The recent decision in the case of Body by Michael Pty Ltd and Industry Innovation and Science Australia (2025) will surprise nobody; with the court ruling that the work conducted by the applicant business didn’t meet the tax definition of ‘R&D activities’. Body of Michael Pty Ltd joins a long list of businesses who in the past decade have tried, yet ultimately failed, to convince the courts that their project actually constitutes R&D.
What some may find interesting, however, are the criticisms that the judge in this case had for the way that the relevant statutory board (Industry Innovation and Science Australia, “IISA”) administers its component of the R&D Tax Incentive. Three of the key lessons for IISA were:
1. The existing views of IISA reflect standards that are not in the statutory provisions and which may not be realistic to an industry-based program. For example, IISA states that to meet the ‘observation’ and ‘evaluation’ words in the tax legislation requires “analysis of numerical data using established statistical techniques”, without specifying what those techniques are or where that requirement comes from or why ‘observation’ and ‘evaluation’ do not have their plain meaning.
2. IISA’s belief that the only relevant evidence that a business can produce in relation to its eligibility for the R&D Tax Incentive need be both ‘contemporaneous’ and ‘written’ is fundamentally incorrect. Evidence can be prepared at any time and could be written or oral.
3. IISA’s opinion that ‘mental health’ constitutes a ‘social science’ and is therefore ineligible as a core R&D activity is fundamentally incorrect. Mental health is distinct from a social science.
It will be interesting to see whether IISA takes these judicial lessons on board and modifies its R&D Tax Incentive guidance material and/or views in relation to the assessment of future R&D applications.
If you would like to know more about this or any other government incentives in Australia, please get in touch to arrange a discussion.
By Dave Corbin, Managing Director of Catalyst Solutions Australia.
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