T.D.S Biz Pty Ltd and Commissioner of Taxation (Taxation)

[2022] AATA 1692

T.D.S Biz Pty Ltd and Commissioner of Taxation (Taxation) [2022] AATA 1692 (28 March 2022)

Division:SMALL BUSINESS TAXATION DIVISION

File Number(s):      2020/7604

Re:T.D.S Biz Pty Ltd

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:Senior Member A Poljak

Date:28 March 2022

Place:Sydney

The summons to Brett Challans is set aside.

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

Senior Member A Poljak

CATCHWORDS

Taxation – whether ATO employee should be summonsed to appear – Research & Development (R&D) – R&D expenditure – supporting R&D activities – core R&D activities – whether evidence would be of any legitimate forensic purpose – summons set aside.

LEGISLATION

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

CASES

Shi v Migration Agents Registration Authority (2008) 235 CLR 286

REASONS FOR DECISION

Senior Member A Poljak

28 March 2022

1. In December 2012, T.D. Biz Pty Ltd, the applicant, was registered with the Australian Securities and Investments Commission. In the year ending 30 June 2014, the applicant commenced designing and developing an electric tricycle.

2. On 22 January 2018 and 29 May 2018, the applicant was issued invoices from HK Flistar Limited (HK Flistar) in the amounts of $1,092,062 and $188,680, to produce vehicle components.

3. On 5 February 2018, Hefei Kelly Technology Investment Co Ltd (Hefei Kelly) issued to the applicant an invoice for $249,540 USD ($332,720 AUD). The items described on the invoice include the production of electrical components.

   4.On 23 August 2018, the applicant lodged its R&D tax incentive application form to AusIndustry which included, among other information, a description of the applicant’s R&D activities and expenditure for the year ended 30 June 2018. On 27 August 2018, AusIndustry issued to the applicant a Notice of Registration under section 27A of the Industry Research and Development Act 1986 (Cth) (IRDA 1986) for the year ended 30 June 2018.

4. On 14 September 2018, the applicant lodged its income tax return for the year ended 30 June 2018 and its research and development tax incentive schedule for the year ended 30 June 2018. The applicant retained a refund of $748,476.23 in respect of the applicant’s income tax return for the year ended 30 June 2018.

5. Following a review of the applicant’s tax return, the respondent notified the applicant on 2 July 2019 of the following:

   (a)The respondent will issue an amended assessment where $1,613,462 of the applicant’s R&D notional deductions will be reclassified as general deductions under section 8-1 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997);

   (b)The amount of $1,613,462 was comprised of the HK Flistar and Hefei Kelly invoices; and

   (c)The applicant did not have a finding under paragraph 28C(1)(a) of the IRDA 1986 (overseas finding) in respect of overseas activities conducted during the year ended 30 June 2018.

6. As a result, an amended Notice of Assessment (NOAA) for the year ending 30 June 2018 was issued to the applicant. The following relevant adjustments were made:

   (a)‘Accounting expenditure in item 6 subject to R&D tax incentive’ was decreased from $1,720,635.00 to $107,173.00: a decrease by $1,613,462.

   (b)‘Refundable tax offsets’ was decreased from $748,476.23 to $46,620.28: a decrease by $701,855.95

   (c)A Notice of Assessment of Shortfall Penalty (Penalty Notice) for the year ended 30 June 2018, imposing an administrative penalty of $350,927.95.

7. The applicant objected to the NOAA and on 23 September 2020, the respondent issued to the applicant a notice of objection decision (objection decision) advising that its objection to the NOAA and Penalty Notice for the year ended 30 June 2018 were both disallowed. The applicant has sought review of this decision in this Tribunal (the substantive proceedings).

8. These interlocutory proceedings concern the respondent’s objection to the issue of a summons to Brett Challans, Director at the Australian Taxation Office (ATO) and employee of the respondent, to appear and give evidence at the hearing of the substantive matter.

   Consideration

   10.The applicant contends that Mr Challans should be summonsed to appear at the hearing of the substantive matter as he represented the ATO at each R&D Tax Incentive National and State Reference Group Meeting and has knowledge, experience, and resources to provide accurate and applicable guidance to R&D Tax Agents and applicants. He claims that Mr Challans made a public comment on 27 July 2021 regarding the purchasing of parts and components for R&D activities in Australia. Specifically, the applicant claims that Mr Challans said words to the effect of the following:

   “As an example if a company imports, say ‘titanium wingnuts’ from America and the R&D is not on the wingnuts, but the wingnuts are required for the R&D activities in Australia then the expense of the wingnuts even if expensive are an eligible R&D expenditure”.

9. The respondent seeks to have the summons set aside in full on the basis that the request for Mr Challans to attend and give evidence at the principal hearing is not for a legitimate forensic purpose.

10. Pursuant to section 40A(1) of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act), a person may be summoned to appear before the Tribunal to give evidence. The Tribunal has discretion to set aside a summons if it is irrelevant to or will not shed light on the issues in the proceedings.

11. The respondent accepts that the applicant’s supporting R&D activities do constitute ‘supporting R&D activities’ for the purposes of section 355-30 of the ITAA 1997.

12. The respondent considers that the issue for determination in the substantive proceedings is whether, in relation to the year ended 30 June 2018, the applicant is entitled to a tax offset in respect of it $1,613,462 expenditure on the HK Flister and Hefei Kelly invoices pursuant to subsection 355-100(1) of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997).

13. Despite the Tribunal not being bound by the rules of evidence, it may inform itself on any matter in such manner as it thinks appropriate; s 33(c) of the AAT Act. For the following reasons, I do not consider the potential evidence of Mr Challans to be relevant to the issues in the substantive proceedings.

14. It appears that Mr Challans has been summoned to give evidence in respect of his opinion on the interpretation of the relevant law. This aspect has already been articulated in the respondent’s Statement of Facts, Issues and Contentions. In any event, the Tribunal, on review of a decision is standing in the shoes of the Commissioner and deciding the matter afresh and on the evidence before it. The role of the Tribunal in reviewing an administrative decision is to make the correct or preferable decision; see Shi v Migration Agents Registration Authority (2008) 235 CLR 286. Whatever Mr Challans’ opinion about the character of the applicant's activities and the interpretation of the relevant law to the applicant’s circumstances, would be of no assistance to the Tribunal.

15. Mr Challans is not an expert witness who has been engaged by either party to provide his opinion in this matter. Further, the applicant has not established that Mr Challans has the necessary training, study, or experience to have the requisite specialist knowledge to be considered an expert in this area. His evidence will merely be a lay opinion does not relate to the applicant’s circumstances and is of no legitimate forensic purpose.

16. Mr Challans’ supposed comments also make clear that his view only applies to activities that are not R&D activities. Contrary to the applicant’s contentions, the applicant’s supporting R&D activities are not the mere supply of components. On 11 July 2019, the applicant prepared and submitted an R&D Tax Incentive Registration Variation to AusIndustry (variation request), registering its supporting R&D activities. The variation request reclassified the construction and cost of the prototype from a ‘core R&D activity’ to a ‘supporting R&D activity’. In the variation request, the applicant described the supporting R&D activities to be ‘the design, development and fabrication and/or supply of components for the assembly of the project’s prototypes…’ This plainly goes beyond the mere supply of components. As such, Mr Challans’ comments clearly do not apply to the applicant’s circumstances and would not shed any light on the issues in the substantive proceedings.

    Decision

17. The summons to Brett Challans is set aside.

I certify that the preceding 19 (nineteen) paragraphs are a true copy of the reasons for the decision herein of Senior Member A Poljak

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Associate

Dated: 28 March 2022

Date(s) of hearing:	8 March 2022
Advocate for the Applicant:	J Collins, Tech Abstract
Solicitor for the Respondent:	M Calligaro, Australian Taxation Office