In a decision handed down on Tue 21.10.2014, the Federal Court has dismissed the Commissioner’s appeal and held that the taxpayer had “incurred” the relevant expenditure for the purposes of claiming an R&D tax offset.
The AAT, in AAT Case [2013] AATA 846, Re Desalination Technology Pty Ltd and FCT, had held that the taxpayer was entitled to an R&D tax offset of $363,281 under s 73J of the ITAA 1936 for the 2009 income year in relation to activities associated with the development of desalination units.
The Commissioner argued the taxpayer had not “incurred” the relevant expenditure in view of the way the R&D activities were structured. This essentially involved the setting up of several separate entities (one of which was called Innovative Design Technologies Group Pty Ltd – IDTG) that would obtain the relevant investment funds, provide the labour and equipment, carry out the relevant activities and act as project manager for the activities. The project manager entity would then invoice the taxpayer on a monthly basis under a service agreement for the R&D done on its behalf. The taxpayer paid the invoice by debiting a running account in favour of the supplier.
The Federal Court considered the Tribunal’s decision was correct and that the expenditure was “incurred” because the taxpayer was definitively committed to paying the invoice. On this view, the Court said the fact that repayment of the running account was subject to 2 contingencies, ie that the account did not have to be settled until: (i) the taxpayer was in a position to do so, and (ii) the taxpayer regarded it as prudent to do so, did not alter that analysis.
(FCT v Desalination Technology Pty Limited [2014] FCA 1120, Federal Court, Perram J, 21 October 2014.)
[LTN 203, 21/10/14]