A high stakes Poker game is being played out – not in Las Vegas – but in Queensland where the dealer, The Administrative Appeals Tribunal (AAT) will shortly flip the last card and determine the winner. One side will walk away satisfied with the other left to contemplate the value of lodging another appeal.

So how did we get to this situation?

As set out in note 9 in the notes to their Financial Statements for the year ended 30 June 2018, Moreton Resources Limited (Moreton) lodged R&D applications in 2012, 2013 and 2014 for which it received $473,476; $7,104,744; and $465,515 respectively from the ATO. Morton lodged an objection to its 2012 income tax return and received an additional $498,248.

On the 21st of August 2015, the Department of Industry, Innovation and Science Australia (the Board) decided that Moreton’s registered activities for the 2012 to 2014 years were neither “core R&D activities” nor “supporting R&D activities”. Following a process of internal review, that decision was upheld by the Board on 21 December 2015.

Although not specifically mentioned, the Board would have issued a Certificate of Findings to Moreton notifying them that all of the activities found to be ineligible R&D were not to be taken as registered for the 2012, 2013, and 2014 income years, and consequently, the tax deductions under the R&D Tax Incentive were not allowable. A copy of this notification would have been forwarded to the ATO. The ATO would have provided revised tax assessments based on the finding from the Board.

This resulted in the ATO requesting $8,185,724 from Moreton. A payment plan for this amount was agreed with 30% of the debt payable within 90 days along with further payments of 20% (each) at 180/270/360 days, concluding with the final 10% due at 450 days.

Faced with such a large amount to pay, one can understand why Moreton decided to appeal the AAT decision to the Federal Court. Adding to the already high stakes was another interesting development.

At some stage during 2015, Moreton lodged an objection to the 2013 and 2014 income tax returns which entitled the Company to an additional $5,160,515 in Research & Development Tax Incentive Offset claims.

In addition, Moreton lodged an R&D Tax application for the 2015 financial year for which it believes it is entitled to a further $444,756.

With the matter now having been referred back to the AAT, the scenario that each side faces is as follows:

Should the AAT find in favour of Moreton, the ATO will have to pay Moreton $5,605,271.

Should the AAT find in favour of the Board, Moreton will have to pay the ATO $8,185,724.

The tension felt at the final table of the World Series of Poker Tour in Las Vegas will be replicated in the genteel surroundings of the AAT in the near future – I look forward to reporting the outcome once the final hand has been dealt and a decision is made.

Grant Central assists businesses with the preparation of their R&D Tax Incentive, Accelerating Commercialisation and Export Grant applications. Should you need any help, please contact us at [email protected] or on 0436 436 200.