25 Jun 13 R&D tax offset claim refused – Ozone Manufacturing Pty Ltd
The Administrative Appeals Tribunal has affirmed the Commissioner’s decision to refuse a taxpayer’s claim for a tax offset under s 73I ITAA 1936 for the 2001-2002 tax offset year. The Tribunal found that the records provided by the taxpayer were insufficient to substantiate the activities and the expenditure relating to or supporting the R&D tax offset claim: Re Ozone Manufacturing Pty Ltd and FCT  AATA 420 (Senior Member R W Dunne, 21 June 2013).
The taxpayer carries on a business designing and manufacturing what it calls “environmental technology”. As part of its business, the taxpayer is said to have undertaken R&D activities in relation to a project called the “Beverage Equipment Purification Project”, which sought to develop three beverage purifier devices.
The taxpayer’s return for the 2001-2002 year included an election to claim an R&D tax offset of $388,601 pursuant to s 73I ITAA 1936. Following a tax audit, the Commissioner issued a notice under s 73IA ITAA 1936 assessing the taxpayer’s entitlement to the R&D tax offset for the 2001-2002 tax year as nil. The taxpayer’s objection was disallowed, and the matter went to the Tribunal.
Following a lengthy hearing, with a great deal of sometimes inconsistent and confusing evidence about the taxpayer’s record-keeping practices, the Tribunal decided that the records provided by the taxpayer were insufficient to substantiate the activities and the expenditure relating to or supporting the R&D tax offset claim. The records did not establish the nexus between the expenditure and the activities, such that it could be said that the expenditure was incurred directly in respect of the R&D activities carried out by the taxpayer during the 2001-2002 tax year. It followed that the taxpayer was not entitled to the R&D tax offset for the 2001-2002 tax offset year.