On 23.4.21, the Full Federal Court has upheld a decision that certain activities designed to make extracting coal from particular deposits commercially viable were not “core R&D activities” or “supporting R&D activities” for R&D income tax purposes.

See below for further details.

[Tax Month – April 2021]



The taxpayer wanted to develop new mining and beneficiation processes that would enable it to extract and process coal in a commercially viable way in an area of central Queensland known as FCCM. It therefore applied to register various activities as “core R&D activities” for the 2012 income year (as part of a 3-year project):

  • a 2D seismic survey and a SkyTEM electromagnetic survey;
  • drilling to validate the survey results and provide samples for independent analysis; and
  • the analysis.

Innovation and Science Australia eventually decided that the activities were not “core R&D activities” and the AAT agreed with that conclusion in Coal of Queensland Pty Ltd and Innovation and Science Australia [2020] AATA 126. The AAT said that the activities were “generic exploration activities” which came within the exemption from “core activities” in s355-25(2)(b), namely for prospecting or drilling for minerals for the purposes of discovering deposits, determining more precisely the location of deposits and/or determining the size or quality of deposits (see definition below).

The Full Federal Court has dismissed the taxpayer’s appeal. In particular, the Court held that:

  1. the AAT did not apply the wrong tests in concluding that the:
    1. outcome “could have been determined in advance”, within the meaning of s 355-25(1)(a), and
    2. taxpayer’s activities were not conducted “for the purpose of generating new knowledge”, within the meaning of s 355-25(1)(b).
  2. Further, it was open on the evidence for the AAT to come to those conclusions; and
  3. The taxpayer failed to show that the AAT misapplied s 355-25(1) by assessing the relevant activities predominantly by reference to those undertaken in the 2012 year.


TAXATION – research and development tax offset

  • where applicant held exploration permit for coal
  • where coal in the area had high level of ash content and the coal seams were banded
  • where applicant commenced a series of activities to investigate the nature and economic viability of mining the coal
  • where the Tribunal found that none of the registered activities were “core R&D activities” within the meaning of s 355-25(1) of the Income Tax Assessment Act 1997 (Cth)
  • where the Tribunal found that the exclusion in s 355-25(2)(b) applied – activities comprising prospecting, exploring or drilling minerals for purposes of determining size or quality of deposits
  • where the Tribunal found that the activities were not “supporting R&D activities” within s355-30
  • whether the Tribunal made findings for which there was ‘no evidence’
  • whether the Tribunal applied the wrong legal test
  • held: appeal dismissed

(Coal of Queensland Pty Ltd v Innovation and Science Australia [2021] FCAFC 54, Full Federal Court, Logan, Griffiths and Moshinsky JJ, 23 April 2021.)


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