Research and development expenditure not incurred

In Commissioner of Taxation v Desalination Technology Pty Limited [2015] FCAFC 96, the Full Federal Court upheld the Commissioner’s appeal from the earlier decision of Justice Perram in the Federal Court. That earlier decision was the result of an appeal by the Commissioner, on a question of law, from the decision of the Administrative Appeals Tribunal (AAT) in favour of the taxpayer (DST). 

The only matter in dispute in this case was whether, in being provided with services by a related party (IDTG), DST had incurred expenditure in circumstances where DST was only required to pay for the services invoiced to it “as funds received from investors, loan funds received, and any amounts DST may receive from other sources will prudently allow”.

DST’s position was that it incurred expenditure at the time that the service invoices were rendered to it, with these invoices then ‘paid’ by ‘debiting’ the invoiced amounts to a loan account with IDTG, and the payment of the loan account that was the subject of the “prudently allow” contingency outlined above. 

The Commissioner’s position was, in effect, that the contingency as to payment attached to the invoices, and that the contingency meant that there could be no expenditure incurred for the purposes of the research and development (R&D) tax concession. With respect to the legal test for determining whether expenditure had been incurred, it was common ground that case law authority relevant to section 8-1 of the Income Tax Assessment Act 1997 (and its predecessor provision) applied.

In finding for the Commissioner, the Full Court said that “no obligation of the taxpayer to IDTG came into existence on the rendering of each invoice because of the contingencies attaching to the come and go loan account to which the amount of the invoice was debited; and if, contrary to that conclusion, some obligation did come into existence, it was so infected by those contingencies that it was not open to the Tribunal to conclude that the taxpayer was definitively committed to the obligation. On either view, the taxpayer did not incur the relevant expenditure in the year of income….”. 

For further information, contact Paul McNab on 61 (2) 8266 5640 or at

Liquidator required to comply with Commissioner’s notice to produce documents

In Commissioner of Taxation v Warner [2015] FCA 659, the Commissioner sought a declaration from the Federal Court to the effect that the obligation of a liquidator of a company to comply with section 264 of the Income Tax Assessment Act 1936 and section 353-10 of Schedule 1 to the Taxation Administration Act 1953 (Cth) to produce documents is not subject to section 486 of the Corporations Act 2001 (Cth). That section provides that:

“The Court may make such order for inspection of the books of the company by creditors and contributories as the Court thinks just, and any books in the possession of the company may be inspected by creditors or contributories accordingly, but not further or otherwise.”

In making the declaration sought by the Commissioner, Justice Perram said that the Commissioner was correct in submitting that section 486 of the Corporations Act 2001 has a different field of operation from section 264 and section 353-10 and does not affect the liquidators’ obligation to comply with notices issued under section 264 and section 353-10. On this point, his Honour said that ordinarily a creditor has no right to inspect the books of a company but may have a legitimate interest in doing so when a company is being wound up. Section 486 of the Corporations Act 2001 provides the mechanism for this access, but as his Honour noted, this access is limited by the Court being satisfied that the access sought is ‘just’. This, according to his Honour is in contrast to section 264 and section 353-10 since the Commissioner’s interest in access to the company books does not arise only on a winding up and is broader than that of an ordinary creditor.

Board of Taxation to develop tax transparency code

It was announced as part of the 2015-16 Budget that the Board of Taxation should lead the development of a new code on greater public disclosure of tax information by businesses, particularly large multinationals. On 14 July 2015,  the Treasurer issued the following terms of reference for this project:

  1. The Board is requested to develop a voluntary code for the increased public disclosure of tax information by businesses, particularly large multinationals, by May 2016.
  2. The actions of a few businesses, particularly large multinationals engaging in aggressive tax avoidance, have tarnished the reputations of many businesses that are doing the right thing.
  3. Some large businesses have responded by releasing detailed information about their tax affairs. The Government would like more large businesses to publicly disclose their tax affairs to highlight those that are paying their fair share and to encourage all businesses not to engage in aggressive tax avoidance.
  4. For some Australian-owned private companies, mandatory or voluntary public disclosure may not be appropriate given the commercial sensitivity, privacy and personal security concerns of the ultimate owners.
  5. Australia already has laws that mandate public disclosure by large companies for their turnover, taxable income and tax paid. A voluntary code for greater disclosure will help build confidence in the majority of Australian businesses that do the right thing.
  6. A voluntary code will provide a framework for large businesses to take the lead, to become more transparent and help educate the public about their compliance with Australia's tax laws.
  7. In designing the voluntary code, the Board should have regard to:

7.1  ​Australian experiences with voluntary disclosure regimes

7.2 International experiences with voluntary disclosure of tax information

7.3 The need to strike an appropriate balance between promoting community confidence in the tax regime through the release of appropriate information and the commercial sensitivity of some taxpayer


7.4 Compliance costs for taxpayers.

  1. The Board should work with businesses, Treasury and the ATO to develop within 12 months a voluntary code on increased public disclosure of tax information by large businesses. The Government will monitor progress and take further action if required.
  2. In undertaking these reviews, the Board should consult with relevant stakeholder groups as appropriate.
  3. It is envisaged that a small team within Treasury will work with the Board as required. 

Initial consultation will occur in August and September 2015 as part of the development of a discussion paper which is expected to be released by the Board before the end of 2015.