This month's Monthly Tax Update looks at the significance of the decision in the Moreton case to R&D activities.
This post, produced by Brown Wright Stein Lawyers, covers the facts of the case.
In around 2006, Moreton Resources Limited commenced plans to develop an underground coal gasification (UCG) facility near Kingaroy in Queensland.
The facility would include a gas processing plant and a 400 megawatt gas turbine power plant to produce electricity.
Before commencing construction on the plant Moreton undertook a pilot project to test the viability of using UCG technology to produce UCG synthesis gas (syngas) that would then be cleaned and stabilised for production of electricity using gas turbines.
The pilot project failed as in March 2010 the facility broke down after five days of operation and caused underground water contamination.
The EPA ordered the facility be shut down and USG was subsequently banned. Moreton continued to do work in relation to the pilot project in 2012 – 2014 and much of this work related to remediation of the site following the failure of the pilot project.
Moreton considered it was entitled to a tax offset for the pilot project activities in accordance with Division 355 of the ITAA 1997 as the activities constituted ‘R&D activities’. ‘R&D activities’ is defined as ‘core R&D activities’ or ‘supporting R&D activities’.
On 21 August 2015, Innovation Australia decided that Moreton’s registered activities for the 2012 to 2014 years were not ‘core R&D activities’ or ‘supporting R&D activities.
The decision was confirmed, following internal review, on 21 December 2015.
Moreton applied to the AAT for review of the internal review decision.
On 10 September 2018, the AAT affirmed the internal review decision.
The AAT found that many of Moreton’s registered activities in relation to the pilot project in the 2012 to 2014 years were excluded from the definition of ‘core R&D activities’ as they were ‘activities associated with complying with statutory requirements or standards’.
In response to Moreton’ submission that the activities were supporting R&D activities because they directly related ’core R&D activities’ that were registered for the year ended 30 June 2010, the AAT concluded that the activities in the 2010 year were not ‘core R&D activities’ as the activities were simply ‘testing the application of existing technology at a particular site and nothing more’.
Moreton appealed to the Full Federal Court.
In our Monthly Tax Update, Frank Hinoporos, CTA, looks at the issue, namely whether the AAT had erred in its construction of ‘core R&D activities’, and the decision.
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This month's Update covers:
Section 99B: corpus or income?
A look at Campbell v Commissioner of Taxation  AATA 2042 and whether distributions were made out of the corpus of the trust.
R&D tax incentives
Moreton Resources Limited v Innovation and Science Australian  FCAFC 120 and if applying existing technology to a previously untested site constitute ‘core R&D activities’.
Phoenixing bill reintroduced
There’s also coverage of the bill reintroduced by the Government, which seeks to introduce new phoenixing offences.
Miscellaneous tax integrity measures
Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Bill 2019 (Cth) - a discussion of the measures in the bill related to the TOFA rules, small business CGT concessions, family trusts, and more.
Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2019 (Cth) which seeks to implement various superannuation measures announced before the May 2019 election.
15-year retirement exemption
Finally, it discusses PBR 1051527300988 and whether a sale was in connection with ‘retirement’.
Watch it here.