The AAT has held the R&D expenditure claimed by a taxpayer was not incurred in the year ended 30 June 2009 and as such it affirmed the Commissioner’s decision to disallow the deduction and impose a shortfall penalty.
The taxpayer was an Australian resident company operating in the engineering and software development surveillance industry. It had entered into an agreement with a research agency to undertake research and development activities. For the 2009 income year, the taxpayer claimed $990,724 of contracted expenditure on R&D, resulting in a refund of $371,521.50. The Commissioner subsequently disallowed the R&D offset and imposed a 50% shortfall penalty for [recklessly making a] false and misleading statement, which was revised down to 25% for failure to take reasonable care at the proceeding. Broadly, the taxpayer argued that it was entitled to the relevant offset as it had been incurred in the year ended 30 June 2009 and therefore there should be no shortfall penalty imposed.
The AAT found that the taxpayer had not authorised the R&D work before the end of the relevant year as required by the agreement for the expense to be incurred. Therefore, it said the expense was at best “contingent, pending or expected” and not incurred in the relevant year.
In relation to penalties, the Tribunal found the taxpayer and/or its tax agent had failed to take reasonable care and that the penalty should not be remitted as it was not harsh or unjust.
In conclusion, the Tribunal affirmed the Commissioner’s decision to disallow the R&D offset and revised the shortfall penalty down to 25%.
(AAT Case [2013] AATA 527, Re Vision Intelligence Pty Ltd and FCT, AAT, Ref No 2012/1759, Deutsch DP, 30 July 2013.)
[LTN 146, 31/7/13]