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AAT decision

On 21 September 2022, the AAT handed down their decision in Moreton Resources Ltd and Industry Innovation and Science Australia. The AAT published their decision on 11 November 2022.

The AAT considered whether activities registered for the R&DTI by Moreton Resources Ltd (Moreton) for the 2012, 2013 and 2014 years were supporting R&D activities for the purposes of s 355-30 of the Income Tax Assessment Act 1997 (ITAA 1997).

The AAT decided that environmental monitoring, remediation and project management activities conducted by Moreton in the 2012, 2013 and 2014 years were eligible supporting R&D activities for the R&DTI. These activities were supporting R&D activities to one or more core R&D activities Moreton conducted in 2010. The Federal Court of Australia (FCA) remitted this matter to the AAT for further hearing after Moreton successfully appealed a 2018 decision of the AAT.

The department administers the R&DTI, including managing R&DTI disputes, on behalf of IISA.

Case summary

In 2006, Moreton proposed to develop an underground coal gasification (UCG) facility near Kingaroy in Queensland.

Moreton registered core R&D activities for the R&DTI in 2010. These activities involved design, development and operation of an experimental UCG pilot plant (pilot plant) to test the viability of UCG technology. This plant was not in commercial operation. Moreton did not undertake any commercial activities as part of their pilot plant.

In March 2010, the pilot plant failed. This caused underground water contamination. The Queensland government ordered Moreton to shut it down under an Environmental Protection Order (EPO).  In July 2011, the Queensland government amended the Environmental Authority (amended EA) to limit Moreton’s activities at the site to decommissioning, rehabilitation, care and maintenance. Moreton registered R&D activities in 2012, 2013 and 2014 that related to environmental monitoring, remediation and project management.

Aspects of the AAT’s approach in this case that are consistent with how the department assesses supporting R&D activities include:

  • Whether supporting R&D activities are ‘directly related’ to core R&D activities in any given case calls for holistic analysis of all circumstances. The department assesses whether activities are supporting R&D activities on a case-by-case basis in accordance with the definition of supporting R&D activities in s 355-30 of the ITAA 1997.
  • A supporting R&D activity must be directly related to one or more core R&D activities.
  • Proximity in time and location may indicate a direct relationship between supporting R&D activities and core R&D activities, but they are not the only indicators. A direct relationship may exist between activities an entity conducts over a long period of time and/or in locations that are far apart.

In relation to the specific facts of this case:

  • The department maintained there was no direct relationship between the 2012-14 supporting R&D activities and the 2010 core R&D activities because intervening events changed the nature of the activities. These events included failure of the pilot plant and orders by the Queensland Government to shut down the plant and remediate resulting environmental damage.
  • The AAT decided a fundamental goal of the 2010 core R&D activities was to obtain knowledge about the environmentally safe operation of the UCG pilot plant. Therefore, environmental monitoring and remediation activities conducted after the failure of the pilot plant could still be directly related to the 2010 core R&D activities.
  • The AAT found that Moreton’s 2012-14 supporting R&D activities had a direct relationship to their 2010 core R&D activities.

Aspects of the AAT’s approach in this case that are consistent with the department’s assessment approach include:

  • Activities to comply with statutory requirements or standards cannot be core R&D activities for the R&DTI. They can be supporting R&D activities if they are directly related to one or more core R&D activities and their dominant purpose is to support core R&D activities.
  • The department considers that activities that have no other purpose than to support a core R&D activity are likely to have the dominant purpose to support a core R&D activity.

Read more about supporting R&D activities and dominant purpose.

In relation to the specific facts of this case:

  • The department maintained that Moreton’s dominant purpose to conduct the 2012-2014 environmental monitoring and remediation activities was to comply with statutory or other obligations. These obligations were an EPO and an amended EA.
  • The AAT decided Moreton’s dominant purpose to conduct the 2012-2014 environmental monitoring and remediation activities was to support the 2010 core R&D activities. Specifically parts of the core R&D activities that aimed to establish whether the pilot plant could operate in an environmentally safe manner.
  • On the facts of this case, the AAT considered that the environmental monitoring and remediation activities had no other purpose than to support the 2010 core R&D activities.

IISA's response

The department has considered this decision on behalf of IISA.

We will take this decision into account when we assess whether activities are supporting R&D activities for the purposes of the R&DTI. In particular, when we assess evidence in relation to activities conducted after failed core R&D activities.

We note that activities may be directly related to core R&D activities if evidence shows the activities are an inherent part of the core R&D activities from the outset and there are no other parallel commercial activities.

We will continue to assess activities on a case-by-case basis against the definitions of core R&D activities and supporting R&D activities in the ITAA 1997.

Your circumstances may appear similar to this case, but you must assess your activities against the legal requirements based on your specific circumstances.

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