Re DBTL and Innovation Australia - [2013] AATA 573

Administrative Appeals Tribunal
ADMINISTRATIVE APPEALS TRIBUNAL )
) No: 2010/1153

General Administrative Division )
Re: Mount Owen Pty Limited
Applicant

And: Innovation Australia
Respondent
TRIBUNAL:             The Hon. B J M Tamberlin QC, Deputy President
DATE:   20 November 2013
PLACE:                  Sydney

The Tribunal directs the Registrar, pursuant to subsection 43AA(1) of the Administrative Appeals Tribunal Act 1975, to alter the text of the decision in this application as follows:

All references to the Applicant’s name as ‘DBTL’ are to be replaced with ‘Mt Owen Pty Limited’.

....................[sgd]...............................................
The Hon. B J M Tamberlin QC, Deputy President
[2013] AATA 573

Division GENERAL ADMINISTRATIVE DIVISION

File Number(s)

2010/1153

Re

DBTL

APPLICANT

And

Innovation Australia

RESPONDENT

Decision

Tribunal
Hon. Brian Tamberlin, QC, Deputy President
Mr Conrad Ermert, FIEAust, Member

Date 16 August 2013

Place Sydney
The decision under review is set aside insofar as it allows any of the Applicant’s claims and is substituted with a decision that none of the Applicant’s claims are accepted as being research and development activities.
...........................[sgd].............................................
Hon. Brian Tamberlin, QC, Deputy President
Catchwords
INDUSTRY RESEARCH AND DEVELOPMENT – claims for research and development activities - definition of research and development activity in s 73B(1) of the Income Tax Assessment Act 1936 – whether claimed activities fall within definition – whether activities are systematic, investigative and experimental – whether activities involve either innovation or high levels of technical risk – whether activities themselves involve high levels of technical risk – purpose of the activities - whether claimed activities carried out as claimed – sufficiency of evidence – whether activities excluded as being routine collection of information or required for compliance with statutory requirements – whether there was valid registration of research and development activities – decision under review set aside and substituted with a decision that that none of the Applicant’s claims are accepted as being research and development activities.
Legislation
Industry Research and Development Act 1986 (Cth): ss 39L, 39T, 39J

Income Tax Assessment Act 1936 (Cth): ss 72(2B)(a), 73B, 73B(1), 73B(1)(a), 73B(2B), 73B(2C)
Coal Mines (General) Regulations 1999 (NSW): 5, 6, 7, 15
Coal Mines (Open Cut) Regulations 1999 (NSW): regs 5, 6, 16, 25

Cases
RACV Sales and Marketing Pty Ltd v Innovation Australia [2012] AATA 26

Industry Research & Development Board v Coal and Allied Operations Pty Ltd (2000) FCA 40
Fermenter and Industry Research & Development Board [2000] AATA 888
SREE v Industry Research & Development Board [1999] AATA 401

HZXD v Innovation Australia [2010] AATA
Secondary Materials
-
REASONS FOR DECISION
Hon. Brian Tamberlin, QC, Deputy President
Mr Conrad Ermert, FIEAust, Member

This is an application to review a decision of the Respondent made under s 39L of the Industry Research and Development Act 1986 (the IRD Act), that some of the activities claimed to be undertaken by the Applicant at its open-cut coal mine at Mount Owen in the period from January 2000 to 31 December 2005 were not “research and development activities” as defined in s 73B(1) of the Income…

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: [2013] AATA 573
Decision Date

CaseChat Overview and Summary

The case of Re DBTL and Innovation Australia involved the dispute over the eligibility of certain activities for tax concessions under the Industry Research and Development Act. The matter was heard in the Administrative Appeals Tribunal of Australia. The primary issue before the tribunal was whether specific activities carried out by the applicant, DBTL, qualified as research and development activities under the Act, thus warranting the tax concessions sought. This required an examination of the nature of the activities, their alignment with the statutory definitions, and the adequacy of the documentation and evidence provided to substantiate the claims.

The tribunal found that the evidence provided was insufficient to substantiate the applicant's claims regarding the research and development activities. Both parties presented expert geological evidence, with Mr. Hanna and Mr. Biggs, two geologists, providing concurrent evidence. These experts concluded that the site's geological complexity was overstated, and that the activities did not meet the criteria for research and development as defined by the Act. The tribunal also noted that the registration process under the Act did not require a detailed description of each individual activity claimed, but rather a general description of the project. However, the tribunal rejected the applicant's claims on the basis that the evidence did not substantiate the activities as research and development.

Consequently, the tribunal set aside the decision that allowed the applicant's claims, substituting it with a decision that none of the applicant's claims should be accepted as research and development activities. The tribunal's reasoning was grounded in the lack of sufficient evidence to support the claims and the experts' conclusions that the activities did not meet the criteria for research and development. The tribunal also dismissed the respondent's submission regarding the adequacy of the registration process, finding that the applicant's registration was sufficient for the purposes of the tribunal's consideration.

In conclusion, the tribunal ruled that the applicant's claims for tax concessions were not supported by adequate evidence and did not meet the criteria for research and development activities under the Act. The decision was therefore made to set aside the previous decision that allowed the claims and to substitute it with a decision that none of the claims should be accepted.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Mr Walls agreed that the 2003 budget and five year plan showed that an increase in production to five million tonnes per annum was achievable, with no suggestion that it was not achievable or that it was necessary to assume a higher loss because of the risk of the operations.CONCURRENT EVIDENCE OF MR HANNA AND MR BIGGS - GEOLOGISTS Mr Hanna and Mr Biggs were geologists who gave concurrent evidence in this matter. Mr Hanna was called for the Applicant and Mr Biggs for the Respondent. Neither geologist had been involved with the mine in the period 2000 to 2005. Their expert evidence was based on instructions and documents furnished to them by the parties. Their evidence was in the form of written statements and oral testimony, including further evidence in chief, with cross-examination by each of the parties. The evidence of these witnesses must be treated with considerable caution because they were not present at the site during the relevant period and based their conclusions on documents which were far from comprehensive. Geological complexity Mr Biggs considered that the geological complexity of the site had been largely overstated by the Applicant’s witnesses. He considered that if the site had presented complexities of a high degree, the Applicant would have ensured that there was a full-time geotechnical specialist at the site. It is noted that such a specialist, Mr Pfister, was only engaged at the site in late September 2004. Mr Biggs considered only two areas of the mine involved special geological and geotechnical risks, namely the two ninety degree turns from Pit A to Pit B and from Pit B to Pit C. Mr Biggs considered that if the geology on the site had been unknown to the extent claimed then it would not have been possible to prepare mine budgets and plans and he would have expected that the mining would have stopped. The western part of Pit B appeared to Mr Hanna to have been extremely complex and the geology unknown, as evidenced by the drill spacing. The proximity of the drill spacing indicated to him that this part of Pit B was of greater complexity than normal. However, Mr Hanna agreed that the resources had been able to be estimated to a high degree of accuracy and that this indicated the geology was therefore predictable. Both Mr Hanna and Mr Biggs agreed that complexity affects the ability of geologists to predict the location of coal seams and the quality of the coal. Mr Hanna noted that consultant geologists at the mine considered that the quality parameters of the seams at Mount Owen were reasonably consistent throughout the mine area. Models used at the mine were accepted to have been around 98 per cent accurate. This is a very high order of accuracy. Mr Hanna saw no evidence of significant interruptions to coal production and it appears that there have been no problems of forecasting or the ability to meet production goals. Unpredictability or uncertainty as to outcome, in other words, had not caused difficulty with mine scheduling.

Decision

Reasons for decision

Furthermore, evidence concerning activity 8.2 does not indicate that there was any strata management plan. There is a reference to slope stability radar but this was only used for a short period.conclusion For the reasons given above we set aside the decision under review insofar as it allows any of the Applicant’s claims and we substitute the decision that none of the Applicant’s claims should be accepted as being research and development activities.

Ratio Decidendi

Legal Principle Established

We reach the same conclusion in respect of activity 3, concerning the through-seam blasting and monitoring and the preparation of the geological model. In our view this was a reserve resource and planning tool for the purpose of extracting coal.REGISTRATION The requirement under s 39J of the IRD Act is for an eligible company to apply for registration in relation to activities in respect of the year of income. There is no specific statutory level of detail required for registration in respect of particular activities, so long as the project is defined sufficiently. The Industry Research and Development Board (the ‘Board’) has power under s 39J to seek such further information as it reasonably requires in order to carry out its functions. In this case it did not require further information under this section. The information required is basic information about the project in which the company’s activities are carried out, together with sufficient detail to enable the Board to evaluate the activities against the criteria in the definition. In our view it was not necessary to provide a description of each activity claimed in the application for registration form. The Respondent submits that the Tribunal does not have power to issue a certificate under s 39L of the IRD Act in respect of activities which the Applicant claims were not duly registered as required by s 39J of that Act in relation to the income periods in which they are sought to be claimed. The basis for this submission is that the activities claimed are not included or sufficiently described or specified in detail in the registration applications in respect of the period from 2000 to 2005. The submission is directed to some of the claimed activities namely 4, 5.1, 5.2, 5.3, 5.4, 7 and 8.1 to 8.4. We do not accept the Respondent’s submission in respect of registration. The registration process requires registration “in relation to research and development activities”, but the prescribed forms and provisions do not require detailed description of all the individual activities to a highly particular level. The expression “in relation to research and development activities” is in the broadest terms, and the requirement should not be read in a narrow, restrictive manner. In this case the Applicant was registered in respect of the “project” which referred to the project at Mount Owen. We have considered the material furnished in relation to the registration and the evidence relating to the way in which it was treated by the Board and we reject the submission that the claimed activities cannot be considered by the Tribunal on the ground that they were not covered by the registration application requirements of the IRD Act or the ITAA.WEre THE claimed ACTIVITIES carried out – Sufficiency OF EVIDENCE The oral testimony and documentary evidence in this matter is most unsatisfactory in that it does not provide any sufficient basis in respect of most claims for a determination that any of the claimed activities were in fact carried out as asserted, or in some cases, were carried out at all. The contemporaneous material and other records do not approach the level of precision which would be expected of a systematic investigative process or a well-documented research and development program. In many cases the experts agreed that they had not seen documentary evidence to support the fact on which they had based their opinions.

Division	GENERAL ADMINISTRATIVE DIVISION
File Number(s)	2010/1153
Re	DBTL
APPLICANT
And	Innovation Australia
RESPONDENT

Tribunal	Hon. Brian Tamberlin, QC, Deputy President Mr Conrad Ermert, FIEAust, Member
Date	16 August 2013
Place	Sydney