HZXD and Innovation Australia - [2010] AATA 879

Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2010] AATA 879
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2008/4199

GENERAL ADMINISTRATIVE DIVISION )

Re HZXD

Applicant

And

Innovation Australia

Respondent
DECISION

Tribunal
Mr G L McDonald, Deputy President

Mr C Ermert, Member

Date9 November 2010
PlaceMelbourne

Decision
The Tribunal affirms the decision under review.

....(sgd G L McDonald).....
Deputy President

(b) other activities that are carried on for a purpose directly related to the carrying on of activities of the kind referred to in paragraph (a).

7. Section 73B (2B) of ITA Act excludes certain activities from constituting ”research and development activities”. It provides:
[f]or the purposes of the definition of research and development activities in subsection (1):
(a)       activities are not taken to involve innovation unless they involve an appreciable element of novelty; and
(b)       activities are not taken to involve high levels of technical risk unless:
(i)        the probability of obtaining the technical or scientific outcome of the activities cannot be known or determined in advance on the basis of current knowledge or experience; and
(ii)       the uncertainty of obtaining the outcome can be removed only through a program of systematic, investigative and experimental activities in which scientific method has been applied, in a systematic progression of work (based on principles of physical, biological, chemical, medical, engineering or computer sciences) from hypothesis to experiment, observation and evaluation, followed by logical conclusions.

8. Since this review involves the development of computer software, s 73B (2A) of the ITA Act is also relevant. It provides that:
activities carried on by or on behalf of an eligible company by way of the development of computer software shall not be taken to be systematic, investigative and experimental activities unless the computer software is developed for the purpose, or for purposes that include the purpose, of sale, rent, licence, hire or lease to 2 or more non-associates of the company (counting a non-associate of the company and the associates of such a non-associate together as one person). [“Multiple Sale Criterion”].

Background
9. The aim of the applicant’s R and D plan, dated 1 July 2007, was the development of a replacement for the current carparking methodology for identifying customers wishing to access carparks. A biometric system was envisaged, which utilised either a camera or a fingerprint scanner to recognise the customer upon ingress and also to calculate the amount owing on egress. This would eliminate the need for a carparking customer to retain and use a card or token. It was also anticipated that a peripheral device, which integrated the proposed identity recognition with optical character recognition of registration plate letters and figures, could provide additional security[2].
[2] T Documents, T 52.
10. On behalf of the applicant, there have been at least three plans prepared, which are said to constitute the core development activity[3] It is that one set out in the witness statement of Mr Sachlan Fraval and prepared for this hearing, which is the most relevant. It reads as…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2010] AATA 879
Decision Date: 9 November 2010

CaseChat Overview and Summary

The matter before the Administrative Appeals Tribunal (AAT) involved a dispute between HZXD and Innovation Australia regarding a claim for tax concessions under the Income Tax Assessment Act 1936. The Tribunal was asked to determine whether HZXD's activities constituted research and development (R&D) for the purposes of claiming tax concessions. The case centred on the nature of the research activities, particularly whether they involved computer software development and if they met the criteria for being considered innovative or involving high levels of technical risk.

The primary legal issues that the AAT had to address were the interpretation of the relevant provisions of the Income Tax Assessment Act, specifically sections 73B (1), 73B (2A) and 73B (2B). These sections outline the conditions for claiming a tax concession for R&D activities. The court had to consider whether HZXD's activities met the statutory criteria for being classified as R&D, and if they involved innovation or a high level of technical risk. The Tribunal needed to ascertain whether the company could provide sufficient evidence to demonstrate that its activities fell within the legislative definitions.

In its decision, the AAT found that HZXD was unable to provide adequate evidence to satisfy the criteria for R&D tax concessions. The Tribunal was unable to determine whether the activities involved innovation or high levels of technical risk, as required by the legislation. Consequently, the Tribunal affirmed the original decision that HZXD was not entitled to the tax concessions it sought. The AAT concluded that without sufficient evidence to meet the legislative requirements, the claim for tax concessions could not be upheld.

The final orders of the Tribunal were to affirm the decision under review, meaning that HZXD's claim for tax concessions was denied. The Tribunal found that the company had not provided enough evidence to demonstrate that its activities met the criteria for R&D as outlined in the Income Tax Assessment Act. This decision reinforces the importance of providing detailed and comprehensive evidence to support claims for tax concessions in relation to research and development activities.

Orders

Orders of the court

The Tribunal affirms the decision under review.

Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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