The AAT has confirmed the Commissioner’s objection decision to disallow a taxpayer’s claim for an R&D tax offset of some $370,000 in the 2007 income year and to only allow a tax offset of $25,000 under an adjustment made via a notice issued under s 73IA of the ITAA 1936.

The taxpayer claimed the offset in relation to expenditure on an R&D project which involved the construction of a children’s multi-layered “stacker” toy, using an experimental and novel injection moulding manufacturing process. The taxpayer claimed that its R&D tax offset claim was properly made and that the amount allowed by the Commissioner was incorrect and that, further, no penalty should have been applied.

In dismissing the taxpayer’s application, the AAT broadly found, among other things, that the taxpayer had not satisfied the relevant requirements for the offset including that the expenditure had not been incurred by taxpayer “directly in respect of” registered “research and development activities” and that no “systematic, investigative and experimental activities” had been carried out.

The AAT also found that expenditure claimed included “excluded plant expenditure” and that, likewise, expenditure had been wrongly claimed for “market research, market testing or market development, or sales promotion”. Finally, the AAT also found that relevant substantiation requirements had not been fully met.

However, the AAT remitted shortfall penalties imposed by the Commissioner for “recklessness” (of some id=”mce_marker”72,000) to 25% for failing to take “reasonable care”, but found there were no mitigating grounds for remission of the 25% penalty.

(AAT Case [2014] AATA 156, Re Tier Toys Limited and FCT, AAT, Ref Nos 2013/0322 & 2013/6065, Walsh SM, 20 March 2014.)

[LTN 56, 24/3/14]