PKWK and Innovation and Science Australia (Taxation)

The Administrative Appeals Tribunal considered a dispute between PKWK (the applicant) and Innovation and Science Australia (the respondent) concerning the applicant's eligibility for a research and development (R&D) tax offset. The core of the disagreement revolved around whether certain activities undertaken by the applicant in relation to the development of a soil treatment facility constituted "core R&D activities" or "supporting R&D activities" as defined by Division 355 of the *Income Tax Assessment Act 1997* (Cth). The Tribunal had before it a substantial volume of documentary and viva voce evidence, including reports and testimony from lay and expert witnesses, as well as technical documentation and academic articles.

The legal issues before the Tribunal were to determine the characterisation of the applicant's activities for the purposes of the R&D tax offset. Specifically, the Tribunal was required to assess whether the activities met the criteria for "core R&D activities," which are experimental activities aimed at acquiring new knowledge or creating new or improved products, processes, or services. Alternatively, if not core R&D activities, the Tribunal had to consider if they qualified as "supporting R&D activities," which are activities undertaken to support core R&D activities. This assessment involved a detailed analysis of the evidence presented, particularly the expert opinions of a chemical engineer for the applicant and a professor for the respondent, as well as a joint expert report.

The Tribunal's reasoning focused on the interpretation of the statutory definitions of core and supporting R&D activities and the application of this to the factual matrix. The Tribunal considered the nature of the scientific uncertainty being addressed by the applicant's activities and whether the activities were systematic, planned, and based on the application of the scientific method. The Tribunal analysed the evidence to ascertain whether the activities were genuinely experimental in nature, seeking to resolve scientific or technological uncertainties, or whether they were more akin to the application of existing knowledge or routine engineering. The Tribunal ultimately set aside the decision under review.