transitional Provisions No.1) Act 2024 (Cth) Part 5 of Schedule 16
Income Tax Assessment Act 1997 (Cth), ss 355-5, 355-25(1), 355-25(2)(d), 355-30
Income Tax Assessment Amendment (Research and Development) Act 1986 (Cth), s 7
Industry Research and Development Act 1986 (Cth), ss 3, 28A, 27A, 27B, 27F, 27J, 30D, 30E, 47
Industry Research and Development Decision-making Principles 2011 (Cth)
Industry Research and Development Decision-making Principles 2022 (Cth)
Taxation Administration Act 1953 (Cth), Schedule 1, s 355-50
Cases
Absolute Vision Technologies Pty Ltd and Innovation and Science Australia [2022] AATA 2319
Active Sports Management Pty Ltd v Industry Innovation and Science Australia [2024] FCA 1346
Air New Zealand v ACCC; PT Garuda Indonesia Ltd v ACCC [2017] HCA 21
Camalic Pty Ltd v Innovation and Science Australia [2020] AATA 1590
Coal of Queensland v Innovation and Science Australia [2021] FCAFC 54
Commissioner of Taxation v Bogiatto [2020] FCA 1139
Docklands Science Park Pty Ltd v Innovation Australia [2015] AATA 973
H2O Exchange Pty Ltd v Innovation and Science Australia [2021] FCA 11
Havilah Resources Ltd v Innovation and Science Australia [2020] AATA 933
Lakes Oil NL v Innovation and Science Australia [2023] AATA 811
Maluka and Maluka [2011] FamCAFC 72
Moreton Resources Ltd v Innovation and Science Australia [2019] FCAFC 120
PKWK v Innovation and Science Australia [2021] AATA 276
Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 55
Re GQHC and Commissioner of Taxation [2024] AATA 409
Re Mount Owen Pty Ltd v Innovation Australia [2013] AATA 573
Re RACV Sales & Marketing Pty Ltd and Innovation Australia [2012] AATA 386
Rix’s Creek Pty Ltd; Bloomfield Collieries Pty Ltd and Innovation Australia [2017] AATA 645
Royal Wins Pty Ltd and Innovation and Science Australia [2020] AATA 4320
Secondary Materials
‘Guideline on persons giving expert and opinion evidence', Administrative Appeals Tribunal (superseded by the Administrative Review Tribunal Guideline on persons giving expert and opinion evidence, October 2024)
‘Guideline on persons giving expert and opinion evidence’, Administrative Review Tribunal (Guideline, October 2024)
‘R&D Tax Incentive Guide to Interpretation’, Department of Industry, Science, Energy and Resources (Guide, 2020)
‘Social Science Disciplines (Fields of Research)’, Academy of the Social Sciences in Australia (Webpage, 7 March 2023) <Social Science Disciplines (Fields of Research) | Academy of the Social Sciences in Australia>
‘What is social science?’, UK Research and Innovation (Webpage, 31 May 2023) <Social science disciplines – UKRI>
‘About the Social Sciences’, Academy of the Social Sciences in Australia (Webpage) <The Social Sciences - State of the Social Sciences>
‘What is Social Science’, Academy of Social Sciences (Webpage) <What is Social Science? – Academy of Social Sciences>
Abdallah, Michael, Project You: Inspire Transform Empower (Michael Abdallah, 2021)
Australian Bureau of Statistics, Australian and New Zealand Standard Research Classification (ANZSRC) (30 June 2020) <Australian and New Zealand Standard Research Classification (ANZSRC), 2020 | Australian Bureau of Statistics>
Explanatory Memorandum, Income Tax Assessment Amendment (Research and Development) Bill 1986 (Cth)
Explanatory Memorandum, Industry Research and Development Amendment (Industry Innovation and Science Australia) Bill 2021 (Cth)
Explanatory Memorandum, Tax Laws Amendment (Research and Development) Bill 2010 and the Income Tax Rates Amendment (Research and Development) Bill 2010 (Cth)
Explanatory Memorandum, Taxation Laws Amendment Bill (No.3) 1996 (Cth)
Ferris, Bill, Alan Finkel, and John Fraser, Review of the R&D Tax Incentive (Review, 4 April 2016)
Macquarie Dictionary (Online at 20 December 2024, Macquarie Dictionary Publishers, an imprint of Pan Macmillan Australia Pty Ltd)
Nisbet, Robert A, and Liah Greenfield, ‘social science’, Encyclopaedia Brittanica (online, 3 December 2024) <Social science | History, Disciplines, Future Development, & Facts | Britannica>
Organisation for Economic Co-operation and Development (OECD), Frascati Manual 2015: Guidelines for Collecting and Reporting Data on Research and Experimental Development, The Measurement of Scientific, Technological and Innovation Activities (Report, 8 October 2015) < align="left">Glossary
Abbreviation
Reference
1986 EM
Explanatory Memorandum to the Income Tax Assessment Amendment (Research and Development) Bill 1986 (Cth)
1996 EM
Explanatory Memorandum to the Taxation Laws Amendment Bill (No.3) 1996 (Cth)
2010 EM
Explanatory Memorandum to the Tax Laws Amendment (Research and Development) Bill 2010 and the Income Tax Rates Amendment (Research and Development) Bill 2010 (Cth).
ATO
Australian Taxation Office.
Application
BBM’s R&D registration application to IISA dated 11 February 2020.
BBM
Body By Michael Pty Ltd, the Applicant.
BBM Articles Submission
The submission entitled “Research Articles Professor V” provided to the Tribunal by BBM after the hearing
BBM Closing Submissions
BBM Closing Submissions dated 20 November 2024, including an addendum dated 28 November 2024, and a further addendum dated 13 December 2024.
BBM SFIC
BBM Statement of Facts, Issues and Contentions[1] dated 21 October 2024
Expert Report
The report of Professor Corneel Vandelanotte dated 23 August 2024.
Frascati Manual
OECD (2015), Frascati Manual 2015: Guidelines for Collecting and Reporting Data on Research and Experimental Development, The Measurement of Scientific, Technological and Innovation Activities OECD Publishing, Paris.
Income year, 2019 income year, or 2019 year
Refers to the year ended 30 June 2019, the income year in dispute.
individual mix argument
Refers to the personalisation or individualisation of the six pillars for each participant in BBM’s program
IISA
Industry Innovation and Science Australia, the Respondent.
IISA Closing Submissions
IISA Closing Submissions dated 28 November 2024.
IISA SFIC
IISA Statement of Facts, Issues and Contentions dated 20 September 2024.
IR&D Act
Industry Research and Development Act 1986 (Cth)
ITAA 1997
Income Tax Assessment Act 1997 (Cth)
R&D
Research and development
Six pillars
BBM’s program involving movement, hydration, mindfulness, nutrition, sleep, breathing.
Social sciences exclusion
Paragraph 355-25(2)(d) of the ITAA 1997.
[1] Referred to in error on that document as “Statement of Facts, Issues and Contingencies.”
Contents
STATEMENT OF REASONS
Issues
Background
Timeline of events
The Evidence Before The Tribunal
The evidence for BBM – the registration application
The evidence for BBM – the examination period
The evidence for BBM – the internal review period
The evidence for BBM – further documentary evidence filed at the Tribunal
The evidence for BBM – BBM’s witness evidence before the Tribunal
The use of artificial intelligence
The evidence for IISA – the Expert Report and evidence from Professor Corneel Vandelanotte before the Tribunal
Analysis and Reasons for Decision
Whether Activity 1 or any part of BBM’s activities met the definition of core R&D activities as defined in subsection 355-25(1) of the ITAA 1997
The statutory and regulatory context – The two regulators
The R&D Tax Incentive program – object
The definition of ‘core R&D activities’Experimental activities
[W]hose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience
No existing research papers
Individual mix of the six pillars:
Identifying the “gap” between isolated and integrated approaches to the six pillars
Algorithm/appConclusions
“(a)….but can only be determined by applying a systematic progression of work that is based on principles of established science and proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions;”
The scientific method
Whether there is a requirement for documentation and contemporaneous documentation“[B]ut can only be determined by applying a systematic progression of work”
“[B]ut can only be determined by applying a systematic progression of work that (i) is based on principles of established science”
“[B]ut can only be determined by applying a systematic progression of work that (i) is based on principles of established science; and (ii) proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions”
“[B]ut can only be determined by applying a systematic progression of work that (i) is based on principles of established science; and (ii) proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions and (b) that are conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes or services)”
Conclusions
Whether Activity 1 was excluded from the definition of core R&D activities by virtue of paragraph (d) of subsection 355-25(2) of the ITAA 1997
If the answer is that part of BBM’s activities are core R&D activities, whether the remainder of Activity 1 met the definition of supporting R&D activities in section 355-25(1) of the ITAA 1997
Overall Conclusions
STATEMENT OF REASONS
ISSUES
BBM has sought a review in this Tribunal[2] of the internal review decision issued by IISA dated 26 April 2023.[3] The Application for Review was made pursuant to section 30E of the IR&D Act. The relevant income year at issue before the Tribunal is the 2019 year.
[2] This matter was originally filed in the Administrative Appeals Tribunal and has been transferred to this Tribunal, in accordance with Part 5 of Schedule 16 of the Administrative Review Tribunal (Consequential and Transitional Provisions No.1) Act 2024 (Cth).
[3] T1.
IISA’s internal review decision was made under section 30D of the IR&D Act and confirmed its earlier finding under section 27J of the IR&D Act. That finding was that BBM’s “Activity 1”[4] was not a core R&D activity as defined in subsection 355-25(1) of the ITAA 1997. As a consequence of this finding, BBM’s activities were not entitled to be registered. This in turn meant that the R&D tax incentive was not available to BBM.
[4] On occasion in the evidence Activity 1 is referred to as “Activity 1.1.” For the avoidance of doubt, the Tribunal has considered the two references as interchangeable. The two references are due to BBM’s Application referring to “Activity 1” and “Activity 1.1” for the same thing (see T4, 123).
The issues that the Tribunal is required to consider are:
(a)Whether Activity 1 or any part of BBM’s activities met the definition of core R&D activities as defined in subsection 355-25(1) of the ITAA 1997.
(b)Whether Activity 1 was excluded from the definition of core R&D activities by virtue of paragraph (d) of subsection 355-25(2) of the ITAA 1997.
(c)If the answer to paragraph 3(a) is yes in relation to any part of BBM’s activities, whether the remainder of Activity 1 met the definition of supporting R&D activities in section 355-25(1) of the ITAA 1997.
For the detailed reasons outlined below, the answer to each of the questions in paragraphs 3(a) and 3(b) is no. This means the question in paragraph 3(c) is not relevant. The consequence is that IISA’s decision that paragraph 355-25(2)(d) of the ITAA 1997 applies is set aside and IISA’s decision is otherwise affirmed.
BACKGROUND
Timeline of events
On 11 February 2020 BBM applied to IISA to register its activities in its project entitled “BBM stress release system (new innovated services).”[5]
[5] T4. In Mr Abdallah’s evidence before the Tribunal, he referred to advice from a bookkeeper prior to lodging the application, and that BBM’s accountant S Baker & Co lodged the registration application – Transcript 47, [40], [44]. In cross-examination by Ms Smith Mr Abdallah conceded that there had been two prior registration applications by BBM: Transcript 51, [20], [22], also T32, 697. This is of no particular significance to this case.
A Notice of Registration was issued by IISA on 11 February 2020.[6]
[6] T5.
On 16 September 2021 IISA notified BBM that its registration had been selected for examination.[7] Concerns were expressed by IISA in an attached ‘Statement of Issues’ about the eligibility of BBM’s activities for registration for the R&D Tax Incentive. Requests were made for documentation.
[7] T7.
Between September 2021 and November 2021, BBM provided IISA a presentation[8] a copy of a book entitled ‘Project You’ written by Mr Abdallah (a director of BBM),[9] and there were discussions and information exchanged between IISA and BBM.[10] This included IISA’s R&D Tax Incentive Guide to Interpretation[11] and a response to BBM’s questions about interpretation of the relevant provisions[12] being provided to BBM, as well as written responses and information provided by BBM to IISA.
[8] T15.
[9] T16 and published by Michael Abdallah.
[10] T8, T9, T10, T11, T12, T13, T14, T17, T18, T19.
[11] T9 Commonwealth of Australia 2020.
[12] T13.
On 4 November 2021 BBM responded to IISA’s Statement of Issues by inserting written replies in red font and embedding that in IISA’s original Statement of Issues.[13]
[13] T20.
Between November 2021 and April 2022 further information was provided by BBM to IISA[14] and additional questions were asked by IISA.[15] There were also various emails, meetings and discussions between BBM and IISA.[16]
[14] T25, T26, T30, T31, T32 and T40.
[15] T28, T30, T31 and T34.
[16] T21 to T40.
On 12 April 2022 IISA issued its finding to BBM under section 27J of the IR&D Act. The certificate of finding is dated 7 April 2022.[17] The finding was that BBM’s Activity 1 was neither a core R&D activity nor a supporting R&D activity.[18] When considering the core R&D activity definition, IISA’s finding concluded that there was no core R&D activity and that Activity 1 as described in the application for registration:
(a)Was not an experimental activity whose outcome cannot be known or determined in advance on the basis of current knowledge, information and experience;[19]
(b)Did not involve a systematic progression of work, based on principles of established science, proceeding from hypothesis to experiment, observation and evaluation and leading to logical conclusions;[20]
(c)Was carried out for the purpose of generating new knowledge; and
(d)Did not fall within any of the legislative exclusions in subsection 355-25(2) of the ITAA.
[17] T41, 771.
[18] T41.
[19] The reasoning for this was a conclusion that all of the outcomes could “be predetermined on the basis of knowledge, information or experience available in the medical/health sciences field when the Activity began in 2018.” T41, 772.
[20] IISA stated that the company did not provide evidence that it held a hypothesis at the beginning of the activity nor that the hypothesis was tested, T41, 772.
BBM applied for an internal review of that finding under section 30C of the IR&D Act on 5 May 2022.[21]
[21] T44, T45, T46.
Between May and December 2022, BBM and IISA engaged in both correspondence and meetings, and BBM provided more information to IISA.[22] BBM received and made submissions in response to a draft internal review decision dated 7 December 2022.[23]
[22] T44 and T58.
[23] T58. Note T1, 19 suggests the draft internal review decision was dated 12 December 2022 which seems incorrect. T1, 21 to T1, 58 forms BBM’s response to that draft internal review decision.
On 26 April 2023, IISA issued its final internal review decision under section 30D of the IR&D Act. That decision confirmed that Activity 1 was not a core R&D activity.[24] The internal review decision concluded consistently with the original finding that Activity 1:
(a)Was not an experimental activity whose outcome cannot be known or determined in advance on the basis of current knowledge, information and experience;[25]
(b)Did not involve a systematic progression of work, based on principles of established science, proceeding from hypothesis to experiment, observation and evaluation and leading to logical conclusions;[26] and
(c)Was carried out for the purpose of generating new knowledge.[27]
[24] T1.
[25] The reasoning for this was a conclusion that all of the outcomes could “be predetermined on the basis of knowledge, information or experience available in the medical/health sciences field when the Activity began in 2018.” T1, 10.
[26] IISA stated that the company did not provide evidence that it held a hypothesis at the beginning of the activity nor that the hypothesis was tested – T1, 10.
[27] T1, 10.
However, the internal review decision differed from the original finding in determining that, based on the evidence, Activity 1 “appears to” fall within paragraph 355-25(2)(d) of the ITAA 1997 the “social sciences exclusion” in any event, and Activity 1 is excluded from being an “eligible core activity” as a consequence.[28]
[28] T1, 10. Also IISA SFIC [122]-[128].
It is notable that IISA took a different view before the Tribunal from both its finding and its internal review decision on whether BBM’s activity was carried out for the purpose of generating “new knowledge.”[29] This is now also challenged by IISA. IISA’s submission is, in effect, one of saying there was insufficient evidence for the Tribunal to be satisfied as to this purpose being present, even though IISA had been so satisfied in its internal review decision and finding. IISA’s new position may be motivated by conclusions in the Expert Report.[30] Section 54 of the Administrative Review Tribunal Act 2024 (Cth) provides that when reviewing a reviewable decision, the Tribunal has all the powers and discretions of the original decision‑maker.
[29] IISA SFIC [108]; IISA Closing Submissions [106], [107].
[30] Expert Report R2, for example [82] “I assessed Claimed Activity 1 as completely irrelevant in terms of knowledge generation.”
On 22 May 2023, BBM applied for a review of the internal review decision in this Tribunal.[31] BBM’s application for review stated that the internal review decision was wrong because: “This decision is completely subjective and in no way objective and clear, especially after the abundance of qualifying information, evidence submitted and proven outcomes business opportunities as a result of the intense work carried out in those years of R&D Activity.”
THE EVIDENCE BEFORE THE TRIBUNAL
[31] T1, 1.
The evidence for BBM – the registration application
In its Application[32] BBM stated:
The objective of this project is an experiment with a mental health treatment, which will include the creation and development of several equipment prototypes and laboratories, so we can acquire information during our research. Our initial product will be a tool system and an [sic] mobile App (Body by Michael). Our brains and bodies are bombarded by our environment. Gravity, temperature, touch, light, smells and sounds constantly pull on our muscles nervous system and senses. Not to mention the stresses of work, deadlines, relationships and finances. The mental and spiritual benefits of the program can range from a greater sense of peacefulness to profound and life-changing experiences. As lives become busier, more complicated and open to distractions, our program will become increasingly popular as people turn to simple non-invasive ways to relax and keep stress levels down, which will be complemented with exercise and diet, which will provide the correct energies. This project is unique in Australia, therefore there is no information where we can base our conclusion on. We do not know if the project will work or not, however if it does there will be the opportunity to open many markets for our organization [sic], which will convert into more employment. Experimentations have given important data, so our project is covering a significant amount of knowledge gap which did not exist. before. examining the preventative health care benefits of our program therapy found that stress, depression and anxiety were significantly decreased whereas optimism and sleep quality [sic]. There was also a significant correlation between mindfulness in daily life. However, they are not sharing enough information, therefore we must do our own research. [W]ith commitment, our project can open new roads to recovery for conditions including: anxiety, depression, insomnia, addiction etc. As well as pain associated with fibromyalgia, chronic fatigue and emotional injury. While the benefits of our project differ from person to person, most people feel ‘good’ after getting out. This project has enough potential to change Australia, as attacking our high levels of stress. All contestants will be using the Body by Michael BBM app – as an accountability and educational tool. This contains a wealth of information including exercise programs, recipes, breathing techniques. The contestants will initially sit a mental, physical and emotional type test (what ever [sic] that would be called) where they workout [sic] and highlight what are high, medium and low priority as every individual will have their own skill sets to learn that'll help improve the life and what [sic] relevant to their needs and wants.
[32] T4.
The Application also stated that new knowledge was intended to be produced and that the outcome of the core activities in the project could not have been known or determined in advance on the basis of current knowledge, information or experience:
In Australia is completely new [sic]. As there is no project like ours efficient and highly automated [sic], has never been attempted in our country. During our tests and experimentations processes, significant amount of data has been obtained so we can analyse it and convert it into new knowledge. Trial and error have been an important practice for our company. There are no manuals or internet resources for a lot of the tests we’re doing in our factory and the technology integration we’re attempting. Examples of these ‘unknowns’ are:
·Our touchscreen has been custom made and programmed to control the functions of our projects. Again, this is a brand-new system, so testing will be required several experimentations [sic].
·Our Systems are custom made and unique to our requirements. Because there is no precedent for the type of project we’re making at times we’ve run into unforeseen problems (despite the amount of research we’ve put in).
·As we are doing several experimentations we are acquiring new data which will cover into more knowledge and better understanding for our project, which also will allow us to add more functions and discover more applications to our project.
The project will have a … control centre and will be programmed to control much of its automated processes. Developing a touchscreen which can be used remotely (e.g., at a reception area) to control the day to day running of the program and functions, such as starting and stopping a session. Radio or cabling connectivity from the touchscreen to control box (whether we use radio or cabling will depend on the premises). This will allow the touchscreen to ‘speak’ with the control box. The software, programming and user interface of the touchscreen have all been custom made for our company. We have lent [sic] heavily on our expertise for this project and so far, we are very happy with the results. Once we start testing the system, we may discover that certain functions are not working correctly, or the connectivity between the touchscreen and the control box may falter. Luckily, we will have expert assistance and guidance through every step of the process. There are … many variables that can make the project fail, therefore it is impossible to predict the outcome, the only way to know if the project will work or not it is by doing it and wait until there is enough data to base our conclusion on and see if our theories and hypothesis can be confirmed.
When setting out the details of its core activities in its Application, BBM said it had spent $134,469 on core activities and described “Core Activity 1” as ‘Systematic tests and experimentations’ to be carried out between July 2018 and December 2022 and described as:
We are developing a system that allow us to make our systematic experimentations , also as part of our project is the need for much information before we will know if project will work out or not, as we mention before. We are still doing many tests and experimenting in many parts of the project, as well as production tests [sic] runs.
In its Application, BBM focused on the Body by Michael app, “tool system”, “equipment prototypes” and the touchscreen as a means to collect data.[33] The project itself was described as having a health focus – particularly mental health. In saying that, as BBM has accepted, the description of the project and activities in the Application was vague and unclear and perhaps a “bit confused.”[34]
[33] This is further described by BBM in the IISA phone note at T24, 648. The Tribunal notes that BBM explained at the hearing that the touchscreen had been a ‘flop’ and was abandoned – Transcript 34, [34], p38, [1], [11].
[34] T1, 27 and T24, 648.
The evidence for BBM – the examination period
During the examination period,[35] BBM provided IISA with more material and gave further details of its project. In broad terms, the project involved considering BBM’s “six pillars,” movement, nutrition, breathing, hydration, sleep and mindfulness on an integrated basis. BBM advised that it was developing a holistic approach to enable people to attain health and wellbeing, while also empowering them by giving people knowledge and tools.[36] This is further explained below.
[35] The examination period is the period up to the finding being issued, and prior to the application for an internal review by BBM.
[36] Adapted from wording in T16, 609, 610.
The additional material provided during the examination period (in summary) was:
(a)On 16 September and 17 September 2021[37] BBM explained to IISA (by phone), and on 21 September 2021[38] by email, that Mr Abdallah (for BBM) had been appointed as a health and vitality ambassador for AIA (the health insurance firm). Mr Abdallah explained that he intended to use this role to promote the BBM project. Mr Abdallah’s presentation in the AIA role was provided to IISA on 19 October 2021.[39]
[37] T8, T10.
[38] T11.
[39] T15.
(b)In terms of the preparation of BBM’s Application, Mr Abdallah explained that he worked with varying parties and a bookkeeper had identified the R&D program to Mr Abdallah and he then wrote and filed the Application personally.
(c)On 19 October 2021 Mr Abdallah emailed IISA[40] explaining that the content of the book ‘Project You’[41] was directly linked to the research in the BBM project. BBM advised that the book demonstrated how the six pillars feed into each other, and that for users of the six pillars to have the “most comprehensive program” “each [of the six pillars] is equally important in the conclusion and outcome.” BBM was creating an “Academy” at that stage and the plan was to have 5000 global coaches promoting the program.[42] All of this was said to have been possible because of BBM’s R&D. Mr Abdallah also advised IISA of the variety of BBM clients that had been assisted by the BBM program.[43]
[40] T14.
[41] T16.
[42] The Academy curriculum is also mentioned at T55, 850, and T1, 24.
[43] For instance, T18, 627, an ice addict and additional clients following a TV spot. Also referred to at T24, 648 was a formerly suicidal client, and at T25, 652, 653, other clients/participants are referred to, such as one on the autism spectrum, and another with a very stressful job. At T51, 826 further clients are referred to. The transcript also refers to clients e.g., 35, [20], [40]. The point made by BBM was that its project was designed to assist people with an array of differing needs.
(d)On 4 November 2021[44] Mr Abdallah for BBM responded to the questions asked by IISA by embedding answers in IISA’s Statement of Issues.[45] The following sets out IISA’s issues and BBM’s response (in summary):
[44] T20.
[45] T7.
(i)IISA stated that BBM had not described an experiment, nor how the outcomes of any such experiment cannot be known or determined in advance on the basis of current knowledge, information or experience. In response, BBM stated it was only focused on R&D and carried out experiments “to obtain or acquire enough information to create a brand-new science backed product” to offer to consumers. It was explained that BBM did not have anything to trade with and was six months away from a “genuine impactful launch.” BBM cross-referred to its other answers and the documents already provided on the issue of whether the outcome could be known in advance.
(ii)IISA stated that BBM had not described “a systematic progression of work, proceeding from hypotheses to experimentation, observation and analysis to arrive at logical conclusions regarding the validity of stated hypotheses.” In response BBM stated that the book ‘Project You’[46] represented some of the fruits of the R&D (while not written with scientific facts outlined in technical detail as that may scare readers). BBM again referred to the “Academy” it was looking to create and commented in terms of systemic progression of work that “Through systematic tests and experiments of each pillar, the need to improve another component continued to expose itself, for example when we focused on nutrition; one of the issues, we were combatting was stomach bloating, pains, discomfort etc so we began to strip back the diet and then began to reintroduce food groups in stages. The response was relatively the same until we tied it in with breath work and the way the subjects were able to eliminate bloating was mind blowing - we discovered that breath work was able to improve blood pH around food and therefore improved digestion.” Further examples were also given relating to the relationship between sleep, breath, movement and nutrition. BBM then concluded, “Tying in combinations of pillars is where the magic began to happen and eventually the hypothesis, that all 6 Pillars were equally important in creating the most comprehensive ‘Whole-istic’ and complete mental, physical and emotional health and well-being program. The next step was to identify the perfect program from the 6 Pillars that then can be commercialised and utilised by all walks of life.”
[46] T16.
(iii)IISA stated that BBM’s hypotheses did not identify technical knowledge gaps with “causal relationships between technical variables, which directed claimed experimental activities.” Although the Tribunal recognises that this is in IISA’s R&D Tax Incentive Guide to Interpretation,[47] this is not the statutory test.[48] IISA is encouraged to consider the scientific method taking into account that the R&D regime is about industry R&D, and applicants like BBM are small businesses. BBM stated that the hypothesis could not identify the gaps in technical knowledge until the R&D began and noted that while the market was saturated with theories based on some of the six pillars individually, there was no concept that had the six-pillar process integrated in the manner that BBM did. The point was that taking a “one or two‑dimensional health program” was flawed.
[47] T9, 156.
[48] There is some correlation to [2.11] of the 2010 EM but this wording still is not accurate even to that comment.
(iv)IISA stated that BBM had not described experimental activities carried out for the purpose of “generating new scientific or technical knowledge based on the principles of established science.” The Tribunal comments that once again, this is not the statutory test. Section 355-25 of the ITAA 1997 does not require “new scientific or technical knowledge”, merely “new knowledge.” Nor does the definition require that new knowledge to be “based on the principles of established science.” Rather, it is the work that is based on principles of established science. It is important to always state the statutory test and formulate questions against that test correctly. The Tribunal reminds IISA that where parties are unrepresented small businesses, it is even more important to be precise. In any event, BBM stated that the initial premise of the R&D was to “help combat the epidemic of mental health disorder[s]” and the “systematic testing” “revealed that collectively … implementing the [six] pillars … were measurable and [the results] felt almost immediately.” BBM also emphasised that its testing was “to obtain data that did not exist before” and “To [be] able to acquire new knowledge.”
(v)In its response BBM also referred to the app as being “the most unique UI/UX experience.”
(e)On 5 November 2021 IISA and Mr Abdallah for BBM had a further teleconference (recorded in an IISA file note).[49] BBM was asked about “study subject categories” which BBM had stated were both information services and health services. BBM was asked about the app. Mr Abdallah explained that the app was a tool to collect data and was adapted using Sri Lankan software in order to merge together elements of the six pillars quickly – for example, physiological tests and nutrition journals.
[49] T24.
(f)In the same call, in terms of the six pillars, IISA stated its understanding was that “examples of outcomes” from BBM’s activities were:
(i)“Nutrition did not improve until it was accompanied with breath work.
(ii)Increased movement encouraged food nutrient assimilation
(iii)Breath control assists anxiety
(iv)Bad sleep causes people to make bad food choices
and these ultimately pointed to an outcome that all six pillars were equally important.”
(g)The file note of the call indicates that Mr Abdallah said that was “basically the sum of it” and noted all six pillars need to be incorporated for a complete structure and the next phase was to determine the impact on “different types of persons.” Mr Abdallah also noted that as the BBM program progressed “new layers emerged” and this required adaptation to each individual person. BBM was asked to provide evidence to demonstrate that its program was not achieved by other existing programs and indicated it would provide evidence of its experiments to IISA as it had given such evidence to the ATO.
(h)On 14 November 2021 BBM provided additional material by email following the 5 November 2021 call.[50] In that email, Mr Abdallah stated that the program was “one that encompasses mental, physical, emotional, and nutritional health systematically” and it was a “complete and comprehensive program… by taking existing information, exposing the gaps, and then creating brand new knowledge.” Pictures were attached of what was described as “the new private new lab/facility[51] that we built (which I have attached the actual build of the facility, from being an empty place of 4 walls with upstairs testing rooms and downstairs function and recovery area), as the intent was to create secure and private environment that would allow the participants the comfort, not something that was invasive or intimidating to them.” It was emphasised that the facility was not open to the public and was “[p]urely set up to create brand new knowledge.”[52] BBM also stated that the facility is no longer used, and it was only used as part of the R&D “to develop new knowledge”.[53]
[50] T25.
[51] T25, 662 and T4 (see [19] above) refer to the facility as a “factory.”
[52] T25, 652 and T25, 662.
[53] T25, 662. The Tribunal notes that in its response to the draft internal review decision (see T1, 24) BBM confused the use of the facility in carrying out BBM’s “core activity” in its R&D project with the creation of the facility. IISA was saying the facility was not created in the 2019 year so the pictures showing that creation are not relevant to the 2019 year.
(i)BBM also described the steps it had undertaken: “The systematic steps used were followed this basic format 1. Identify the research needed to close the gaps between the programs and the outcomes in areas that exposed alarming statistics; i.e., obesity, mental health disorders etc; 2. Identify inclusion and exclusion criteria’s [sic] 3. Cross reference any research consistent with existing theories and then identify potential gaps based on other theories that could help elevate the one being looked at 4. Then identify new inclusions based on objective criteria’s [sic] (as in what was being tested and the necessary changes it would expose); 5. Extract newfound data revealed; 6. Evaluate the risk and influence of biases; 7. Assess results and quality of evidence.” BBM then gave several examples of how the work and research would be undertaken (in nutrition, movement, and breathing for example) and outlined an array of tests it undertook.[54] It was conceded by Mr Abdallah in cross-examination by Ms Smith that some of this material had intentionally not been provided to IISA due to concerns that IISA predetermined its decision.[55] That attitude to IISA is not encouraged by the Tribunal.
[54] T25, 655. These included static posture assessment, physiological load test, food log journals, nutrition and lifestyle assessments, abdominal wall function, and occasionally blood and saliva tests. The latter tests were also discussed in evidence before the Tribunal – Transcript 42, [1]–[21]. Mr Abdallah also gave evidence that there was weekly feedback of individual outcomes and biometric data taken weekly – Transcript 42, [35], [30]. In cross-examination Mr Abdallah conceded BBM had not advised IISA of some of these tests previously – Transcript 61, [20], [41].
[55] Cross-examination of Mr Abdallah, Transcript 61, [20], [47].
(j)Taking the breathing example, BBM specified how taking into account the different pillars in its program demonstrated that (for example) the rib cage can be prevented from expanding due to muscle strain or back pain or hormonal problems or other physiological or mental challenges. BBM also said that its research had showed that shallow breathing caused participants to crave stimulants such as coffee or sugar. BBM noted this was backed by medical research. Ultimately BBM stated that the breathing pillar needed to be addressed alongside other pillars to devise a program suitable for the individual to sustain their progress. BBM pointed out that existing nutrition programs and apps do not emphasise the importance of breathing or movement. BBM also noted that hormonal issues and problems with mental and physical health can arise from poor nutrition and people need to be educated on eating for vitality.[56]
[56] T25, 661.
(k)In terms of gym workouts, BBM made a number of submissions describing the use of two types of muscle groups and the differences between them and noted that breath work and nutrition work alongside movement as important factors for how these muscle groups work. BBM described its points of difference as “[W]e progressively develop the coherence between the important interplay of the two systems whilst combatting the effects on posture that were causes by stresses, faulty breathing, and a sedentary lifestyle. Therefore, the information conclusion associated with movement was that a significant improvement was need[ed] in the overall health and well-being of the individual rather than just an exercise program.”[57]
[57] T25, 660.
(l)BBM then concluded saying that in the income year “The first step was to establish the gaps and what was needed to create the most complete and comprehensive program, which we feel like we accomplished in the [year] 2018/19. The next step was how was that going to look like for any individual that wanted to adopt this philosophy/theory? The conclusive outcome was to improve anyone’s mental, physical, and emotional health and that the 6 Pillars are all needed to be incorporated as they all feed into each other.”
(m)IISA asked further questions by email dated 16 November 2021[58] particularly requesting information that related to the income year and requesting contemporaneous records. BBM replied by email dated 23 November 2021.[59] In summary:
[58] T28.
[59] T30.
(i)BBM stated that “hundreds of tests” were conducted in the income year. BBM said “over the space of that year we had 3 males and 4 woman [sic] who followed an unbiased controlled systematic process to help expose gaps in the information conclusion and in turn helped form the basis of the 6 Pillar system.”
(ii)“The data extraction and monitoring of the participant’s experiments were at times done in controlled groups either as a collective group and at other times separated in groups of gender or age. The metrics and data extracted would then help determine what else was necessary to be tested or what was deemed to be a waste of time.”
(iii)“[In the income year] our initial focus was to test existing information about mental health issues and what the best possible program would look like. Because of the systematic experiments and the direction they took us in, the conclusion ended up being that all 6 Pillars were by far the most impactful way to improve mental health problems almost immediately. … [T]he newfound 6 Pillar system was found to be equally impactful in improving physical and emotional health as well, which allowed the program to go from being about ‘mental health’ to now a complete and comprehensive mental, physical and emotional health, and well-being program. Therefore, our hypothesis could not be predetermined.”[60]
[60] In cross-examination, Mr Abdallah clarified that what he meant was what the outcome of the hypothesis could be and whether it was correct could not be predetermined – Transcript 51 [1], [15].
(iv)In response to questions about contemporaneous records, BBM explained that it was “4 years on” and records such as those on the app had been “extracted and reframed” into a new app. BBM explained, “[a] copy of the old records was not necessary to keep as we had already moved into the next phase of how the metric will look after the 6 Pillars were formed” and “handwritten documents would be difficult to place in order as they are bundled in groups in our shared storage unit, not to mention how hard it would be to interpret the information because of how it was written, kind of like shorthand.”
(v)When responding to questions about the method the experiments took, and inclusion and exclusion criteria, BBM stated it focused on “control group testing as this was a program of complete awareness [as to] how the body and the mind was responding.”[61] BBM also stated that it would “test and retest after modifications were implemented” tracking the metrics and results. An example was given of a calorie-controlled diet tested on its own first, then with various amounts of sleep to see differences in effectiveness. Other pillars were then added as well. BBM stated “the experiments were the basis of exposing flaws and gaps. In turn the results of those experiments determined the next needed experiment that would potentially improve the results. This usually incorporated a systematic test of two or more pillars into those experiments, which provided new results that were cross referenced with the previous results.”
(vi)Further expansion on the steps referred to in BBM’s 14 November 2021 response[62] was given as well as further examples of those steps. The conclusion was that “Through these steps the information conclusion was that individually each theory or pillar was moderate at best in its effectiveness but collectively was exceptional in outcome and effectiveness.”
(vii)In response to questions relating to the manner in which data was extracted, BBM said it extracted data both digitally via the app and through reports, assessments and books. BBM also referred to the previous information provided about tests it undertook.[63] In responding to questions about bias, BBM submitted both it and the participants in its project were interviewed face to face and were completely neutral and objective, without influences or agendas. BBM referred to prior information provided to IISA when asked about whether data or statistical analysis was done of the quality of the evidence.
(n)On 30 November 2021, IISA asked for confirmation that the material given was what was being relied upon by BBM, noting earlier statements given by BBM that particular material could be available (especially data).[64] In response BBM referred to IISA’s R&D Tax Incentive Guide to Interpretation[65] where contemporaneous documents are described as one form of evidence. BBM indicated it would be difficult and take time to locate all of the “metadata” as it is “bundled all over the place in the joint storage unit” and requested further time. BBM submitted what it had provided was sufficient.[66]
(o)Subsequently by email dated 5 December 2021,[67] BBM provided a folder of material,[68] and confirmed that “due to the limited budget, we had to move on swiftly in order to launch for the post pandemic aftermath and the software/database in the app used at the time has now been completely overhauled and the platform completely upgraded to suit a bandwidth capable of a global capacity. Retrieving any information that can be used here would be impossible now.” BBM also confirmed that the photographs of the facility did not relate to the income year but was part of demonstrating the process undertaken by BBM on the project. The facility was used for the R&D in the income year. BBM submitted that the project had evolved and was adversely impacted by the pandemic. BBM also supplied further material related to Mr Abdallah’s appearances on television.[69]
(p)More information was sought by IISA,[70] as the facility was said by BBM to have been improved in the 2019 income year. In evidence before the Tribunal Mr Abdallah specified certain improvements, although it is not particularly clear what he referred to was done in the 2019 year.[71] There is also material on the Tribunal Book[72] where BBM submitted that it developed “persona testing rooms” which were “designed to isolate specific variables and measure their effects on participants.” BBM stated “Northern Hire’s work in building these rooms facilitated a structured approach to our research, ensuring that each health pillar could be evaluated independently before testing the integrated approach in later phases. This methodical setup was vital for generating new insights and developing a personalised health algorithm, aligning with our research objectives and the guidelines of the R&D Tax Incentive Program.” In the Tribunal Book assertions are made about the “introduction” of new rooms and assertions made about the benefits being a more holistic approach.[73]
(q)In later material provided to the Tribunal, there are diagrams of the floor plan design[74] which show exactly the same rooms in each phase of BBM’s project, other than that two of them have been renamed in the integrated phase. The “medical and therapeutic assessment room” in the isolated phase becomes the “hyperbaric chambers testing room” in the integrated phase, and the “onboarding room” in the isolated phase becomes the “vibrosaun testing room” in the integrated phase. Otherwise, there is a reorganisation of the gym area.[75] It is very hard to see from this material what exactly is a “persona testing room” or its significance, if any. I also cannot see what exactly was constructed by Northern Hire in 2019, given the rooms seem the same and the diagrams reflect configuration is the same before and after. From the material the “persona testing rooms” merely enable individual assessment[76] and there seems nothing ground-breaking about moving from one room to another. BBM also says there were “environmental enhancements”[77] but these again seem insubstantial in nature (e.g., noise/music and light which can be easily adjusted). For those reasons I do not take activities relating to “persona rooms” into account further in this decision as the evidence is that such activities were insubstantial.
(r)IISA also obtained material from the ATO which included invoices for BBM’s expenses.[78]
[61] In evidence before the Tribunal, Mr Abdallah said that refinements were made over time as control group testing did not work -Transcript 38, [39].
[62] See [23(i)] of these reasons and T25.
[63] See footnote 54 of these reasons and T25, 655.
[64] T31.
[65] T9.
[66] T31, 694.
[67] T32.
[68] This material is comprised of what appears to be exercise programs and a document showing various assessments undertaken (e.g., length/tension assessment and physiological load assessment). See T32, 699 to T32, 707. Examples of journals (which deal with matters such as mood, and nutrition) are included at T57, 856 to T57, 864.
[69] T33.
[70] T33, 709.
[71] Transcript 42, [30], [45] refers to the inclusion of a vibrosaun and hyperbaric chambers.
[72] Tribunal Book A3, 311-312.
[73] Tribunal Book A3, 318.
[74] Tribunal Book A2, 12-13.
[75] While BBM refers to this as a “central mobility integration area”(Tribunal Book A3, 320) it is very hard to see the substance of what BBM is claiming here given it is merely moving gym equipment into one space.
[76] Tribunal Book A3, 320 “Experiments were conducted in isolated rooms and sections with a focus on individual health components. For example, participants would engage in physical activities in one room or area and then move to another room for mindfulness exercises.”
[77] Tribunal Book A3, 319 – these seem to be focused on lighting and sound.
[78] T40.
The evidence for BBM – the internal review period
Following the finding being issued,[79] BBM sought an internal review[80] pursuant to section 30D of the IR&D Act. BBM provided further information to IISA as part of that process. In summary:
[79] T41, 771.
[80] T44.
(a)At a meeting with IISA on 20 July 2022, IISA’s file note[81] records that BBM suggested it was trying to tidy up its R&D application and described its process as the following: “The core process about this is to improve your health and wellbeing through the 6 pillars. If I was to ask you what your definition of health is, everyone would have a different one. The dictionary definition means to be complete and to be whole. This will answer question two too. The purpose of the R&D is to improve your health. We need to focus on all of the individual pillars but as a collective.” Examples were also provided in that discuss as to how BBM’s model had helped people.
[81] T51.
(b)On 28 July 2022 IISA made a written request for information.[82] BBM responded to that request on 31 August 2022.[83]
[82] T52.
[83] T55.
(c)In its 31 August 2022 response BBM stated that:
(i)In terms of the core activity, it was “The conclusive result in each of the ‘6 Pillars’, is that they feed into each other. That individually ‘The Pillar’ will have some impact, but as a collective will create the most profound transformational outcomes in whatever the individuals’ goals are – whether it be improving physical appearance, physical ailment, mental and emotional health disorder etc, etc.”
(ii)In terms of the existing knowledge the difference was that “Existing information is quite linear and primarily focuses on the individual topic, therefore can be restricted, and limited in [its] information conclusion.” An analogy was given to studying a part of the human body, while ignoring how that part impacted the whole body. BBM said that the app’s user experience was a “unique and individualised process” and would make the “relevant adjustments needed to achieve an improved sense of health and wellbeing.”
(iii)When asked whether the program was more than an amalgam of existing knowledge, BBM submitted “An amalgam would simply be a cut and paste process of ‘hey, this worked for someone else, so you try it’. Through the extensive research and development, we were able to work out which would be the most important Pillar combination structures – and at what the ratio of importance was needed to create the most comprehensive transformational program. The brilliance and biggest point of difference is in the User Experience and how it’s individualised to suits the needs and requirements of the person utilising any one of our eco system verticals – in particular, the App. … the best thing is it will continue to adapt to the changes the subscriber/user.”
(iv)BBM confirmed that in broad terms the hypothesis being tested was “to expose flaws in existing information and create ‘brand new’ and conclusive knowledge.”[84] BBM also confirmed it had six participants in its project – three males and three females of varying ages, backgrounds and health needs. BBM stated that one of the matters that was revealed by its research is that participants made preconceived assumptions about what they needed help with when the reality was it was one or more of the other pillars that needed attention. For each participant the process involved determining which criteria were high priority, medium priority and low priority.
[84] T55, 845.
(v)Inclusion and exclusion criteria and new exclusions based on objective criteria were each asked about. BBM did not directly respond to these questions. BBM again focused on the outcomes of its program and how the six pillars were shown to be important, and the “direction or shift” was determined for each “persona/profile.”[85] When asked about any other research considered, chapter 8 of ‘Project You’[86] was referred to by BBM as an example when considering the nutrition pillar. On pages 236–238 of ‘Project You’ studies are referred to about diet.[87] BBM’s submissions focused on the positive outcomes of its program. BBM later confirmed that the ‘Project You’ book did not include the experimental process but explained the core six pillars.[88]
[85] T55, 846.
[86] T16.
[87] Referenced there are Biochemist Roger William and his book ‘Biochemical Individuality’ (no reference details are cited), a book ‘Nutrition and Physical Degeneration’ from the 1930s and a book ‘Metabolic Type Diet’ (no authors or reference details cited) and Weston A Price is referred to as undertaking extensive research in South America (no reference details are cited).
[88] T55, 850.
(vi)In terms of data, BBM stated it extracted data and that formed “the basis for our ‘questionnaire system’ that would help identify the best combination variations in each of the 6 pillars” for each person. In terms of the experimental process adopted, BBM also focused on data[89] and included a presentation it said was provided to “some of the board of directors.”[90] BBM submitted “The data we acquired was entered into the software/app - that has since formed the basis of the questionnaire and user experience of the App that is currently being created. ... [T]he complete list of questions and the [complexity] of the App’s UX [or] UI is not shown in this presentation …. [which] only focuses on the onboarding and the ‘My Project’ section of the App and the only way the ‘user’ can unlock their ‘unique and [individual] journey’ and enjoy the user experience is by answering the questions in each of the pillars. Again, the only way we have been able to identify and create this unique ‘User Experience’ (UX) was based on the R&D experimental outcomes and the data input into that software.” BBM also noted that journals for each of its participants were maintained by them and also formed useful data. Examples of those journals were provided to IISA on 9 September 2022.[91]
[89] T55, 848.
[90] In Mr Abdallah’s evidence he referred to a board of directors that included the CEO of Go Latitude and Nick Bell who was on Shark Tank. Transcript 37, [37], [40]. The evidence before the Tribunal does not set out the composition of the BBM board, and the material is contradictory with Mr Abdallah stating in evidence that he was the director of BBM (Transcript 38, [16]). This point is of little significance to the matter before the Tribunal but reflects the confusing nature of the evidence at times.
[91] T57.
(vii)BBM was asked about its evaluation of the risk and influence of biases. In response BBM described this as an “essential step in being able to extract data that was neutral and not at risk of being influenced by preferences or subjective biases.” BBM did not specify the process undertaken and again focused on the outcomes of its program giving a nutrition example.
(viii)When asked about the assessment of results and the quality of evidence, BBM said this was important “to identify anything else that needed to be implemented or incorporated to best achieve the desired outcome.” BBM gave an example related to obesity, where an outcome may not have been achieved, identifying the need for other pillars to be prioritised.
(ix)Finally, BBM was asked to what extent the project related to “the mental function and behaviour of individuals.” The Tribunal notes that this question appears to relate to the potential application of paragraph 355-25(2)(d) of the ITAA 1997 by IISA. Paragraph 355-25(2)(d) excludes from core R&D activities “research in social sciences, arts or humanities.” While question 10 of IISA’s 28 July 2022 request for information refers to the relevant provision by number and paragraph, nothing tells BBM what this provision is about. BBM was an unrepresented party. The Tribunal encourages IISA to always fairly outline what its questions relate to. BBM, again, thought that describing the project outcomes for participants was the answer to the question being asked – noting “it’s all mental … we are as much physical as we are mental, as we are emotional and … there can be no isolated existence of one without the other … they are all equally important and that if one lacks then the rest will lack.”
(d)On 7 September 2022, IISA asked some further questions relating to the BBM app explaining that it wanted to “better understand how this app fits into the overall project/activity … or whether it in fact should be classified as a separate activity.”[92] BBM provided more information in its response on 9 September 2022.[93]
(e)BBM stated that the app was “the centrepiece of focus of the unique, intuitive and individualised experience – as highlighted in the previous answers and video submitted” and the app activity occurred in 2019, 2020 and 2021. BBM also said that “all the systematic experimental successes and failures of experimental hypothesis led to the completely unique and intuitive ‘User Interface and User experience’ of the App highlighted in the most recent response submitted to you.”
(f)Later responses again focus on the overall program and not the app. The Tribunal believes that BBM’s responses misunderstood the question. BBM was focused on the outcome of its overall program, saying that data from the app was used throughout the overall project. But IISA was focused on the development of the app in isolation; as IISA said “whether it should be classified as a separate activity.” BBM did say that its explanations did not focus on the app being “the primary point in the explanations of the experiments.”
(g)But then, in submissions responding to the IISA draft internal review decision dated 7 December 2022,[94] BBM focused on the algorithm and the app[95] and submitted:
(i)The app “set[s] us apart from the rest of the world”,[96] as the app “populate[s] the unique delivery of the [overall] program via the data entry process of the individual [which was] pivotal in the creation of the overall A.I. process.”
(ii)BBM had researched and tested every popular and successful app in the world that had one or two of the pillars in it and could “easily say that we are the first in the world to pioneer such detailed and intuitively personalised program; this isn’t a cut and paste generic program like all the market is saturated with – we have a major point of difference. Again, for the sake of consistency and fairness to the work carried out in 2018/19 and the outcome conclusions in creating this algorithm, if you were to research the market, you should research and make the comparisons to the market in the years 2018/19.”[97]
(iii)“[T]he App is the [centrepiece] of all that has been created. If we can please keep our focus on the App then I believe it will eliminate any confusion as the other verticals are all delivered differently and do not truly represent the outcomes of the R&D as well as the App does.”[98]
(iv)“Lastly, we are also the first to pioneer a continuous data collecting process in the App that will effectively continue to teach us more and more about each personas allowing us to continue to evolve and set brand new standards, knowledge, and breakthroughs.”[99]
(v)But BBM also noted, “The development of the App could not be a standalone activity as the systematic experiments and the App feed into each other otherwise ’what are we developing exactly?’”[100]
[92] T56.
[93] T57.
[94] T58.
[95] T1, 22, and particularly T1, 25 “The algorithm created allows the program to change – the algorithm is reliant on the transparency of each individual’s data input (through the App’s onboarding process and the unlocking of the Pillars) to be able to populate the most accurate and tailor, made individualised program. Unique to that person’s circumstance and/or requirements.” It is noted that BBM’s submissions appear at T59 as well. To avoid repetition, the T1 references are referred to by the Tribunal instead of T59.
[96] T1, 26.
[97] T1, 26.
[98] T1, 24.
[99] T1, 26.
[100] T1, 29.
BBM further explained its position[101] when responding to the draft internal review decision dated 7 December 2022.[102] That explanation was consistent with BBM’s prior submissions to IISA. In summary:
(a)BBM objected to the draft internal review decision, stating it was “subjective and vague at best, in clearly proving and providing the reasons for the draft outcome.”
(b)BBM explained that “the initial experiment ideal was … continually developing as the outcomes in the R&D Experimental process ended up exploiting flaws in the current understanding and information conclusions. [This meant that the process] progressively evolved into something that has become more than initially intended.”
(c)BBM provided a “sequence example of the systematic experiments” and noted that “the hypothesis could not be predetermined and therefore the information conclusion would guide us into what became the 6 pillar concept, but started off as an app to help mental health.”
(d)BBM then provided a series of attachments that set out the hypothesis, materials and procedure for each of the steps and issues it had advised IISA about in prior submissions.[103] The Tribunal understands that BBM engaged KPMG to prepare this material. That material had the apparent intention of putting prior submissions into a format that IISA was more comfortable and familiar with.
(e)BBM also disputed the application of paragraph 355-25(2)(d) of the ITAA 1997.[104] Those submissions are outlined particularly in the BBM SFIC at [107]–[114]. In essence, the submissions dispute that social science includes its research which it describes as “biomedical” or “medical” in nature.
[101] T1, 21 to T1, 57.
[102] T58.
[103] T1, 33 to T1, 56.
[104] This was also disputed in Mr Abdallah’s evidence – Transcript 42, [13], [42].
The final internal review decision was issued on 26 April 2023.[105] It confirmed the draft decision.
[105] T1, 9.
The evidence for BBM – further documentary evidence filed at the Tribunal
BBM’s evidence was supplemented before the Tribunal by the following documents:
(a)Miscellaneous material:
(i)Provided to the Tribunal[106] on 22 May 2023, the chart that appears in T1, 57 in relation to the algorithm for the app.
[106] Each document mentioned was also copied to IISA.
(ii)Provided to the Tribunal on 22 May 2023, a diagram entitled “Examining the Effects of Lifestyle Choices on Mental Health Disorders” which appears at T1, 32 and the KPMG‑prepared material which appears in T1, 33 to T1, 56.
(iii)Hypothesis and Response to Conciliation questions,[107] this document was provided to the Tribunal on 19 March 2024. In evidence before the Tribunal[108] Mr Abdallah conceded this document (particularly the hypothesis) had been typed in 2024, but suggested there was a handwritten version of this document which was previously in storage. When asked why this had not been previously provided to IISA, Mr Abdallah suggested he had provided a series of hypotheses in documentation to IISA, and this was merely a “more refined version.”[109]
[107] Tribunal Book A2, 2-44.
[108] Transcript 54, [5]-[33].
[109] See [30(b)] below for further detail about the cross-examination of Mr Abdallah on this point.
(iv)This document goes beyond an articulation of a hypothesis. It sets out a 13‑step timetable of activities that BBM asserts occurred at least in part in the 2019 year. This timetable was “1. July 2018 - initial planning for the R&D facility upgrade and expansion”; “2. July-September 2018 – design phase for R&D facility. Preparations for onboarding participants”; “3. 20 September 2018 – Northern Hire’s commencement of initial construction for Persona Testing rooms”; “4. September – October 2018 – on boarding of the six participants begins. Initial experiments are conducted to gather preliminary data”; “5. October-November 2018 – Analysis of initial data from experiments. Identification of required adjustments to facility and equipment based on experiment outcomes”; “6. January-February 2019 – Completion of facility restructuring. Enhanced rooms and equipment now in place for more refined experiments”; “7. 1-28 February – Re-onboarding of the same six participants, initiating the second phase of their individual R&D programs with the improved facility”; “8. February – April 2019 [appears to be focused on “integration” and what is described as a “second phase of re-onboarding”]; “9. February-April 2019 – Second round of experiments conducted with participants using the upgraded facility. Continuation of data collection and analysis” (this again refers to “re-onboarding”); “10. 29 April 2019 – Northern Geeks and Extreme Web – Began the enhancements in App development and online data systems for improved data collection and analysis” (the discursive discussion here focuses on the app); “11.4 May 2019 – Finalisation of facility enhancements with the purchase of the portable hyperbaric chamber”; “12. 1-30 June 2019 – Further experiments conducted and completion of the second phase of testing with participants. Final analysis of data and preparation of comprehensive findings relevant to the hypothesis”; and “30 June 2019 - Review of R&D activities, assessment of progress, and planning for future experiments based on the year’s findings.”
(b)The following material (in no particular order), none of which is dated:
(i)Provided to the Tribunal on 4 June 2024, the first group of documents. The first is entitled “Zoom notes based on the takeaways from the week 8 summaries of Phase 1, the following specific improvements are needed.”[110] This included comments such as “Integration of Wellness Pillars: Develop a more integrated approach that connects nutrition, hydration, breathing, movement, mindfulness, and sleep into a cohesive wellness plan” and “Variety and Enjoyment in Nutrition: Move away from rigid calorie counting to a more flexible and enjoyable approach to nutrition.”
[110] Tribunal Book A3, 337.
(ii)Also included in that first group of documents provided to the Tribunal on 4 June 2024 is “Zoom notes on Main Takeaways from Phase Two.”[111] This included comments such as “Improved Stress Management: By combining breathing exercises, mindfulness practices, and physical activities, participants experienced more effective stress management. The holistic approach helped reduce stress levels more significantly than isolated practices” and “Holistic integration: Phase Two successfully integrated the six wellness pillars; nutrition, hydration, breathing, movement, mindfulness, and sleep into a cohesive and interconnected wellness plan. This holistic approach created synergy between activities, enhancing overall well-being and engagement.”
(iii)That first group of documents also included “Hypothesis and Key Considerations for the R&D Experiments post 2018/2019 Collected Data.”[112] That document states that the proposed research is to “develop an advanced algorithm that leverages adaptive learning technologies to create highly personalised and dynamic health and well-being programs. … The system will automatically adjust the program’s intensity and support level in real-time, responding to the user’s progress, regressions and changing life conditions, with the aim of improving or maintaining engagement and preventing program abandonment.” That document sets out a view as to why this proposed project aligns with the R&D Tax Incentive Guidelines.
(iv)A second group of documents provided to the Tribunal on 4 June 2024 entitled “Phase 1 – Isolated daily data week by week.”[113] This document includes weekly tables setting out nutrition (calories), sleep (time asleep), breathing (how long breathing techniques practised), exercise (type and duration) and hydration (number of glasses) data for six participants. Not every participant filled out this table on every occasion. It also included tables with the handwritten notation “zoomed in example.” An example of “Weekly coaching notes”[114] for the participants over 8 to 12 weeks were provided as well. Those notes recorded what the participants had been doing in relation to each pillar (e.g., calorie counting) and their reaction/feeling about those activities (e.g., “The emphasis on calorie counting made the meals feel repetitive”).
(v)A third group of documents provided to the Tribunal on 4 June 2024 entitled “Phase 2 Participants Daily Pillars Logs – Weekly Monitoring.”[115] This document does the same thing as the document noted above at paragraph 27(b)(iv). That is, it comprises weekly tables setting out nutrition (calories), sleep (time asleep), breathing (how long breathing techniques practised), exercise (type and duration) and hydration (number of glasses) data for six participants – just purportedly in ‘phase 2’.
(vi)A fourth group of documents provided to the Tribunal on 4 June 2024 entitled “Phase 2 integrated phase – weekly coaching notes”[116] is similar to the coaching notes noted above at paragraph 27(b)(iv). That is, the notes review each participant’s engagement in each of the six pillars, but in phase two of BBM’s project. There are conclusions in this material about the ‘integrated approach’ which focus on the benefits to the participants. The Tribunal agrees with Professor Vandelanotte’s observations on this material and the Phase 1 coaching notes.[117] That is, it seems remarkably favourable to BBM’s view that an integrated approach is more effective than an isolated approach – remarkably a 100% positive response to integrated, and a 100% less positive response to isolated. The conclusions are also extremely general. For example, “Week 8 has solidified the benefits of the integrated approach for [participant name]. [He/she/they] feels more balanced and empowered with noticeable improvements in [their] physical health, emotional well-being, and overall satisfaction with [their] lifestyle.”
(vii)A further document entitled “Phase 2 Integrated Zoomed in examples” was also provided[118] and it provided daily material to the same end as the weekly material described in paragraph 27(b)(v) above. It comprises data setting out nutrition (calories), sleep (time asleep), breathing (how long breathing techniques practised), exercise (type and duration) and hydration (number of glasses) data for six participants – just in “Phase 2.”
(viii)A fifth group of documents provided to the Tribunal on 4 June 2024 entitled “Onboarding questionnaires.”[119] The questionnaires are a series of questions about food, stress, or sleep, for instance. The onboarding process is also referred to in other BBM material provided to the Tribunal in an effort to show an experimentation process.[120] Then there is a document labelled “Fasting and meal plan structure – next 4 weeks”,[121] which provides a meal structure. A further document which is a “Forgive and Let Go Contract”[122] is about releasing ‘emotional baggage’. There is a document entitled “Comprehensive Impact Analysis of Health Interventions on Diverse Individuals.”[123] That document is a one-page iteration purporting to describe the project – with the objective noted as “To explore the effectiveness of integrated health interventions across a group with diverse health challenges, measuring improvements in well-being, physical health and mental health.” That document also refers to “continuous and progressive adaptations and post-intervention follow-up.” Lastly there is a Progress questionnaire[124] which asks participants questions about their experience in the program.
(ix)Provided to the Tribunal on 1 November 2024 was undated biometric data for six people in two 8-week phases.[125] The tests are HRV (heart rate variability), blood glucose and cortisol tests. This is firstly in Phase 1 (being, presumably, a ‘linear’ or ‘isolated’ phase), and then a further 8 weeks of the same tests in Phase 2 (being the ‘integrated’ phase). It is not obvious what was done with this data.
(c)Also provided to the Tribunal on 4 June 2024 was the R&D Algorithm Framework,[126] which is comprised of a series of mostly empty spreadsheets each labelled with reference to a particular pillar. There are also “Notes and documents to create Algorithm and measure engagements levels.”[127] This document sets out the difference in engagement levels between phase 1 and phase 2. It then includes “Steps to develop the algorithm for Dynamic Wellness Plans.”[128] This included 9 steps, and comments about the use of wearable devices for data collection as well as participants logging in their daily activities. There is also a document about testing that algorithm when completed.[129] It appears from the evidence overall that the algorithm is to be a future project as it is stated as commencing in late April 2019[130] in material filed at the Tribunal, and because overall the material is comprised of project planning documents.
[111] Tribunal Book A3, 339.
[112] Tribunal Book A3, 341.
[113] Tribunal Book A3, 72.
[114] Tribunal Book A3, 86.
[115] Tribunal Book A3, 155.
[116] Tribunal Book A3, 162.
[117] Expert Report R2, [54].
[118] Tribunal Book A3, 259.
[119] Tribunal Book A3, 45.
[120] Tribunal Book A3, 312-313.
[121] Tribunal Book A2, 31 and A3, 63.
[122] Tribunal Book A2, 32 and A3, 64.
[123] Tribunal Book A2, 35.
[124] Tribunal Book A2, 36 and A3, 68.
[125] BBM Tribunal materials - provided 1 November 2024.
[126] Tribunal Book A2, 39.
[127] Tribunal Book A3, 273.
[128] Tribunal Book A3, 277.
[129] Tribunal Book A3, 282.
[130] Tribunal Book A3, 277 and A3, 325.
The evidence for BBM – BBM’s witness evidence before the Tribunal
Mr Abdallah gave evidence before the Tribunal. Mr Abdallah impressed the Tribunal with his commitment to the BBM program, his sincerity and as to the overall benefits of the six pillars.
Looking at this case overall, the differences between Mr Abdallah/BBM and IISA in this case are differing technical skillsets causing communication issues. For example, as has been noted above, BBM’s submissions to IISA looked at the program as a whole and were focussed on the overall positive outcomes for participants, while IISA was required to consider the activities year by year and was focussed on the detail of what was done and when. IISA recognised this communication issue during the examination period, taking the perspective that BBM was unfamiliar with the eligibility requirements for the R&D tax incentive and officers of IISA made efforts to assist BBM – such efforts are important for a small business like BBM.[131] BBM also noted this communication issue late in the process and hired KPMG to assist it to compile its material in a more familiar format for IISA.[132] This difference in style and approach was also evident in Mr Abdallah’s evidence before the Tribunal.
[131] See for example the phone note at T24.
[132] T1, 33 to T1, 56.
Mr Abdallah’s witness evidence supplemented the BBM evidence summarised above. A summary of Mr Abdallah’s evidence follows:
(a)The point of difference between the six pillars program and other studies were an integrated approach as opposed to a linear approach. Mr Abdallah explained that an integrated approach meant that all of the six pillars were taken into account for the participants, with each participant having a different personalised mix[133] of those pillars in their individualised program. A linear approach involved each pillar being applied one after another by itself.[134] Mr Abdallah said the research was to assess the differences between an integrated approach and a linear approach.[135]
[133] Mr Abdallah described this as a “funnel” (Transcript 37, [2]) and “mix” is the Tribunal’s word.
[134] Transcript 33, [5], [25].
[135] Transcript 42, [31], [35].
(b)In cross-examination by Ms Smith, Mr Abdallah was referred to a document headed “Hypothesis (July 2018)” which sets out the hypothesis as “Assessing the efficacy of singular health and well-being components (nutrition, sleep, movement, hydration, breathing, and mindfulness) in individual improvements vs. the cumulative impact of integrating all six components in enhancing overall health and well-being. The aim is to resolve scientific knowledge gaps and understand the comparative benefits of isolated health components vs. an integrated approach to overall health and well-being.” Mr Abdallah confirmed this was first provided to IISA and the Tribunal on 19 March 2024 but suggested it was handwritten “in the stuff we got from storage.”[136] Mr Abdallah then stated in terms of a hypothesis “there was no clear something written down because there’s no clear questioning about what was the exact hypothesis.”[137] Ms Smith put to Mr Abdallah that there was no hypothesis in 2019 and noted the application form required a hypothesis, and Mr Abdallah said he was never asked about it.[138] Mr Abdallah’s evidence in this respect is difficult to reconcile, as he also acknowledged that the Application form requires an hypothesis.
[136] Transcript 53, [30], [45], 54 [13], [14].
[137] Transcript 53, [44], [45].
[138] Transcript 54, [20], [47]; 55, [17], [20].
(c)Mr Abdallah said that the “gaps” that were identified were between those two competing approaches – linear and integrated – and how they impacted participants. He said BBM was looking to learn “how to structure the layout to suit the two different sort of integrations that we wanted to have in terms of the systematic progressions of testing.”[139] In terms of the ‘two different sets of integrations’ referred to, the Tribunal understands Mr Abdallah to be referring to a linear integration first, and then an integrated model. The distinction between the two is difficult to draw and in cross‑examination Mr Abdallah said the “gap between integrating and isolating isn’t huge.”[140] He said he researched and looked for studies which had considered this.
[139] Transcript 34, [15].
[140] Transcript 57, [20], [22].
(d)When researching, Mr Abdallah said he both searched for other studies (mainly via internet searches) and consulted experts (referring to a doctor (an endocrinologist), a Mr Universe and a well-recognised trainer and coach).[141] He also referred to another doctor (a GP) and “my right hand man, Lance as well as the guys from Northern [Hire]”[142] as other people he engaged with.
(e)The touchscreen, while a flop, was basically the app, and software was adapted to create the app to meet BBM’s needs.[143] The Tribunal understands that the app was used to gather data. As Ms Smith noted in her cross-examination of Mr Abdallah and Mr Abdallah conceded, the app, its algorithm and specific data are not in evidence before the Tribunal[144] (although “very general evidence” was stated as available to the Tribunal).[145]
(f)In terms of the number of participants, there were initially eight, which went down to seven, and one other participant dropped out, so that went down to six – three women and three men.[146] Ms Smith cross-examined Mr Abdallah on the number of participants,[147] and Mr Abdallah explained the differences between his submissions at various times about the number of participants was due to changes over time and the answer was dependent upon when he was asked. BBM’s evidence is confusing and sometimes inconsistent on this aspect, which leads to the need to consider its weight. I do not accept however that this issue alone raises “serious questions about the credibility of [BBM]” as is suggested by IISA.[148]
(g)Each participant had a buddy to keep them going.[149] There was an initial ‘onboarding’ process[150] where the behaviour of participants was studied, and then participants were given journals where data could be kept, and the touchscreen[151] was used to log matters such as food logs and the workouts would have data recorded following a physiological test as well.[152] Other data was also taken into account – for example tracking sleep/wake cycles and tracking breathing.[153] In the income year, BBM determined where the participants’ baseline was at and then a linear structure was initially adopted (as phase 1) taking into account all six pillars.[154] Following that, a more comprehensive integrated structure was adopted (as phase 2), which the Tribunal understands involved the six pillars on an integrated basis.[155] Different equipment was used in phase 2 – such as hyperbaric chambers (stated to be to determine the effect of oxygenating the blood on the outcomes of six pillar integration) and vibrosaun (stated to be to determine the relationship between heat and movement on the outcomes of six pillar integration).[156] Mr Abdallah stated that the process described above was recorded in the T documents.[157]
(h)Ms Smith cross-examined Mr Abdallah about the experimentation process he described.[158] She asked how he controlled factors that might influence results, and how exactly integration was tested – giving the rather obvious example of movement/exercise not being able to be integrated with sleep for example. Mr Abdallah gave general evidence and provided analogies and examples. He drew to Ms Smith’s attention in relation to the nutrition pillar the difference between intermittent fasting and metabolic timing (which is what BBM adopted). Mr Abdallah accepted there was nothing before the Tribunal on this issue.[159]
(i)In terms of observation and evaluation, Mr Abdallah stated that coaching notes did not record the process,[160] and then said they did record that process.[161] Mr Abdallah conceded that in relation to the vibrosaun and the hyperbaric chambers there was no direct material showing experiments using this equipment before the Tribunal.[162]
(j)Mr Abdallah stated in evidence that some refinements were made over time to the process, including establishing collective sessions for the participants because a control group was not working.[163]
(k)The ‘unknown’ was identifying the gaps and what needed to be worked on for an integrated approach and to create an app that could deal with that.[164] In cross‑examination by Ms Smith, Mr Abdallah conceded only very general high‑level evidence about the algorithm in the app was before the Tribunal.[165]
(l)The ‘outcome could not be known or determined in advance based on current knowledge, information and experience’ because there was no study that identified whether a linear or integrated structure was more successful for participant outcomes. Conclusions were reached that the facility needed to be changed. Two new machines needed to be integrated as part of Phase 2 (the integrated phase) and this meant the outcome could not be known.[166]
(m)‘New knowledge’ was developed in the form of a “new product in the form of an adaptive algorithm”; as each individual was unique, the new product needed to be adaptive so that it could “in real time … adjust to your progressions or repressions and keep you engaged.” The onboarding questions from 2018 and 2019 were said to be critical for the development of that algorithm.[167] The onboarding questions appear to be those provided to the Tribunal on 4 June 2024.[168]
[141] Transcript 33, [42], [46].
[142] Transcript 38, [23], [27]. Reference is also made to “Dr Robin Wilcott” in evidence before the Tribunal: Transcript 106, [36]. The Tribunal understands from Tribunal Book A3, 311 that Northern Hire was engaged in construction work for BBM but as is noted above at [23(p)] it is unclear what was done by Northern Hire in the 2019 year.
[143] Transcript 34 [34], [45], 35 [1], [7].
[144] Transcript 60, [15], [47].
[145] Transcript 58, [26], [47].
[146] Transcript 35, [42], [46], p 36 [1], [3].
[147] Transcript 55, [25], [47], p 56 [1], [36].
[148] IISA Closing Submissions [27].
[149] Transcript 36, [32]. Tribunal Book A2, 3 and A3, 133, 145, 291, 296, 300, 310, 313.
[150] Tribunal Book A3, 45.
[151] With the ‘touchscreen’ being a flop and abandoned (per Mr Abdallah’s evidence Transcript 34, [34], 38, [1], [11]) this evidence may either mean in the income year the touchscreen was still being used, or in fact that this was the app on which these details were recorded. That is unclear.
[152] Transcript 36, [40], [47].
[153] Transcript 42 [15], [30].
[154] Transcript 57, [14], [15].
[155] Transcript 36, [25], [33].
[156] Transcript 42, [30], [46]. Tribunal Book A2, 10 refers to the vibrosaun as “a unique means to combine movement with mindfulness and recovery.” No details are given as to how that occurs. Tribunal Book A3, 327 states that the hyperbaric chamber “enabled the integration of breathing and mindfulness practices within a high-oxygen environment. This facilitated the study of synergistic effects when combining multiple health interventions, leading to more comprehensive data on the benefits of integrated health practices.” There is no evidence produced about why high oxygenated environments improve integration of the six pillars, and no data. I am not convinced that breathing and mindfulness could not have been integrated outside of the use of the chamber.
[157] Transcript 37, [10], [27]. This appears to mainly refer to the documents referenced in footnote 68 above.
[158] Transcript 56,[38], [45]; p57, [1], [47], p58, [1], [47], p59, [1], [5].
[159] Transcript 58, [43].
[160] Transcript 59, [23], [25].
[161] Transcript 59, [43], [45].
[162] Transcript 62, [7], [37].
[163] Transcript 38, [39].
[164] Transcript 41, [28], [42]. Mr Abdallah said in his evidence that IISA’s expert, Professor Vandelanotte, noted that there were complexities and uncertainties when combining multiple health interventions – see Transcript 39, [43]. That was disputed by IISA as not an accurate reflection of Professor Vandelanotte’s evidence: IISA Closing Submissions [34].
[165] Transcript 58, [26], [47]. The Tribunal understands this high-level evidence to be material such as the diagrams at T1, 32 and T1, 57.
[166] Transcript 42, [30], [46] the new equipment referred to is the vibrosaun and the hyperbaric chambers. BBM’s evidence was that this resulted in the need to reconfigure the facility.
[167] Transcript 43, [20], [32].
[168] This document is referred to above [27(b)(viii)].
The use of artificial intelligence: Finally, in cross-examination Mr Abdallah conceded that Chat GPT had been used to assist in the preparation of the BBM SFIC. BBM had, prior to the hearing, asked that paragraphs 35–37 of the BBM SFIC be withdrawn and not considered by the Tribunal. This was because those paragraphs contained references to non-existent cases. It appears that this matter had been drawn to BBM’s attention by IISA, rather than BBM identifying this problem, but that is unclear. Nevertheless, due to that withdrawal being requested prior to the hearing, I have not considered those paragraphs, these reasons for decision do not take account of those paragraphs and I merely make some general comments below applicable to all parties that appear before the Tribunal.
The use of Chat GPT is problematic for the Tribunal. It perhaps goes without saying that it is not acceptable for a party to attempt to mislead the Tribunal by citing case law that is non-existent or citing legal conclusions that do not follow, whether that attempt is deliberate or otherwise. All parties should be aware that the Tribunal checks and considers all cases and conclusions referred to in both parties’ submissions in any event. This matter would have inevitably been discovered, and adverse inferences may have been drawn. To ensure no such adverse inferences are drawn, parties are encouraged to use publicly available databases to search for case law and not to seek to rely on artificial intelligence.[169]
The evidence for IISA – the Expert Report and evidence from Professor Corneel Vandelanotte before the Tribunal
[169] For example,
Professor Corneel Vandelanotte was instructed as an expert by IISA. Professor Vandelanotte also appeared as a witness for IISA at the hearing. Professor Vandelanotte is a research professor and leads the Physical Activity Research Group and the 10,000 Steps program at the Central Queensland University. Amongst other matters, he is also a board member of the Appleton Institute for Behavioural Research. He holds a PhD in Physical Education from Ghent University in Belgium.
BBM made submissions in relation to Professor Vandelanotte’s expertise. For example, in BBM’s Closing Submissions there is a reference to BBM engaging earlier with the Tribunal expressing concern that “an exercise physiologist alone would not likely accurately assess the complexities of this research.”[170] As Professor Vandelanotte is not merely an exercise physiologist, but, in my assessment, a research scientist with credentials in physical education, I have disregarded this submission. Mr Abdallah himself completed, the Tribunal understands, a Bachelor of Health Sciences in Exercise Physiology.[171] All other BBM submissions about Professor Vandelanotte’s evidence are considered and/or referred to below.
[170] BBM Closing Submissions 8 and 9. Transcript 96, [15]-[18].
[171] Transcript 31, [22].
Professor Vandelanotte’s Expert Report is dated 23 August 2024. In summary, the Expert Report concluded:
(a)It is difficult to determine exactly what BBM’s claimed activity is.[172] This was due to ([85]) “irrelevant and/or poor-quality evidence that habitually contradicted itself.” It is particularly difficult to discern if the app is part of the claimed activity. The construction changes to the facility that BBM referred to in its evidence[173] seem to only reflect a movement of equipment around the gym. The evidence on the app was inconsistent and seems to be both a part of the activity in question and its outcome (at [20]). There is little evidence on the algorithm, but what is there is “very basic”, and it is not possible to see any innovation from that material (at [22]). The vibrosaun and hyperbaric chambers are noted and “[i]t is not clear to me how this equipment contributed to the Claimed Activity 1, in all my years as a health behaviour scientist, I have never come across the use of this equipment to either measure or improve health behaviours (hyperbaric chambers do have medical applications, for example to treat decompression sickness or wounds), and I have no idea what the underlying mechanism for doing so could be.”[174]
[172] Expert Report R2 2, [1]-[12]; [84]-[85].
[173] For example, [23(p)] above.
[174] Expert Report R2 [11].
(b)On the isolated/linear vs integrated approach, in Professor Vandelanotte’s opinion the differences are minor and very nuanced, and at [15]:
For clarity, when the Applicant describes the ‘integrated approach’ vs. the ‘isolated approach’, it does not mean a ‘sequential’ vs. a ‘simultaneous’ program. Both approaches represent a ‘simultaneous’ program, where participants work on improving all 6 behaviours at the same time (in a sequential program participants would first engage in, for example, an intervention to improve diet for several weeks or months, and only then focus on the next behaviour, for example, physical activity). In the isolated approach participants would, for example, engage in an exercise session, then in a meditation session, and then in a nutrition education session (possibly all on the same day). Whereas in the integrated approach, they would do all this at the same time as illustrated by recent information provided by the applicant in 2024.
(c)Professor Vandelanotte stated at [17] that “it appears there is a shift in [the BBM materials from] emphasising that the simultaneous application of all six pillars is crucial (as compared to working on a single pillar) vs. the importance of an integrated approach of the Six Pillars program (as compared to an isolated approach) in later documents. This makes it hard to assess what the ‘systematic experiments’ were really about.”
(d)At [16], the Expert Report states that the physiological effects on the body and all health effects would be similar in an isolated or integrated approach. Social support is known to assist in participant adherence.
(e)At [34]–[37], the hypothesis that BBM was trying to answer was hard to discern. At [61]–[62] Professor Vandelanotte opined that BBM did not have a good understanding of what a hypothesis is and made “a number of vague statements” that “don’t align with previous statements”, as well as suggesting that the hypothesis had been changed to align with results.
(f)At [39]–[40] and [44]:
39. I could not find any research that directly compares the health behaviours of the Six Pillars program against each other to see how much each contributes to health or mental health. From a methodological point of view, it is extremely difficult to demonstrate contributions of individual intervention components, unless a study design is applied that can isolate the effect of each component (this would necessitate directly comparing dozens of intervention groups with a very large number of participants, but in reality intervention studies with more than 2 or 3 intervention groups are very rare). Most intervention studies will implement a range of features and will determine whether the overall package is effective or not, but they would not be able to identify specifically how much each intervention component contributed to the effect.
40. However I did find systematic reviews and meta-analyses that examine the effects of interventions targeting multiple health behaviours simultaneously (Prochaska et al, 2011; Wilson et al, 2015; James et al., 2016). Overall, they find that interventions targeting two or three health behaviours simultaneously are more effective than those focussing on a single health behaviour or those targeting four or more health behaviours. These studies indicate that a single health behaviour intervention might not be challenging enough, whereas those targeting four or more behaviours are perceived as overwhelming. So, while people adhering to more health behaviours will generally exhibit better health, it does not mean that interventions targeting more health behaviours will also be more effective. In other words, while all of the six pillars in the Six Pillar program may have beneficial associations with physical and/or mental health, this does not mean the Six Pillar program would be effective. Going by the available evidence in 2018, it appears the Program would most likely not be effective, as it includes more health behaviours than participants may feasibly be able to handle. …
44. [I]n my opinion the differences between the proposed ‘isolated approach’ and the ‘integrated approach’ are minor and very nuanced, and one would not expect to see great differences in health outcomes between either approach if participants in both versions of the program engaged equally. As such, I would not expect there to be studies explicitly examining this nuance. Unfortunately, I did not find a good way to search the scientific databases for studies examining this (other researchers might have used different language to describe a similar concept). As such, I can not tell whether any study has indeed examined this research question or hypothesis, and whether this knowledge exists or not. While it is difficult to find a specific study examining this, I do think it is common sense that a behavioural intervention where the individual parts are well aligned and integrated with one another will be perceived better by participants (and thus potentially more effective) compared to an intervention where the different parts have seemingly nothing to do with each other.
(g)At [41]–[43], it was well known that positive health behaviours are associated with each of the six pillars. It is also well known that an individualised program was more effective.[175] The health benefits of the six pillars program were “established knowledge” in 2018 (at [50]).
[175] This point is repeated in the Expert Report R2, [51.1].
(h)The outcomes reported by BBM have been found before (studies and outcomes are reported at [51]). Professor Vandelanotte concluded at [52]–[54]:
52. To conclude, with some small exceptions, the outcome of the Claimed Activity 1, could indeed have been known or determined in advance on the basis of existing knowledge at the time the Claimed Activity 1 was undertaken. A competent professional in the field would have known the outcome of Claimed Activity 1 based on knowledge, information and/or experience known before the activity was undertaken and therefore have no need to undertake the Activity.
53. The exceptions relate to what I have discussed in paragraphs 39 and 44. I was not able to find evidence that all six pillars in the Six Pillars program contribute equally to health outcomes, as it would be very difficult, from a methodological point of view, to demonstrate such thing. Nowhere in the Briefing Materials did the Applicant describe a study design that would allow to answer this question, nor did the Applicant provide any data to back up this outcome or even specify the health outcomes that were improved by the program and by how much they were improved. Therefore, I am very sceptical about the veracity of this finding.
54. Finally, I was not able to find evidence for the finding that an ‘integrated’ health program is superior to an ‘isolated’ health program. Researchers inherently aim to develop coherent and integrated health programs, to offer participants an intervention ‘package’ that makes sense; not a number of elements of which participants can’t make up how they fit together. As such, there is little point in examining how an ‘isolated approach’ compares to an ‘integrated approach’ and it would be exceedingly hard to secure funding to conduct a trial examining this given how basic and common sense this idea is. From a participant engagement and adherence point of view an integrated approach makes good sense in a real‑world setting (you can’t get health benefits if you don’t stick to the program). However, if participants, in a controlled laboratory setting adhered to all parts of the Six Pillars program both in the isolated and integrated versions (as the Applicant indicated they did), then the physiological effects on the body and resulting health outcomes would be very similar, as adherence and engagement would not be at play. Therefore, I am also sceptical about the veracity of this finding. The qualitative data presented on pages 149 to 313 (the ‘weekly coaching notes’) of the Briefing Materials are too perfect to be credible. The data aligning with Phase 1 is unanimously negative in relation to participant experiences, whereas the data in Phase 2 is unanimously positive in relation to participant experiences. This never happens in the real research world. No matter how good a program is, some people will have negative experiences and vice versa. No program has ever worked for everybody, no matter how individualised (dieticians and exercise physiologists will be able to attest to this). If a program I develop and evaluate works for 30% to 40% of participants (i.e., it is effective in improving their health behaviour), I consider it a success.
(i)When considering the steps undertaken by BBM, and its responses to IISA’s questions describing its steps, literature searches, inclusion and exclusion criteria and controlling biases, Professor Vandelanotte noted that the 7 steps he recorded at [55] had become the 5 steps at [60] and he concluded that there was no evidence showing that the now 5 steps were undertaken at all. He concluded at [59]:
59. In my opinion, the above indicates a lack of understanding of the ‘scientific method’ by the Applicant. The process specified by the Applicant lacks detail and specificity, and it does not describe the normal and logical progression that includes searching the literature for existing knowledge; formulating research questions or hypotheses based on identified gaps in the literature; designing a study protocol that allows to answer the research questions or hypotheses; recruiting participants; collecting and analysing data, interpreting and discussing outcomes and formulating a conclusion. The above example provided by the Applicant is typical of the approach towards knowledge generation displayed throughout the Briefing Materials and does not resemble in any way how outcomes of experimental research are normally reported in the literature. Most concerning in this, and consistent throughout the Briefing Materials, is the lack of data. No actual data, not in raw or aggregated format, is being presented. Therefore, it is impossible to have any confidence in the outcomes and conclusions formulated by the Applicant.
(j)In terms of the experimentation undertaken by BBM, Professor Vandelanotte made a number of comments about the potential for bias, the small number of participants meaning that results could only be anecdotal (see [68]), and he commented that he did not understand what BBM did with particular tests (like static posture assessments (at [70]–[73]). He concluded at [66]–[67]:
66. In the additional material provided, it appears the applicant does not have a good understanding of what an experiment is. Merely collecting baseline data does not constitute an experiment. An experiment necessitates the manipulation of one or more variables in controlled circumstances and repeated measurements. Additionally, the applicant indicates that by assessing baseline data the ‘hypothesis was reinforced’. I don’t understand how this is possible:
“The initial experiments were observational, designed to establish a baseline for each participant without interference. This involved logging food intake, exercise habits, sleep patterns, and other lifestyle factors. These findings underlined the limitations of common approaches and reinforced our hypothesis that a more integrated strategy was necessary.” (Additional information provided by the Applicant on 19-03-2024, BM4)
67. As far as I can tell from everything I have read in the Briefing Materials, there was no control group. This is a group of participants that was not exposed to the Six Pillars program, but that was still assessed on all the same variables at the same time before and after the other participants (i.e., the intervention group) were provided with access to the program. It is clear from the weekly coaching notes (BM149-313) that all participants were exposed to the Six Pillar program. Yet, the Applicant seems to indicate that the experiments had a control group, which further illustrates a lack of understanding about experimental research methodology.
(k)Considering “observation” and “evaluation”, Professor Vandelanotte concluded that the reporting of any observations was “grossly inadequate” at [78]. He commented at [74] “only vague and broad statements were made that things had improved without data to back this up.” He added at [74]–[75]:
74. This is very concerning, as this data is the evidence we need to verify any claims about the effectiveness of the program. This is not how outcomes are reported in the scientific literature. Scientific publications reporting on quantitative outcomes are always supported by a number of tables that summarise the data and report the outcome of statistical tests. While not all scientific journals request this, more and more journals are also asking authors to provide them with their full datasets, to show the data actually exists and to rerun any statistical analyses should one wish to do so. Openness, transparency and reproducibility are essential in the conduct of good science.
75. Another essential part of conducting good science is secure data storage. Data is the core product of science, without data there are no findings. As such, it is common practice to set in place comprehensive systems that will ensure that any data, as soon as it is created, is stored securely often with multiple back-ups. All research projects have data management plans, and most universities and human research ethics committees will require that any data is stored for at least 10 years after the project. Therefore, it is perplexing to read in earlier documents that most, if not all, of the data collected by the Applicant are either lost or inaccessible. However, as we have seen now many times, these statements were then contradicted by a more recent statement that all data was ‘meticulously recorded’ (but not shared with the Respondent).
(l)Professor Vandelanotte was also critical of other aspects. At [76] he noted, “At times the Briefing Materials include statements about observations that do not align with any of the stated methodology of the experiments. For example, it seems the Applicant was able to assess changes in digestion, nutrient assimilation, elimination of ‘toxins’, iron and calcium levels, cortisol, inflammation, blood glucose and acidity, cognition, neurogenesis and hormonal repairs. These variables are not mentioned in relation to any description of any experiment, and there is no explanation how they were repeatedly measured.”
(m)He also noted at [77] “[t]wo final points with regards to the observations. Firstly, a large number of ‘weekly coaching notes’ (BM149-313) were provided by the Applicant. While such qualitative data can be insightful in terms of how well the program is received and implemented, they offer little clue about the effectiveness of the program. They are not standardised pre- and post-intervention measurements of health behaviours or health outcomes. Secondly, the Applicant indicates that all natural behaviours and habits were ‘monitored without interference’. Again, it is hard to know how this was done. Take sleep as an example, how was this monitored? Did participants sleep in the laboratory, was someone observing them, were they wearing a polysomnography? It is not possible to tell from the information provided.”
(n)In terms of results, Professor Vandelanotte concludes that a number of conclusions are reached by BBM, but no real evidence is produced for any of them (at [80]).
(o)Finally, Professor Vandelanotte concludes that BBM’s steps were not based on principles of established science. At [82]–[83]:
For me, the biggest concern is the complete lack of a scientific approach and methodological rigour in developing a research question or hypothesis, developing study protocols, collecting and analysing data, presenting and interpreting results and then extracting logical conclusions from them. This is why I assess the Claimed Activity 1 as completely irrelevant in terms of knowledge generation. The work of the Applicant is not reproducible from the information presented, as such it is impossible to replicate this work and either confirm or confront its findings. … In my opinion, the Applicant has made many extraordinary statements with regards to the effectiveness Six Pillars program. Unfortunately, none of these claims are backed up with extraordinary evidence, in fact, I have seen no credible evidence for any claim made whatsoever.
IISA’s concern is that for there to be an experiment using the scientific method, the hypothesis must be formed at the outset before activities are undertaken and there was no evidence of that.[326] IISA put this to Mr Abdallah in cross-examination particularly when considering the 19 March 2024 hypothesis put to the Tribunal.[327] At is noted above at paragraph 30(b), Mr Abdallah commented that “That was typed out in 2024 but it was written, handwritten and not as good as that, in the stuff that we got from storage.”[328]
[326] BBM Closing Submissions [65].
[327] For the avoidance of doubt, I do not accept BBM’s assertion in its Closing Submissions (at 2.2) that IISA did not put evidential inconsistencies to Mr Abdallah in cross examination. From the face of the transcript those issues were put to Mr Abdallah (e.g., Transcript 55, [24]-[46], 56, [1]-[36], 61, [43] and following). Nor do I accept it was improper for IISA Closing Submissions to give a view of the evidence overall; that is usual.
[328] Transcript 54, [12]-[15].
Taking the most favourable view of the evidence for BBM, it could be said that broadly there was a hypothesis relating to testing the isolated vs integrated approach, and that hypothesis must have been a proposition to the effect that the integrated approach was better or more effective. However, this is far from holding there was such a hypothesis as the evidence is inconsistent[329] and, in any event, any such hypothesis appears to have been formulated in or around 2020 or 2021, after BBM’s activity had commenced and after the 2019 year. I agree with IISA that the hypothesis is required at the time an experiment commences. I do not accept there was something handwritten that met the standard of a hypothesis and I am not convinced by Mr Abdallah’s evidence to that extent. If there was something prepared in 2019 before activities commenced, it was incumbent upon BBM to produce it in evidence. While I have considered BBM’s evidence overall, I am not persuaded the asserted hypothesis was present in the 2019 year, and I could be persuaded it was possibly present after the year at issue. For clarity, a major reason for my conclusion in this case is that the Application suggests an entirely different focus at the time the activities commenced in the 2019 year and BBM also acknowledged that at various points during this case.[330]
[329] For example, other hypotheses (which might actually be objectives) are asserted relating to “to expose flaws in existing information and create ‘brand new’ and conclusive knowledge.” See [24(c)(iv)] above.
[330] See [23(m)(iii)] and [25(c)] above for example.
The other aspects of subparagraph 355-25(1)(a)(ii) also have evidential difficulty for BBM. I have reached the following conclusions:
(a)To some extent I accept there was an experiment, but only in relation to the hypothesis formed after 2019,[331] so this does not assist BBM in this case which is about the 2019 year. I note that Professor Vandelanotte accepted this as well in BBM’s cross-examination: “Could the outcome of the tests between an isolated approach and an integrated approach be known in advance? The gaps between the two phases. Could that be known in advance?---I suppose not. I think if you set up a proper experiment that has – pits the two approaches against each other, you wouldn’t really know what you would find in advance. So the caveat that I have around that is, sort of, the point I tried to make in my report, is people probably wouldn’t do it, because the difference between the isolated and the integrated approach is so nuanced. Yes, there would be little sort of scope for doing research like that. But, technically, yes, it’s an experiment”[332] (Emphasis added). However, those comments are not relevant to the 2019 year.
(b)In terms of what occurred in 2019, I note that BBM states there were “hundreds of tests”,[333] “day-to-day data collection”,[334] a “constant flow of data”[335] and “data [was] fed into the algorithm.”[336] There is evidence of very few tests, nothing from the algorithm and the Tribunal has seen little data[337] which meets the above assertions. The tests that are available are not linked to any “experiment”. In addition, because an “experiment” in plain meaning requires “a test or trial; a tentative procedure for the purpose of discovering something unknown, a principle, supposition etc”,[338] my conclusions above at paragraphs 67 to 101 are adverse to BBM. I am not convinced that BBM’s activities in 2019 had an outcome that could not be known or determined in advance on the basis of the current knowledge, information and experience in 2019. The principle or supposition that comprises an experiment is also adversely impacted by my conclusion that there was an absence of a hypothesis in 2019. For those reasons I do not accept there was an experiment in 2019.
(c)Even if there was an experiment, I need to be satisfied that the scientific method was followed. There are aspects of the method adopted that do not have explanation. For example, in the isolated phase the participants were required to count calories[339] while in the integrated phase participants were not required to count calories. It is unclear why.
(d)In terms of observation and evaluation, the material before the Tribunal mainly comprises the material in the Tribunal Book at A3. Observation in ordinary meaning includes “the faculty of observing or watching” and “the act of viewing or noting something, for some scientific or other special purpose”.[340] I accept BBM’s Closing Submissions[341] in so far as saying that the Zoom notes and coaching notes show some observation occurred. I also accept that the evidence shows some of the tests undertaken (but certainly not hundreds).[342] But there is no obvious linking evidence showing a progression from those tests or analysis to show how those results led to any evaluative outcome. There are tests such as blood glucose and cortisol tests[343] but no evidence of how the results were analysed and how they fed into “information conclusions” [344] reached.
(e)BBM says that “pattern analysis”[345] occurred, “key findings from the data analysis were documented”[346] and there was even “statistical analysis.”[347] No evidence of that has been produced other than those statements. BBM also said it both spoke to experts and researched scientific literature.[348] Apart from asserting that occurred, BBM has produced nothing to demonstrate what that material was, nor how that research was taken into account in reaching any conclusions. The material prepared by KPMG for BBM[349] also demonstrates little to nothing to meet this legislative requirement; it merely sets out assertions of what happened and there is no evaluative analysis as to how conclusions were reached. BBM also says that during the second phase of BBM’s project there was a greater depth of data analysis using “advanced statistical tools”,[350] but no such analysis or evaluation has been produced. No tools are described.
(f)Evaluation may have happened because “information conclusions” were reached, but I have no evidence to be able to assess whether the evaluation meets the required scientific method. Listing matters in a general way, without providing linking analysis to show the evaluation that occurred and how it resulted in logical conclusions, is insufficient evidence to meet the statutory test.[351] In short, what BBM has produced has little probative value.
(g)I cannot see any of the evaluation in evidence, and I cannot discern whether the required scientific method was followed (appreciating this is an industry R&D regime and I considered that factor and have not sought scientific perfection). BBM’s evidence has not satisfied me as to the requirement for observation and evaluation.
(h)Finally, in terms of leading to logical conclusions, there are “information conclusions”[352] but no substantive evidence demonstrating the analysis and how conclusions were reached based on the tests undertaken. That means there is no analysis showing the Tribunal what led to the information conclusions nor why they are logical as is required by the statutory words. For example, as is noted above at paragraph 27(b)(ii), the Zoom notes for Phase Two record “Improved Stress Management: By combining breathing exercises, mindfulness practices, and physical activities, participants experienced more effective stress management. The holistic approach helped reduce stress levels more significantly than isolated practices.” Looking at the material from participants, it cannot be seen how this conclusion was reached nor why it is logical taking into account the tests undertaken. The process of observation, evaluation and conclusion is not visible. For those reasons the statutory words are not satisfied by BBM.
[331] There are additional issues for BBM from my earlier conclusions about whether the outcome of its activities could be known in advance in future years.
[332] See [82(g)] above, and Transcript 82, [39]-[47].
[333] See [23(m)(i)] above.
[334] BBM SFIC [100].
[335] Ibid.
[336] BBM SFIC [101].
[337] It appears there is a difference of view on what “data” is between BBM and IISA. The Tribunal has treated the material in the Tribunal Book at A3 (such as A3, 264-272) as “data.”
[338] Macquarie Dictionary, Ninth Edition, 2024 – definition of “experiment.”
[339] See above at [27(b)(iv)].
[340] Macquarie Dictionary, Ninth Edition, 2024 – definition of “observation.”
[341] BBM Closing Submissions “Systematic Methodology and Documentation” at [2].
[342] BBM Closing Submissions “Objective Data Collection and Iterative Analysis” at [4].
[343] See [27(b)(ix)] above.
[344] For example, T25, 655, 659, 661-662.
[345] Tribunal Book A3, 315.
[346] Tribunal Book A3, 315.
[347] Tribunal Book A3, 323.
[348] See [30(d)] above.
[349] T1, 34-56.
[350] Tribunal Book A3, 325.
[351] For example, Tribunal Book A3, 314 sets out a list of matters that BBM says it did, without any method description. In addition, saying “All data collected from the observational studies, daily logs, and weekly coaching sessions were systematically recorded and analysed. This structured approach ensured that the preliminary data was accurate, comprehensive, and useful for informing subsequent phases of the research” is not a replacement for evidence of how the data was evaluated. The material on Tribunal Book A3, 315 talks about “analysis” but there is no evidence of it, nor how it was linked logically to information conclusions reached.
[352] For example, T25, 655, 659, 661-662.
“[B]ut can only be determined by applying a systematic progression of work that (i) is based on principles of established science; and (ii) proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions and (b) that are conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes or services)”: IISA has changed its view from the finding and internal review on this aspect, and submits that the Tribunal cannot be satisfied on the evidence that BBM meets this requirement.[353] I note above[354] that the Expert Report concludes that the six pillars project is “completely irrelevant as to knowledge generation”[355] and this conclusion may have partly motivated IISA’s changed position. BBM’s repeated position is that its activities always had a focus and purpose on generating new knowledge.[356]
[353] IISA Closing Submissions, [85] – [88]. As noted above at 16] the Tribunal has all the powers of the original decision maker on review.
[354] See [16].
[355] Expert Report (R2) [82].
[356] For example, BBM Closing Submissions, [5] and see above [19], [23(d)(iv)], [23(h)], 30(m)].
Focusing first on Professor Vandelanotte’s comments cited above, those comments are rejected. The statutory test focuses on the purpose of the work and not the results. Further, as is noted in PKWK v Innovation and Science Australia [2021] AATA 276 at [350], the definition of “new knowledge” is of wide import and captures new knowledge in the form of something that could not be achieved as much as what can be. Professor Vandelanotte also suggests that to the extent there was any new knowledge, it was not “meaningful.”[357] As was noted in Rix’s Creek Pty Ltd; Bloomfield Collieries Pty Ltd and Innovation Australia [2017] AATA 645 at [201], there is no requirement for new knowledge to have widespread application. There is also no meaningfulness standard in the legislation.
[357] Expert Report (R2), 1345, [32]-[33], 1350, [45], 1368, [82]
The case law provides (in summary):
(a)In Active Sports Management Pty Ltd v Industry Innovation and Science Australia [2024] FCA 1346, the Federal Court held at [54] that “new knowledge” needed to be genuinely new, not “merely implementing existing knowledge in a different context.”[358]
(b)In Lakes Oil NL v Innovation and Science Australia [2023] AATA 811, the Administrative Appeals Tribunal noted that “new knowledge” is not defined and held at [226] that the “‘new knowledge’ is found in context of a section with the experiments being conducted where the outcome could not be known in advance by a competent professional in the field. … On that basis, it is reasonable to conclude “new knowledge” means not previously known by a competent professional in the field.”[359]
(c)In Re Mount Owen Pty Ltd v Innovation Australia [2013] AATA 573, the Administrative Appeals Tribunal held at [184] that new knowledge is an incidental result of activities undertaken that does not mean that this was the purpose of an activity.
(d)In Coal of Queensland v Innovation and Science Australia [2021] FCAFC 54, the Full Federal Court held (at [121]–[122]):
In the applicant’s amended outline of submissions, it is submitted that whether or not an activity in fact builds upon existing knowledge bears no necessary relationship to whether an activity is conducted for the purpose of generating new knowledge, which is the issue under s 355-25(1)(b). However, the nature of the activity conducted and the novelty and predictability of the results of that activity may elucidate whether a substantial purpose of an activity is the generation of new knowledge. It is artificial to discard the nature of an activity and what it achieves when assessing its purpose.
We note for completeness that in Moreton the Full Court found at [151] that s 355‑25(1)(b) is “capable of applying, depending on the circumstances, to activities that are conducted for the purpose of generating new knowledge with respect to the application of an existing technology at a new site” (emphasis added). The gravamen of the Full Court’s reasoning was that the generation of site specific knowledge by the application of the particular technology at issue in that case was capable of being “experimental activity” done for the “purpose of generating new knowledge” within the meaning of s 355-25(1). The facts of the present case are different from those in Moreton because the relevant activities did not involve applying existing technology to a new site for the purpose of generating new knowledge. (Emphasis added.)
(e)In terms of purpose, the cases suggest that the purpose must be “substantial”[360] or should be judged on the weight of the evidence (and not whether substantial or otherwise).[361]
[358] A similar holding was referred to in Coal of Queensland v Innovation and Science Australia [2021] FCAFC 54, at [119] that the purpose of the activities was to reiterate the existing state of knowledge.
[359] Similarly, in Re GQHC and Commissioner of Taxation [2024] AATA 409 the Administrative Appeals Tribunal held at [385]-[387] that the outcome of the incubation project (further described above at [81]) could be known in advance, and this meant that it was not undertaken for the purpose of generating new knowledge.
[361] PKWK v Innovation and Science Australia [2021] AATA 276, [347].
The 2010 EM states:
2.16 Experimental activities that qualify as core R&D must be for the purpose of acquiring new knowledge or information. This requirement reflects the R&D tax incentive’s object of generating the knowledge benefits that arise from conducting R&D — rather than merely subsidising the application of the knowledge produced by R&D. This is particularly relevant where trials are repeated or prolonged, especially if carried out in a production context. The distinction between conducting R&D and applying the results of it (other than in further R&D) is a question of fact. ‘New knowledge’ in this context means knowledge not already available in the public arena at the time the activities are conducted, in the relevant technology, on a reasonably accessible world wide basis.
2.17 The requirement can be met by the purpose of acquiring or generating knowledge in the practical form of knowledge or information about the creation of new or improved materials, products, devices, processes or services. Where experimental activities occur in the context of normal production activities, the experiments may entail the direct production or use of an actual material, product, device, process or service. (Emphasis added.)
While BBM might show there was a purpose, the problem for BBM is that I am not convinced that the activities in the 2019 year had an outcome that could not be known or determined in advice based on knowledge, information and experience at that time. Precedent suggests that this is fatal to BBM as no “new knowledge” could potentially arise. This means that I cannot be satisfied that this aspect of the definition of core R&D activities in section 355‑25 is met by BBM.
Conclusions: I have concluded that none of BBM’s activities in the 2019 year meet the definition of core R&D activities for the following reasons:
(a)I am not satisfied that “the outcome of those activities could not be known or determined in advance on the basis of current knowledge, information or experience” available in the 2019 income year.
(b)BBM’s activities were systematic, but the evidence before the Tribunal does not establish a progression of work. Asserting there was such a progression is different to evidencing that there was such a progression.
(c)On balance, BBM’s work was consistent with the principles of established science which is a separate test.
(d)While on the best reading on the evidence for BBM there may be a hypothesis broadly relating to comparing isolated and integrated approaches to the six pillars, I cannot be satisfied from the evidence before me that it was present in the 2019 year. That conclusion adversely impacts the issue of whether there was an experiment in the 2019 year. I have concluded that there was no experiment in the 2019 year. In terms of observation and evaluation, while taking the best case for BBM, it could be said there was observation, there is little demonstrating how the tests undertaken were evaluated by BBM. There is little to no analysis showing the Tribunal what led to the information conclusions nor why they are logical. All of this means that from the evidence before me I cannot be satisfied that BBM’s activities satisfied the required scientific method.
(e)Finally, due to earlier holdings (particularly that referred to at subparagraph 144(a) above), I cannot be satisfied that BBM’s activities in 2019 were “conducted for the purpose of generating new knowledge.”
Whether Activity 1 was excluded from the definition of core R&D activities by virtue of paragraph (d) of subsection 355-25(2) of the ITAA 1997
Paragraph 355-25(2)(d) of the ITAA 1997 provides that “research in social sciences, arts or humanities” is excluded from being core R&D activities. I have found above that for several reasons, BBM’s activities in 2019 are not core R&D activities, so strictly this matter does not need to be considered. However, for completeness, and because there is no case law on this particular provision, I do so below. I have concluded that paragraph 355-25(2)(d) of the ITAA 1997 would not apply to exclude BBM’s activities if they had been core R&D activities.
Considering the arguments, IISA’s focus is on BBM’s six pillars project being research in social sciences. IISA’s conclusion on this aspect was put very weakly – that it “appears to” apply.[362] Presumably it was put in this weak manner in the internal review decision as part of IISA’s ongoing complaint that it had insufficient details of BBM’s activities. IISA’s position was, in essence, that in ordinary meaning “social sciences” is the study of human activity, and that BBM’s project related to psychology (in the sense, presumably, of behaviours and habits) and mental health. BBM’s argument is that its six pillars program was health‑focussed, medical or biomedical in nature, and that IISA’s suggestion it was research in social sciences was incorrect.[363]
[362] See [15] above, T1-10 and IISA SFIC [122]-[127].
[363] BBM SFIC [107]-[114]; Transcript 42, [13], [42].
Taking into account the context, “social sciences” is connected to arts and humanities. It can be maintained under the noscitur a sociis principle of statutory interpretation that those later concepts assist to determine the meaning of “social science.” I note that to a limited degree IISA’s R&D Tax Incentive Guide to Interpretation supports that approach. It refers to the following non-exhaustive list as falling within the social sciences exclusion – anthropology, business, classics, communication studies, dance, economics, education, fine art, geography, history, literature, music, performing arts, philosophy politics, psychology (other than neuropsychology), sociology, theatre, visual arts.
In terms of purpose, the social sciences exclusion was first enacted by the Income Tax Assessment Amendment (Research and Development) Act 1986 (Cth). By way of section 7 of that Act, amongst other matters, subsection 73B(2) was inserted into the Income Tax Assessment Act 1936 (Cth), providing that specified research was not “systematic, investigative or experimental activities” which meant that those matters could be “research and development activities.” Included amongst those specified matters was “research in social sciences, arts or humanities.” There is nothing noted in the 1986 EM that directly assists in the interpretation of social sciences. In context though, the R&D regime is about industry R&D such as products and processes – not academic research.
Cases confirm that broadly, the plain meaning cited by IISA[364] is correct, that is, that “social science” is about human behaviour/activity. Other resources reviewed by the Tribunal to determine ordinary meaning provide that “social science” involves:
(a)“[T]he study of individuals, communities and societies and their interactions with each other, and their built, technological, and natural environments.”[365]
(b)“The social sciences include cultural (or social) anthropology, sociology, social psychology, political science, and economics. Also frequently included are social and economic geography and those areas of education that deal with the social contexts of learning and the relation of the school to the social order. ... Historiography is regarded by many as a social science. ... The study of comparative law may also be regarded as a part of the social sciences.”[366]
(c)In relation to health, the Academy of the Social Sciences in Australia includes “health” as a social science discipline.[367] However, it is included in “social science” to the extent of “public health”,[368] for example, considering issues such as health ethics, social factors influencing health (for instance, the role of prejudice and discrimination in health policy and the impact of socioeconomic position on health inequality) and the history of health care. This is as opposed to health per se being a “social science.”[369]
(d)The Australian and New Zealand Standard Research Classification 2020 (as published by the Australian Bureau of Statistics)[370] includes “sports science and exercise” under “health” within the overriding topic of “social science” when classifying research.
(e)There is a distinction between social sciences and health and medical sciences, and the latter are said to be at the ‘intersection’ of social sciences.[371]
[364] IISA SFIC [124] refers to the Macquarie Dictionary meaning of social science “the systematic study of human activity based on the accumulation and analysis of verifiable data.” On cases, see for example, Maluka and Maluka (2011) FamCAFC 72 refers to social science research on family violence, Air New Zealand v ACCC; PT Garuda Indonesia Ltd v ACCC [2017] HCA 21 refers to economics as a social science.
[365]‘What is social science?’, UK Research and Innovation (Webpage, 31 May 2023) < Social science disciplines – UKRI>.
[366] Robert A. Nisbet and Liah Greenfield, ‘social science’, Encyclopaedia Brittanica (online, 3 December 2024) < Social science | History, Disciplines, Future Development, & Facts | Britannica>.
[367] ‘Social Science Disciplines (Fields of Research)’, Academy of the Social Sciences in Australia (Webpage, 7 March 2023) < Social Science Disciplines (Fields of Research) | Academy of the Social Sciences in Australia>.
[368] Ibid.
[369] ‘What is social science?’, UK Research and Innovation (Webpage, 31 May 2023) < Social science disciplines – UKRI>.
[370] Australian Bureau of Statistics, Australian and New Zealand Standard Research Classification (ANZSRC) (30 June 2020) < Australian and New Zealand Standard Research Classification (ANZSRC), 2020 | Australian Bureau of Statistics> and ‘Social Science Disciplines (Fields of Research)’, Academy of the Social Sciences in Australia (Webpage, 7 March 2023) < Social Science Disciplines (Fields of Research) | Academy of the Social Sciences in Australia>.
[371] See “Select social science disciplines” at ‘About the Social Sciences’, Academy of the Social Sciences in Australia (Webpage) <The Social Sciences - State of the Social Sciences>.
My conclusion is that mental health and physical health do not fall within the concept of “social sciences” in the ITAA 1997. Were this the position, medical research could not comprise core R&D activities and that cannot be seriously maintained to be correct.
It is clear from the description of the six pillars and from the material before the Tribunal that BBM’s activities involve an array of health and medical-focused aspects – for example, nutrition, exercise, sleep, hydration, mindfulness – not merely “psychology” and not merely “sports science” (if it is accepted those matters are each social science). It seems IISA has to some degree relied upon BBM’s response to its question referred to in paragraph 24(c)(ix) above (i.e., whether the program was focussed on the mental function and behaviour of individuals when determining whether the social sciences exclusion applied). IISA should have been much clearer with BBM and acted more fairly in explaining what that question was really about as it was clear from BBM’s response that it had not appreciated the context of the question. BBM was unrepresented. It is hard to see why IISA took this point in this case as it did not consider all of BBM’s six pillars.
Even if BBM’s activities focused solely on mental health (as is arguably the position from the wording of the Application), I find that the context of BBM’s six pillars project demonstrates its reference to mental health is a field of medical science and not a social science.
For those reasons I find that paragraph 355-25(2)(d) would not apply.
If the answer is that part of BBM’s activities are core R&D activities, whether the remainder of Activity 1 met the definition of supporting R&D activities in section 355-25(1) of the ITAA 1997
Section 355-30 of the ITAA 1997 provides the definition of supporting R&D activities as follows:
Supporting R&D activities
(1)Supporting R&D activities are activities directly related to core R&D activities.
(2)However, if an activity:
(a) is an activity referred to in subsection 355-25(2); or
(b) produces goods or services; or
(c) is directly related to producing goods or services;
the activity is a supporting R&D activity only if it is undertaken for the dominant purpose of supporting core R&D activities.
As there is a requirement that supporting R&D activities are directly related to core R&D activities, and as I have found that none of BBM’s activities in the 2019 year satisfy the core R&D activities definition, there can be no supporting R&D activities.
OVERALL CONCLUSIONS
I conclude that:
(a)None of BBM’s activities in the 2019 year satisfy the definition of core R&D activities in subsection 355-25(1) of the ITAA 1997.
(b)If BBM’s activities had been core R&D activities, the exclusion in paragraph 355‑25(2)(d) of the ITAA 1997 would not apply to exclude BBM’s activities from being core R&D activities.
(c)As there were no core R&D activities, there can be no supporting R&D activities as defined in section 355-30 of the ITAA 1997.
This means that IISA’s internal review decision is varied so that the conclusion that paragraph 355‑25(2)(d) of the ITAA 1997 applied is set aside. The decision is otherwise affirmed.
1. I certify that the preceding 157 (one hundred and fifty-seven) paragraphs are a true copy of the reasons for the decision herein of General Member J. Dunne
……………………[SGD]…………………………….
AssociateDated: 24 January 2025
Date of hearing: 6 and 7 November 2024 Applicant:
Counsel for the Respondent:
Self-Represented
Edwina Smith
Solicitors for the Respondent: Clayton Utz
- AGLC
- Body by Michael Pty Ltd and Industry Innovation and Science Australia (Taxation and business) [2025] ARTA 44
- Case
- [2025] ARTA 44
- Decision Date
CaseChat Overview and Summary
The Tribunal examined several key elements of the definition of core R&D activities, including whether the outcome of the activities could not be known in advance, whether the activities involved a systematic progression based on established scientific principles, and whether the activities were conducted for the purpose of generating new knowledge. The Tribunal found that BBM's activities did not satisfy the criteria for being core R&D activities because the outcomes were predictable based on existing knowledge and information, the activities did not demonstrate a systematic progression from hypothesis to experiment, and there was insufficient evidence of an experiment being conducted. Additionally, the Tribunal concluded that BBM's activities did not fall within the exclusion for research in social sciences, arts, or humanities, and hence did not meet the threshold for core R&D activities.
Following the detailed analysis of the evidence and the legal framework, the Tribunal set aside IISA's decision that BBM's activities were excluded under paragraph 355-25(2)(d) of the ITAA 1997 and affirmed IISA's other decisions. The outcome of the case was that BBM's activities were not eligible for the R&D Tax Incentive. The Tribunal's decision was based on the lack of evidence to support the claim that BBM's activities met the stringent criteria for core R&D activities.
The final orders of the Tribunal affirmed IISA's decision, ensuring that BBM's activities were not registered under the R&D Tax Incentive scheme. This decision underscored the importance of meeting the rigorous standards set by the tax legislation for activities to qualify as core R&D activities.
Orders
Orders of the court
Full text does not contain this section.
Background
Background to the litigation
Evidence
Evidence Before The Court
Decision
Reasons for decision
Ratio Decidendi
Legal Principle Established
Full text does not contain this section.