Moreton Resources Ltd and Industry Innovation and Science Australia (Taxation)

Case [2022] AATA 3804

Moreton Resources Ltd and Industry Innovation and Science Australia (Taxation) [2022] AATA 3804 (21 September 2022)

Division:TAXATION AND COMMERCIAL DIVISION

File Number(s):      2016/0604

Re:Moreton Resources Ltd

APPLICANT

AndIndustry Innovation and Science Australia

RESPONDENT

Decision

Tribunal:Deputy President F D O'Loughlin KC

Date:21 September 2022

Place:Melbourne

The decision of the Respondent dated 21 December 2015 is set aside and substituted with the following:

The activities referred to as Remaining Core Activities 1 to 7 and the activities registered as Supporting R&D Activities for the 2012, 2013, 2014 Years are Supporting R&D Activities in relation to Core R&D Activities of and for the 2010 Year.

..........................[sgd]..............................................

Deputy President F D O'Loughlin KC

Catchwords

TAXATION  – Research and Development – Supporting R&D Activities, whether activities registered as Supporting R&D Activities are directly related to registered Core R&D Activities of previous Income Years.

REVIEW BY AAT  – Power and Procedure on remittal from Federal Court

Legislation

Acts Interpretation Act 1901 (Cth)

Administrative Appeals Tribunal Act 1975 (Cth)
Income Tax Assessment Act 1936 (Cth)
Income Tax Assessment Amendment (Research and Development) Act 1986 (Cth)
Income Tax Assessment Act 1997 (Cth)

Industry Research and Development Act 1986 (Cth)

cases

Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (NT) (2009) 239 CLR 27

Catlow v Accident Compensation Commission (1989) 67 CLR 543
Commissioner of Taxation (Cth) v Murry (1998) 193 CLR 605
Cooper Brooks (Wollongong) v Commissioner of Taxation (1981) 147 CLR 297
HFM043 v The Republic of Nauru (2018) 92 ALJR 817
Industry Research & Development Board v Coal & Allied Operations Pty Ltd (2000) 101 FCR 405
Kaluza v Repatriation Commission [2011] FCAFC 97
Lim v Comcare [2019] FCAFC 104
Moreton Resources Ltd v Innovation and Science Australia [2019] FCAFC 120
Moreton Resources Ltd and Innovation and Science Australia [2018] AATA 3378
Mt Owen Pty Ltd v Innovation Australia (2013) 137 ALD 88
Northern Territory v Collins (2008) 235 CLR 619
O’Grady v North Queensland Coal Limited (1990) 169 CLR 356
Peacock v Repatriation Commission [2007] FCAFC 156
Minister for Immigration and Multicultural Affairs v Wang (2003) 215 CLR 518
RACV Sales and Marketing Ltd v Innovation Australia (2012) 129 ALD 32
Saeed v Minister for Immigration & Citizenship (2010) 241 CLR 252

Wik Peoples v Queensland (1996) 187 CLR 1

Secondary Materials

Replacement Explanatory Memorandum, Tax Laws Amendment (Research and Development) Bill 2010 (Cth)

Explanatory Memorandum, Income Tax Assessment Amendment (Research and Development) Bill 1986 (Cth)

REASONS FOR DECISION

Deputy President F D O'Loughlin KC

  1. Following the Full Court[1] upholding the Applicant’s appeal to it from the First Tribunal’s Decision,[2] the Full Court’s Order 2 setting aside the Frist Tribunal’s decision, and the Full Court’s Order 3, remitting the application to the present Tribunal in the following terms:

    ‘3The proceedings be remitted to the Administrative Appeals Tribunal for determination of whether the Applicant’s activities in the 2012, 2013, and 2014 income years were eligible supporting R&D activities in accordance with the law.’

    (a)the Respondents decision of 21 December 2015…

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AGLC
Moreton Resources Ltd and Industry Innovation and Science Australia (Taxation) [2022] AATA 3804
Case
[2022] AATA 3804
Decision Date

CaseChat Overview and Summary

This matter concerned an appeal by Moreton Resources Ltd (the Applicant) against a decision by Industry Innovation and Science Australia (the Respondent) regarding the registration of certain research and development activities. The dispute centred on whether activities registered as "Supporting R&D Activities" for the 2014 income year, specifically "project management and administration" and "environmental rehabilitation and planning," were directly related to registered "Core R&D Activities" from previous income years. The case was before the Administrative Appeals Tribunal (AAT) on remittal from the Federal Court.

The primary legal issue before the AAT was to determine whether the registered Supporting R&D Activities for the 2014 year were directly related to registered Core R&D Activities of previous income years, as required by the relevant tax legislation. This involved a factually intensive exercise, including an examination of whether activities registered in earlier years, particularly 2010, qualified as "core R&D activities," and if so, whether the subsequent activities were undertaken for the dominant purpose of supporting those core activities. The court's previous decision noted the need to consider whether certain activities were conducted during the registration year.

The Federal Court had remitted the matter to the AAT for a redetermination of all relevant questions of fact and law, finding it inappropriate to make the necessary factual findings itself due to the complexity and intensity of the factual inquiry required. The AAT was directed to consider all tendered evidence, including evidence from the first tribunal hearing and a second statement by Mr. Melik, and rejected objections to this evidence, stating that the tribunal is not bound by strict rules of evidence and that personal perspectives of company executives can inform factual findings regarding purposes and relationships between activities. The AAT also addressed the Respondent's contention that the Applicant had abandoned certain arguments regarding activities in the 2012, 2013, and 2014 years, with the Applicant disputing this limitation.

The decision of the Federal Court was to set aside the previous decision of the Tribunal and remit the matter back to the Tribunal for determination according to law. The AAT's role was to re-examine the facts and apply the law, considering all evidence and arguments presented, including the Applicant's continued contention that activities in the 2012 year were a continuation of core R&D activities from the UCG pilot project.

Orders

Orders of the court

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Background

Background to the litigation

The activities registered as Supporting R&D Activities for the 2014 Year were:(a)‘project management and administration’; and(b)‘environmental rehabilitation and planning’.The scope of the remittal, facts, fact finding and evidence The present matter has been remitted by Order 3 of the Full Court’s orders made pursuant to s 44(5) of the Tribunal Act,[20] after:(a)the Applicant had urged the court to exercise s 44(7) powers and make the necessary findings itself; and(b)the Respondent resisted the proposition that the Court exercise s 44(7) powers with submissions that:‘There would also need to be factual findings about whether the activities conducted in 2012 to 2014 were directly related to some specific activities in the earlier years. Thirdly, there would need to be findings of dominant purpose in relation to those activities found to be covered by the exclusion in 25(2)(f) or directly related to producing goods or services, and that, in our submission, would be a factually intensive exercise[21] …As we’ve submitted, the clear preference of the Respondent, having regard to section 44 of the AAT Act, the rules of the court, the dense factual findings that are outstanding – the clearly preferable course would be for the matter to be remitted to the tribunal’.[22] (Emphasis added)[20]Administrative Appeals Tribunal Act 1975 (Cth). [21]Full Court transcript, 113 l 40-46.[22]Full Court transcript, 115 l 16-20. The rationale for the Full Court not finding necessary facts itself was explained by the Full Court as follows:‘161In support of this submission Moreton submits, in summary, that: had the Tribunal not made the findings that it did in relation to the pilot project as a whole, it would have been required to examine more closely the activities registered for the 2010 year; those activities included “UCG gas pilot burn/ignition” and “ongoing testing and evaluation of gas production and plant performance to test the viability of the coal seam used and to ensure environmental standards are met”; to the extent that any of the registered “core R&D activities” for the 2012 to 2014 years were not “core R&D activities”, they were directly related to, and undertaken for the dominant purpose of supporting, the activities registered for the 2010 year. Moreton submits that the connection between the activities arises from, among other things, the terms of the EA that applied to the pilot project, pursuant to which Moreton was required to carry out the remediation activities in the years in question and the fact the activities constituting the pilot project were interrelated. During the hearing of the appeal, we were taken to a substantial number of documents in the Appeal Book in support of these submissions.…163In our view, having regard to the matters referred to in s 44(7) of the AAT Act, it is not appropriate for this Court to determine whether the registered “core R&D activities” for the 2012 to 2014 years were Supporting R&D Activities on the basis of Moreton’s alternative submission before the Tribunal. Determining this issue would be a factually intensive exercise. Among other things, it would require consideration of whether the some or all of the registered activities for the 2010 year were “core R&D activities”. If that issue were determined favourably to Moreton, it would be necessary to determine whether the registered “core R&D activities” for the 2012 to 2014 years were directly related to, and undertaken for the dominant purpose of supporting, the core R&D activities for the 2010 year. (Moreton accepts that it needs to satisfy subsection (2) in addition to subsection (1) of s 355-30.) It would also be necessary to determine whether the relevant activities were conducted during the registration year, to the extent that this has not already been determined (see s 27J of the [Industry Research and Development Act 1986 (Cth)]). In the circumstances, it is preferable for the matter to be remitted to the Tribunal.Conclusion164For the reasons set out above, the decision of the Tribunal is to be set aside and the matter remitted to the Tribunal for determination according to law.’

Evidence

Evidence Before The Court

Having regard to the unqualified terms of the remittal and the foregoing principles, all relevant questions of fact and law are to be determined again by the present Tribunal. The tendered evidence from the First Tribunal hearing, and Second Melik Statement can all be considered.The objections to evidence A range of objections to evidence were provided to the Tribunal with the Respondent’s submissions. These objections can be broadly categorised as follows:(a)some of the original evidence and the proposed new evidence of Mr Melik ought not be admitted at all on the remittal given the nature of the remittal and/or is irrelevant to the issues to be dealt with on the remittal; and(b)some of the proposed new evidence of Mr Melik is opinion, vague, speculative and hearsay, either in isolation or in combination, and/or goes to the ultimate issue to be decided, and/or is evidence of belief. These objections are noted but rejected. (a)The terms of the remittal and the responsibilities of the Tribunal on remittal as noted above require consideration of the evidence as a whole to make findings of fact again. (b)The witnesses who have given evidence both to the First Tribunal and the present Tribunal were in positions such that they were entitled to give the evidence that has been given including evidence of beliefs, intentions and objectives.(c)As to the contention to the effect that evidence went to the ultimate issue, the Tribunal is not bound by the rules of evidence. The present case calls for identification of activities, the purposes for which those activities were pursued, and connections or relationships between them. Those are questions of fact. Questions of fact of this nature lend themselves to be informed by personal perspectives of the responsible company executives. The weight to be given to the matters objected to is a matter for the present Tribunal. 2012, 2013 and 2014 Year Abandoned Activities The Respondent points to both the reasons underlying the remittal order, and what happened in the Full Court to support its assertion that the Applicant had abandoned its contention that some activities had been undertaken in the 2012, 2013, and 2014 Years such that it is no longer able to advance the contention that these activities were Supporting R&D Activities in relation to registered Core R&D Activities undertaken in the 2010 Year. The Applicant disputes both bases for the limitation. At paragraph 1(b) of its reply submissions to the Full Court, the Applicant said:‘In respect of those activities carried out during the year ended 30 June 2012 that were not found to be excluded by reason of section 355-25(2)(f) [being the activities referred to at Tribunal Reasons [263]-[267] and [321]] the Applicant contends that the Tribunal erred in finding that they were not core R&D Activities. Although of a limited nature when looked at in isolation, those activities were a continuation of the “core R&D activities” comprising the UCG pilot project.’

Decision

Reasons for decision

The rationale for the Full Court not finding necessary facts itself was explained by the Full Court as follows:‘161In support of this submission Moreton submits, in summary, that: had the Tribunal not made the findings that it did in relation to the pilot project as a whole, it would have been required to examine more closely the activities registered for the 2010 year; those activities included “UCG gas pilot burn/ignition” and “ongoing testing and evaluation of gas production and plant performance to test the viability of the coal seam used and to ensure environmental standards are met”; to the extent that any of the registered “core R&D activities” for the 2012 to 2014 years were not “core R&D activities”, they were directly related to, and undertaken for the dominant purpose of supporting, the activities registered for the 2010 year. Moreton submits that the connection between the activities arises from, among other things, the terms of the EA that applied to the pilot project, pursuant to which Moreton was required to carry out the remediation activities in the years in question and the fact the activities constituting the pilot project were interrelated. During the hearing of the appeal, we were taken to a substantial number of documents in the Appeal Book in support of these submissions.…163In our view, having regard to the matters referred to in s 44(7) of the AAT Act, it is not appropriate for this Court to determine whether the registered “core R&D activities” for the 2012 to 2014 years were Supporting R&D Activities on the basis of Moreton’s alternative submission before the Tribunal. Determining this issue would be a factually intensive exercise. Among other things, it would require consideration of whether the some or all of the registered activities for the 2010 year were “core R&D activities”. If that issue were determined favourably to Moreton, it would be necessary to determine whether the registered “core R&D activities” for the 2012 to 2014 years were directly related to, and undertaken for the dominant purpose of supporting, the core R&D activities for the 2010 year. (Moreton accepts that it needs to satisfy subsection (2) in addition to subsection (1) of s 355-30.) It would also be necessary to determine whether the relevant activities were conducted during the registration year, to the extent that this has not already been determined (see s 27J of the [Industry Research and Development Act 1986 (Cth)]). In the circumstances, it is preferable for the matter to be remitted to the Tribunal.Conclusion164For the reasons set out above, the decision of the Tribunal is to be set aside and the matter remitted to the Tribunal for determination according to law.’ The Respondent contends, and the Applicant disputes, that this explanation, in part at least, informs the scope of the remittal to the present Tribunal which in turn informs how the Tribunal is to proceed. More particularly, coupled with the conduct of the appeal to the Full Court, these explanations are also said to inform the activities that it is now open to the Applicant to contend were supporting activities, and throw light on the extent to which the present Tribunal is limited to factual matters and findings contained in the First Tribunal’s reasons and the evidence before the First Tribunal.

Ratio Decidendi

Legal Principle Established

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