The AAT has found that various activities in relation to the remediation of an underground coal gasification (UCG) site were “supporting R&D activities” for the purposes of the R&D tax offset.
Around 2006, the taxpayer set out to develop a UCG facility, comprising a gas processing plant and a gas turbine power plant to produce electricity. The taxpayer undertook a pilot project to test the viability of using UCG technology to produce UCG synthesis gas (syngas) that would then be cleaned and stabilised for production of electricity using gas turbines. Ultimately, the pilot project failed and the Queensland Environmental Protection Agency ordered that the facility be shut down.
When the matter first came before the AAT, it concluded that many of the taxpayer’s registered activities in relation to the pilot project were excluded from the definition of “core R&D activities” by virtue of s 355-25(2)(f) of the Income Tax Assessment Act 1997 (ITAA 1997), on the basis that they were “activities associated with complying with statutory requirements or standards”. Further, as the pilot project did not meet the definition of “core R&D activities”, the relevant activities were not “supporting R&D activities” either.
The Full Federal Court held in Moreton Resources Limited v Innovation and Science Australia [2019] FCAFC 120 that the AAT had erred in its construction of the definition of “core R&D activities” in s 355-25, and therefore remitted the matter to the AAT to be heard again.
The AAT has now decided that the disputed 2010 registered activity, namely “testing and evaluation of gas production and plant performance ... to ensure environmental standards are met”, went to the core or heart of the experimental activities and thus should not be excluded under s 355-25(2)(f).
The AAT then concluded that the remaining activities in dispute (in the 2012, 2013 and 2014 income years) were “supporting R&D activities”, for the purposes of Div 355, in relation to “core R&D activities” of and for the 2010 income year. These activities included environmental monitoring and rehabilitation, designing and verifying a procedure for rehabilitation of the underground cavity, investigating ground water movement, undertaking ongoing water monitoring activities, investigating and developing processes to decommission the pilot plant and project management and administration.
(see: http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/AATA/2022/3804.html)
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