Coal of Queensland Pty Ltd v Innovation and Science Australia

Case [2021] FCAFC 54

FEDERAL COURT OF AUSTRALIA

Coal of Queensland Pty Ltd v Innovation and Science Australia [2021] FCAFC 54

Appeal from: Coal of Queensland Pty Ltd and Innovation and Science Australia (Taxation) [2020] AATA 126 (30 January 2020)
File number: QUD 51 of 2020
Judgment of: LOGAN, GRIFFITHS AND MOSHINSKY JJ
Date of judgment: 23 April 2021
Catchwords: TAXATION – research and development tax offset – where applicant held exploration permit for coal – where coal in the area had high level of ash content and the coal seams were banded – where applicant commenced a series of activities to investigate the nature and economic viability of mining the coal – where the Tribunal found that none of the registered activities were “core R&D activities” within the meaning of s 355-25(1) of the Income Tax Assessment Act 1997 (Cth) – where the Tribunal found that the exclusion in s 355-25(2)(b) applied – where the Tribunal found that the activities were not “supporting R&D activities” within s 355-30 – whether the Tribunal made findings for which there was ‘no evidence’ – whether the Tribunal applied the wrong legal test – held: appeal dismissed
Legislation:

Administrative Appeals Tribunal Act 1975 (Cth), s 44

Income Tax Assessment Act 1997 (Cth), ss 355-1, 355-5, 355-25, 355-30, 355-35

Industry Research and Development Act 1986 (Cth), ss 4, 27A, 27F, 27J, 27K, 27L, 30D, 30E

Mineral Resources Act 1989 (Qld)

Cases cited:

Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321

Commissioner of Taxation v Bogiatto [2020] FCA 1139

Comptroller-General of Customs v Pharm-A-Care Laboratories Pty Ltd (2020) 375 ALR 98

Docklands Science Park Pty Ltd and Innovation Australia [2015] AATA 973

Haritos v Federal Commissioner of Taxation (2015) 233 FCR 315

Keith v Gal [2013] NSWCA 339

Kostas v HIA Insurance Services Pty Ltd (2010) 241 CLR 390

Li v Attorney General (NSW) (2019) 99 NSWLR 630

Minister for Immigration and Multicultural Affairs v Al-Miahi (2001) 65 ALD 141

Monie v Commonwealth (2005) 63 NSWLR 726

Moreton Resources Ltd v Innovation and Science Australia (2019) 271 FCR 211

Re DBTL and Innovation Australia (2013) 137 ALD 88

Rix’s Creek Pty Ltd; Bloomfield Collieries Pty Ltd and Innovation Australia [2017] AATA 645

Division: General Division
Registry: Queensland
National Practice Area: Taxation
Number of paragraphs: 155
Date of hearing: 23 November 2020
Counsel for the Applicant: Mr AT Broadfoot QC with Mr AJ Bailey
Solicitor for the Applicant: Holding Redlich
Counsel for the Respondent: Mr SJ Free SC with Ms C Trahanas
Solicitor for the Respondent: Clayton Utz

ORDERS

QUD 51 of 2020
BETWEEN:

COAL OF QUEENSLAND PTY LTD (ACN 149 250 939)

Applicant
AND:

INNOVATION AND SCIENCE AUSTRALIA

Respondent

ORDER MADE BY:

LOGAN, GRIFFITHS AND MOSHINSKY JJ

DATE OF ORDER:

23 APRIL 2021

THE COURT ORDERS THAT:

1.The applicant have leave to amend the amended notice of appeal to the form of the proposed further amended notice of appeal (second version) provided to the Court by email at approximately 3.44 pm on 23 November 2020.

2.The applicant forthwith…

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AGLC
Coal of Queensland Pty Ltd v Innovation and Science Australia [2021] FCAFC 54
Case
[2021] FCAFC 54
Decision Date

CaseChat Overview and Summary

Coal of Queensland Pty Ltd sought judicial review of a decision of the Administrative Appeals Tribunal that affirmed a decision of the Board of Taxation that Coal of Queensland was not entitled to a research and development tax offset. Coal of Queensland held an exploration permit for coal and had conducted a series of activities to investigate the nature and economic viability of mining coal in the area. The Tribunal found that the activities were not "core R&D activities" within the meaning of s 355-25(1) of the Income Tax Assessment Act 1997 (Cth), and that the exclusion in s 355-25(2)(b) applied. The Tribunal also found that the activities were not "supporting R&D activities" within s 355-30. Coal of Queensland argued that the Tribunal made findings for which there was 'no evidence' and that the Tribunal applied the wrong legal test. The Full Court dismissed the appeal and held that the Tribunal's decision was correct. The Court found that the Tribunal's findings were open on the evidence and that the Tribunal applied the correct legal test. The Court also found that the Tribunal's reasons were sufficient and that it made findings on all material questions of fact.

The Full Court granted Coal of Queensland leave to amend its notice of appeal and ordered that the further amended notice of appeal be filed and served forthwith. The Court also ordered that Coal of Queensland pay the respondent's costs of the appeal, as agreed or taxed. The Court's decision is final and binding on the parties.

Orders

Orders of the court

1. The applicant have leave to amend the amended notice of appeal to the form of the proposed further amended notice of appeal (second version) provided to the Court by email at approximately 3.44 pm on 23 November 2020.

2. The applicant forthwith file and serve the further amended notice of appeal referred to in paragraph 1.

3. The appeal be dismissed.

4. The applicant pay the respondent’s costs of the appeal, as agreed or taxed.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Div 5 of Pt III of the IR&D Act deals with review of decisions of the Board. Section 30D provides for a process of internal review. Section 30E deals with external review by the Tribunal of internal review decisions.Background facts and matters The following statement of background facts and matters (including evidence before the Tribunal) is substantially based on the Reasons. In this section, we have not drawn on factual findings that are the subject of challenge by the applicant in its amended notice of appeal or proposed further amended notice of appeal (second version).General matters Since 2011, the applicant has held an exploration permit for coal issued pursuant to the Mineral Resources Act 1989 (Qld) (EPC1235). As noted above, the permit covers approximately 120 square kilometres in the Bowen basin area in Queensland. The permit area is approximately 40 km north east of the town of Emerald. The activities carried on by the applicant in the area of EPC1235 are known as the Wilton Project. As noted above, the coal deposits found in the Wilton Project include part of the FCCM. The FCCM is a body of coal that sits between the Rangal Coal Measures and the Moranbah Coal Measures, which are highly profitable due to the high quality of the coal and the ease and relative low cost at which the coal can be mined and processed. The coal found in the FCCM, in contrast, has a relatively high level of ash content, and the coal seams are banded. The characteristics of the FCCM mean the Wilton Project has not been commercially viable because of the cost and difficulty of using established methods for liberating the coal. In about July 2011, the applicant formed the view that it might be possible to produce a viable coking coal product from the FCCM notwithstanding the characteristics referred to above. To that end, the applicant commenced a series of activities to investigate the nature and economic viability of mining the FCCM deposit. The applicant’s vision of new ways to mine and process coal would only be realised, if at all, over an extended period. The Tribunal noted at [37] of the Reasons that the applicant relied on evidence from five lay witnesses and one expert witness, Dr Jeffrey Euston. The respondent relied on the evidence of one expert witness, Dr Andrew Vince.Mr Vorias’s evidence Mr Cameron Vorias has been the director of the applicant since July 2011. As a director, he was actively involved in monitoring the progress of the relevant work. Upon joining the applicant in July 2011, and following the provision of a further qualified geologist’s statement prepared by Dr LeBlanc Smith in March 2011, Mr Vorias saw a real opportunity to extract good quality coking coal from the FCCM that had previously been considered uneconomic. However, this could only be achieved if the applicant made improvements to existing mining and beneficiation processes. In his witness statement dated 20 October 2017, Mr Vorias stated that in order to produce coal that was suitable for the international market, it would be necessary to get the coal extracted from the Wilton Project to a specific ash level of less than 12%. He stated the main challenge was to get the coal to this acceptable level of ash impurity, at the right size, and without excessive moisture or other impurities. Mr Vorias outlined the hypothesis at [37] of his statement as follows:[B]y the end of around July 2011, I (and I believe my fellow directors) had recognised that it might theoretically be possible for improvements to be made to existing coal mining and beneficiation processes, or new processes could be developed, that would enable the mining, processing and handling (transporting) of highly banded coal seams known to exist in the Bowen basin (such as the FCCM) and elsewhere to be achieved economically by achieving a combination of (a) the extraction of material with a higher yield of coal to waste than had been done previously, (b) the development of a crushing and washing plant configuration that would operate differently from those that had previously been used and that (c) would result in a product able to be handled and transported, which had not previously been thought possible. We recognised that if such improved or new processes could be developed, it might be possible to develop these types of deposits which had historically been regarded as unattractive by major mining companies … because they were thought to be uneconomic due to high levels of ash and waste being present and the consequent need (based on existing technologies) for prohibitively expensive crushing, washing and drying facilities. In the balance of this statement I refer to the recognition of the matters that I have described in this paragraph as the Hypothesis.

Evidence

Evidence Before The Court

The Tribunal noted at [37] of the Reasons that the applicant relied on evidence from five lay witnesses and one expert witness, Dr Jeffrey Euston. The respondent relied on the evidence of one expert witness, Dr Andrew Vince.Mr Vorias’s evidence Mr Cameron Vorias has been the director of the applicant since July 2011. As a director, he was actively involved in monitoring the progress of the relevant work. Upon joining the applicant in July 2011, and following the provision of a further qualified geologist’s statement prepared by Dr LeBlanc Smith in March 2011, Mr Vorias saw a real opportunity to extract good quality coking coal from the FCCM that had previously been considered uneconomic. However, this could only be achieved if the applicant made improvements to existing mining and beneficiation processes. In his witness statement dated 20 October 2017, Mr Vorias stated that in order to produce coal that was suitable for the international market, it would be necessary to get the coal extracted from the Wilton Project to a specific ash level of less than 12%. He stated the main challenge was to get the coal to this acceptable level of ash impurity, at the right size, and without excessive moisture or other impurities. Mr Vorias outlined the hypothesis at [37] of his statement as follows:[B]y the end of around July 2011, I (and I believe my fellow directors) had recognised that it might theoretically be possible for improvements to be made to existing coal mining and beneficiation processes, or new processes could be developed, that would enable the mining, processing and handling (transporting) of highly banded coal seams known to exist in the Bowen basin (such as the FCCM) and elsewhere to be achieved economically by achieving a combination of (a) the extraction of material with a higher yield of coal to waste than had been done previously, (b) the development of a crushing and washing plant configuration that would operate differently from those that had previously been used and that (c) would result in a product able to be handled and transported, which had not previously been thought possible. We recognised that if such improved or new processes could be developed, it might be possible to develop these types of deposits which had historically been regarded as unattractive by major mining companies … because they were thought to be uneconomic due to high levels of ash and waste being present and the consequent need (based on existing technologies) for prohibitively expensive crushing, washing and drying facilities. In the balance of this statement I refer to the recognition of the matters that I have described in this paragraph as the Hypothesis. Mr Vorias confirmed that the applicant embarked upon a series of activities to test that hypothesis. He explained:[I]n order to test the Hypothesis there would be a need for a bulk coal sampling program in order to undertake research and testing into the potential for new or improved mining methods and processing plant requirements. This would require survey work as well as some drilling and thereafter the excavation of test pits to enable bulk samples to be taken for the purpose of conducting experiments that would be directed to verifying or disproving the Hypothesis. It was important to me at this stage that the surveys and drilling could be undertaken as efficiently and on as limited a basis as possible, as the main purpose of them at this stage, was to help in identifying the best locations within the EPC area at which the test pits could be excavated. A further purpose of undertaking these activities, was to test whether the survey methodologies, which were new, were able to provide accurate results. It was necessary in this respect to compare the results of survey data against drilling results. In addition, I was aware that the results of these works might assist in developing a profile of the ground which would assist in developing coal extraction methods that were better able to target and extract coal, while extracting less overburden and waste than would ordinarily be extracted by large-scale open cut mining methods …

Decision

Reasons for decision

Subsequently, the Board conducted a compliance review. On 28 May 2015, a delegate of the Board decided that the applicant’s registered activities for the 2012 year were neither core R&D activities nor supporting R&D activities. Following a process of internal review, that decision was confirmed by the Board on 27 January 2017 (the internal review decision). The applicant applied to the Administrative Appeals Tribunal (the Tribunal) for review of the internal review decision. The hearing took place over three days in August 2018. On 30 January 2020, the Tribunal decided to affirm the internal review decision and provided reasons for decision (the Reasons). The Tribunal found that the activities registered as core R&D activities were not “core R&D activities”, as defined, because they were not carried out by applying a systematic progression of work based on principles of established science, and because they did not proceed from hypothesis to experiment, observation and evaluation, leading to logical conclusions. The Tribunal also found that the activities were not conducted for the purpose of generating new knowledge, being an element of the definition of “core R&D activities”. Further, the Tribunal found that the activities came within the exception in s 355-25(2)(b) of the ITAA 1997 (set out later in these reasons). The Tribunal rejected an alternative contention put forward by the applicant that certain of the activities were “supporting R&D activities”. Pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act), the applicant ‘appeals’ to this Court, on a question of law, from the decision of the Tribunal. The Court’s original jurisdiction in this matter is being exercised by a Full Court. The applicant’s current notice of appeal is its amended notice of appeal from a tribunal dated 26 October 2020. At the hearing of the appeal, the applicant sought leave to amend the amended notice of appeal. A proposed further amended notice of appeal was provided to the Court by email during the hearing (which took place by video using Microsoft Teams). Following some discussion, the applicant prepared and provided to the Court by email a second version of the proposed further amended notice of appeal. We heard argument on the proposed additional question of law and the associated additional grounds, and reserved our decision on whether to grant leave to amend. In broad terms, by its existing and proposed additional grounds, the applicant challenges many of the factual findings made by the Tribunal, either on the basis that the finding was “not open” or because the Tribunal applied the wrong legal test. Insofar as the applicant contends that certain factual findings were “not open”, there is an issue whether the applicant’s grounds raise a question of law, as required by s 44 of the AAT Act. The applicant also contends that the Tribunal failed to give adequate reasons and failed to make findings on material questions of fact.

Ratio Decidendi

Legal Principle Established

Section 27J provides as follows:27J Findings about a registration(1)The Board may make one or more findings to the following effect about an R&D entity’s registration under section 27A for an income year (the registration year):(a)that all or part of a registered activity was a core R&D activity conducted during the registration year;(b)that all or part of a registered activity was not an activity of a kind covered by paragraph (a);(c)that all or part of a registered activity was a supporting R&D activity conducted during the registration year and in relation to:(i)one or more specified registered core R&D activities; or(ii)one or more specified core R&D activities for which the entity has been registered in an earlier income year; or(iii)one or more specified core R&D activities yet to be conducted for which the entity could be registered in the registration year if those activities were conducted during the registration year; or(iv)several specified core R&D activities, each covered by subparagraph (i), (ii) or (iii);(d)that all or part of a registered activity was not an activity of a kind covered by paragraph (c).Note 1:A finding is reviewable (see Division 5).Note 2:The Board could make a finding under paragraph (b) if, for example, the Board has insufficient information to make a finding under paragraph (a). Similarly, the Board could make a finding under paragraph (d) if it has insufficient information to make a finding under paragraph (c).(2)If the Board makes a finding under subsection (1) in relation to the R&D entity’s registration, the Board may specify in the finding the times to which the finding relates.Example:A finding under paragraph (1)(a) could specify the times during the registration year that a registered activity was a core R&D activity.(3)This section has effect subject to section 32B (findings cannot be inconsistent with any earlier findings).The effect of this provision is that the Board may make findings as described in paragraph (a), (b), (c) or (d) of subsection (1) in respect of registered activities. For example, if an activity is registered for a particular income year, the Board may make a finding pursuant to paragraph (a) that the activity was a “core R&D activity” and that it was conducted during the income year. By way of further example, if an activity is registered for a particular income year, the Board may make a finding pursuant to sub-paragraph (c)(ii) that the activity was a “supporting R&D activity” conducted in the income year, in relation to one or more specified “core R&D activities” for which the entity was registered in an earlier income year. In principle, if activities are registered as “core R&D activities”, the Board can nevertheless find that they are “supporting R&D activities” pursuant to paragraph (c). Section 27K deals with notice of the Board’s findings, or of decisions refusing to make findings. Section 27L deals with automatic variations so that an R&D entity’s registration is consistent with the Board’s findings.