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ATO’s Power to Assess Eligibility of Activities Under the R&D Tax Incentive

GQHC vs Commissioner of Taxation AATA 409

Anthony Molloy, Tim Cheong

The recent Administrative Appeals Tribunal (AAT) decision, GQHC and Commissioner of Taxation (Taxation) [2024] AATA 409, has brought to the forefront the extent of the Commissioner of Taxation’s (the Commissioner) powers with respect to the application of the R&D Tax Incentive (RDTI) program in Australia.
This is a notable decision as it concludes that the Commissioner has the power to make decisions as to whether GQHC’s registered activities consisted of eligible R&D activities, as defined in Division 355 of the Income Tax Assessment Act (ITAA) 1997 in the absence of certain findings from the regulator, (formerly named) Industry Innovation and Science Australia (IISA).

Case Background

The applicant, GQHC (a family-owned poultry group), claimed an R&D tax offset for R&D activities focused on various poultry farming operations. The Commissioner argued that GQHC's activities did not meet the criteria of eligible R&D activities, as defined in Division 355 of the ITAA 1997.
  • Incubation / hatchery project – The Commissioner contended that the hypotheses were invalid, being more statements of commercial benefit. There was no systematic progression of work, with little documentation of data, experimental protocols, research reports, and statistical analysis. The Commissioner contended the experiment's design was flawed, lacking replication, and the activity mainly involved GQHC learning to use new equipment.
  • Water quality project – The Commissioner contended that GQHC's documentation was inadequate, lacking information on water composition, treatment, and experimental design, which failed to demonstrate addressing a problem or unknown outcome. The absence of documentation suggested that GQHC did not follow established scientific principles or aim to generate new knowledge.
  • Shed cleaning project – The Commissioner, relying expert opinion, contended that there was no convincing case that the outcome for the slat washer would not have been known in advance based on the manufacturer's technical documentation. There was insufficient evidence to demonstrate whether the automated slat cleaner was a modification of existing equipment and if GQHC's efforts extended beyond calibration and customisation.
  • Broiler improvement project – The Commissioner contended that the project was too general and the documentation was incoherent, poorly organised, and incomplete. This lack of documentation resulted in hypotheses that were too general, imprecise, invalid, and untestable.
Ultimately the AAT ruled that there were no eligible core R&D activities, and as such, it followed that there could not be any eligible supporting R&D activities. Consequently, the taxpayer was not entitled to the R&D offset.

The AAT also considered the application of feedstock adjustment provisions, ruling that the feedstock provisions applied to expenditure on chickens and poultry feed, had the relevant activities been eligible.

Jurisdictional Ruling

The issue of eligible R&D activities within the RDTI program has historically been the domain of the regulator (then named IISA). Accordingly, this is the first AAT decision dealing with whether the Commissioner has jurisdiction to assess eligibility.

The AAT ruled on the jurisdictional issues raised and concluded that the Commissioner had the authority to assess the eligibility of the company's activities.

Specifically, the AAT found that where IISA has not issued a formal finding under section 27B, 27J, and 28E (core technology) of the Industry Research and Development Act 1986 (IRDA 1986), the ATO may review activity eligibility as part of its general duties.

ATO Decision Impact Statement

The ATO subsequently issued a Decision Impact Statement (DIS) on 12 April 2024 regarding the ruling in the GQHC case. The DIS provided insights into the ATO's view on the decision and its implications for the R&D Tax Incentive scheme. The key takeaways include:
  • The ATO confirms its view that where IISA has not made a finding on the eligibility of registered R&D activities, the Commissioner has the authority to make decisions about the eligibility of an R&D entity's registered activities.
  • Although the ATO has this power, where there are concerns about the eligibility of registered R&D activities, it has been the Commissioner's practice to refer matters to IISA for them to conduct an examination of the entity's registered activities before making a finding.
  • The ATO confirmed that this practice will continue in the ordinary course of the Commissioner undertaking compliance work on R&D tax offset claims.


The decision highlights a potentially newfound role for the ATO in assessing activity eligibility, particularly in the absence of rulings from IISA.
The implications of this ruling are profound, and although not precedential, present broader considerations for companies seeking to claim the R&D Tax Incentive, as summarised below:
  • Whilst remaining a dual-regulated system, the ATO has the power to make assessments on the eligibility of a company’s R&D activities.
  • Companies must undertake thorough self-assessment of their R&D activities to ensure they meet the eligibility criteria. This involves a comprehensive understanding of what constitutes eligible core and supporting R&D activities under the scheme.
  • The case underscores the critical importance of maintaining detailed documentation of R&D projects. Comprehensive records are essential to substantiate RDTI claims and demonstrate compliance with eligibility criteria. 
  • In addition to its annual R&D Tax Incentive application, companies must now consider the merits of applying for a formal finding on the eligibility of its R&D activities to receive certainty.