Ultimate Vision Inventions Pty Ltd and Innovation and Science Australia (Taxation) - [2019] AATA 1633

Ultimate Vision Inventions Pty Ltd and Innovation and Science Australia (Taxation) [2019] AATA 1633 (27 June 2019)
Division:TAXATION AND COMMERCIAL DIVISION
File Number: 2017/1319
Re:Ultimate Vision Inventions Pty Ltd
APPLICANT

Innovation and Science AustraliaAnd
RESPONDENT

DECISION
Tribunal:Mr A. Maryniak QC, Member
Date:27 June 2019
Place:Melbourne

The Tribunal affirms the decision under review.
Mr A. Maryniak QC, Member
Catchwords
TAXATION – research and development tax incentive – design and development of an integrated health and fitness program and cloud based decision support systems – whether R&D activities – decision under review affirmed
Legislation
Acts Interpretation Act 1901 (Cth)
Industry Research and Development Decision-making Principles 2011
Income Tax Assessment Act 1936 (Cth)
Income Tax Assessment Act 1997 (Cth)
Industry Research and Development Act1986 (Cth)
Tax Laws Amendment (Research and Development) Act 2011 (Cth)
Cases
JLSP and Innovation Australia, Re [2016] AATA 23
Moreton Resources Ltd and Innovation and Science Australia (Taxation), Re [2018] AATA 3378
Mt Owen Pty Limited and Innovation Australia (2013) 137 ALD 88
RACV Sales and Marketing Pty Ltd and Innovation Australia (2012) 129 ALD 32
WT95/13-14 and Deputy Commissioner of Taxation, Re [1996] AATA 62
Secondary Materials
Explanatory Memorandum, Tax Laws Amendment (Research and Development) Bill 2010 (Cth)
REASONS FOR DECISION
Mr A. Maryniak QC, Member
27 June 2019

This is an application made to the Tribunal pursuant to s 30E(1) of the Industry Research and Development Act1986 (Cth) (IR&D Act) in respect of a decision of the Respondent made on 3 March 2017 under s 30D(2) of the IR&D Act (Reviewable Decision).
By the Reviewable Decision the Respondent confirmed the previous decision of a delegate of the Respondent dated 19 October 2016 made under s 27J of the IR&D Act, that none of the Applicant’s activities registered under s 27A of the IR&D Act for the 2013/2014 financial year (2014 year) and the 2014/2015 financial year (2015 year) (the Relevant Years) satisfied the definition of ‘R&D activities’ in s 355-20 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997).
The research and development (R&D) tax incentive is a broadly based program that allows businesses to access tax offsets for expenditure on R&D activities. These R&D activities must be registered with Innovation and Science Australia, through AusIndustry under Part III of the IR&D Act.
The Applicant’s registered activities for the Relevant Years were all registered in respect of “UV1001: Design and Development of an Integrated Health and Fitness program and Cloud based Decision Support Systems”. The activities were registered with the following titles and activity numbers:

Activity

Activity Title

Core/Supporting

Income year 2013/14[1]

1.1

Design of fitness management algorithms for calorie consumption measurement

Core

1.1.1

Supporting

Supporting

1.2

Design of health management algorithms for calorie intake measurement

Core

1.2.1

Supporting

Supporting

1.3

Conceptual design and evaluation of a potential implementation of Cloud based decision support systems

Core

1.3.1

Supporting

Supporting

Income year 2014/15[2]

1.1

Improvements of fitness monitoring algorithms and multi-level search engine

Core

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

AGLC: Ultimate Vision Inventions Pty Ltd and Innovation and Science Australia (Taxation) [2019] AATA 1633
Case: [2019] AATA 1633
Decision Date: 27 June 2019

CaseChat Overview and Summary

This matter concerned an appeal by Ultimate Vision Inventions Pty Ltd against a decision by Innovation and Science Australia (the Respondent). The dispute centred on whether certain activities undertaken by the appellant, specifically the design and development of an integrated health and fitness program and cloud-based decision support systems, qualified as Research and Development (R&D) activities for the purposes of the R&D tax incentive. The case was heard by Mr A. Maryniak QC, Member.

The primary legal issue before the Tribunal was to determine whether the registered activities undertaken by the appellant constituted "core R&D activities" or "supporting R&D activities" as defined by the relevant provisions of the *Industry Research and Development Act 1986* (IR&D Act) and the *Income Tax Assessment Act 1997* (ITAA 1997). This involved assessing whether the activities met the statutory criteria for registration under section 27A of the IR&D Act, and whether the Respondent's findings under section 27J(1) of the IR&D Act, which allow for findings on whether registered activities were core or supporting R&D activities, were correct.

The Tribunal's reasoning focused on the statutory framework governing R&D entity registration and findings. It noted that the Respondent was empowered to examine registered activities and make findings as to whether they were core or supporting R&D activities. The Tribunal applied these provisions to the facts before it, considering the appellant's registered activities in the context of the definitions of core and supporting R&D activities. Ultimately, the Tribunal was not satisfied that any of the registered activities were conducted by or on behalf of the appellant in the relevant years as R&D activities within the meaning of the ITAA 1997.

Accordingly, the Tribunal affirmed the decision under review.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

In conclusion the Tribunal is not satisfied that any of the registered activities, being R&D activities within the meaning of ITAA 1997, were conducted by or on behalf of the Applicant in the Relevant Years.DECISION Accordingly, the Tribunal affirms the decision under review.

Ratio Decidendi

Legal Principle Established

Section 27J(1) provides:“The Board may make one or more findings to the following effect about an R&D entity’s registration under section 27A for an income year (the registration year):(a) that all or part of a registered activity was a core R&D activity conducted during the registration year;(b) that all or part of a registered activity was not an activity of a kind covered by paragraph (a);(c) that all or part of a registered activity was a supporting R&D activity conducted during the registration year and in relation to:(i)one or more specified registered core R&D activities; or(ii)one or more specified core R&D activities for which the entity has been registered in an earlier income year; or(iii) one or more specified core R&D activities yet to be conducted for which the entity could be registered in the registration year if those activities were conducted during the registration year; or(iv) several specified core R&D activities, each covered by subparagraph (i), (ii) or (iii);(d) that all or part of a registered activity was not an activity of a kind covered by paragraph (c).Note 1: A finding is reviewable (see Division 5).Note 2: The Board may make a finding under paragraph (b) if, for example, the Board has sufficient information to make a finding under paragraph (a). Similarly, the Board could make a finding under paragraph (d) if it has sufficient information to make a finding under paragraph (c).” If the Board makes a finding under s 27J(1) in relation to an R&D entity’s registration, it may specify in the finding the time to which that finding relates.[14] As s 27J is subject to s 32B, the findings that the Board makes cannot be inconsistent with earlier findings made by the Board.[14] IR&D Act; s 27J(2). Under s 27M[15] the Board may, by notice in writing to the R&D entity, vary the entity’s registration under s 27A for an income year if that entity applies for the variation, the variation is consistent with any findings made by the Board under Part III of the IR&D Act and making the variation is justified in accordance with decision-making principles.[15] IR&D Act; s 27M(1).STATUTORY FRAMEWORK ANALYSIS In the Relevant Years, on application by an ‘R&D entity’[16] made in accordance with s 27D of the IR&D Act, the Respondent was required by s 27A of the IR&D Act to make a decision whether to register or to refuse to register an R&D entity for either or both of the following for an income year:(a)One or more specified activities as core R&D activities conducted during the income year;(b)One or more specified activities as supporting R&D activities conducted during the income year.[16] See the definitions of ‘R&D entity’ in s 4(1) of the IR&D Act and s 355-35 of the ITAA 1997. The Respondent was authorised under s 27F of the IR&D Act to conduct one or more examinations of all or part of the R&D entity’s registration under s 27A for an income year for the purposes of making findings under s 27J(1). The findings that the Respondent was authorised to make under s 27J(1) of the IR&D Act are all in respect of the R&D entity’s registration for a ‘registration year’, in respect of all or part of each of the ‘registered activities’. Broadly, the Respondent had to determine whether all or part of each registered activity was or was not a ‘core R&D activity’ conducted during the registration year. Further, to the extent that there were any core R&D activities to which another registered activity could be related, that all or part of a registered activity was or was not a supporting R&D activity.

Activity		Activity Title	Core/Supporting
Income year 2013/14[1]
1.1		Design of fitness management algorithms for calorie consumption measurement	Core
1.1.1		Supporting	Supporting
1.2		Design of health management algorithms for calorie intake measurement	Core
1.2.1		Supporting	Supporting
1.3		Conceptual design and evaluation of a potential implementation of Cloud based decision support systems	Core
1.3.1		Supporting	Supporting
Income year 2014/15[2]
1.1	Improvements of fitness monitoring algorithms and multi-level search engine			Core