XQDX and Commissioner of Taxation (Taxation)

The Administrative Appeals Tribunal reviewed a decision by the Commissioner of Taxation to disallow an objection by the Applicant against amended assessments for the 2012 and 2013 income years. The dispute centred on the Applicant's entitlement to claim notional deductions for research and development (R&D) expenditure under Division 355 of the *Income Tax Assessment Act 1997* (ITAA 97), and the appropriateness of shortfall penalties imposed under the *Taxation Administration Act 1953* (TAA).

The Tribunal was required to determine whether the Applicant incurred expenditure on R&D activities for the purposes of section 355-205 of the ITAA 97, and whether the Applicant owned the intellectual property (IP) generated by these R&D activities. Additionally, the Tribunal had to consider the level of penalty assessed under section 284-90 of the TAA and whether any portion of the penalty should be remitted under section 298-20 of the TAA.

Deputy President Boyle P reasoned that while the Applicant, in its capacity as trustee, carried on the business of developing and manufacturing shade solutions, the R&D activities were not sufficiently distinct from the general business operations to warrant separate identification and claim. The Tribunal found that the Applicant, in its own right, did not incur the R&D expenditure, nor did it own the resulting IP, as these were intertwined with the Trust's operations and the business conducted by the Trust. Consequently, the Applicant was not entitled to the notional deductions claimed. The Tribunal also found that the penalties were appropriately assessed, and while some aspects of the accounting treatment were noted, they did not justify a full remission of the penalties. The reviewable decision was varied.