Court rejects R&D tax credits for basketball star’s custom shoes
Apparel company Peak Sport Australia failed to prove its development of Matthew Dellavedova’s shoes qualified as “core R&D activities”.
The Federal Court has upheld a ruling that a sports apparel company’s development of a custom shoe for basketball player Matthew Dellavedova was ineligible for the R&D tax incentive.
Active Sports Management (ASM), trading as Peak Sport Australia, had appealed the AAT’s decision that its shoe development project failed to qualify as “core R&D activities” required under section 355-25(1) of the Income Tax Assessment Act 1997.
However, the Federal Court was unpersuaded, affirming the original decision and rejecting ASM’s claims that the tribunal inadequately considered the evidence it submitted and misapplied the ITAA.
ASM’s claim dates back to applications in 2015-16 and 2016-17 for the R&D tax incentive when manufacturing prototypes in China to create a shoe known as “Delly1”.
In total, six prototypes were made to suit Dellavedova’s requirements “for a low-cut shoe that was light and close to the ground, with sufficient support and traction, suitable to his playing position and style”.
The prototypes ranged from an initial design to subsequent modifications based on feedback from the point guard’s training and camp sessions.
After AusIndustry, which administers R&D concessions, determined that none of the claimed activities were eligible R&D activities under the Industry Research and Development Act 1986, ASM appealed the decision to the AAT.
The AAT found the Delly1 project failed to meet the legal standard set by section 355-25 – that core R&D activities consist of experimental activities “whose outcome cannot be known or determined in advance but can only be determined by applying a systematic progression of work” conducted for the purpose of generating new knowledge.
Rather, it found the project merely involved modifying already existing shoe design features to suit Dellavedova.
In the Federal Court, ASM argued the AAT failed to conduct an independent review of AusIndustry’s decision, ignored its submissions, and misinterpreted the requirements for R&D tax incentives.
Justice Goodman pointed to multiple instances in the tribunal’s reasons where the applicant’s submissions were cited and said the tribunal was not obligated to explain why it didn't accept specific submissions.
“I am not prepared to draw an inference that the tribunal erred by ignoring or overlooking such submissions, particularly in view of the reasons being coherent, logical, compliant with [the AAT Act] and comprehensive,” he said.
“The brevity of reasons may, in rare cases, suggest a failure to engage with the issues requiring determination.”
“However, there is no necessary correlation between the length of reasons and the depth of analysis therein; and the focus must be upon the quality or substance of the statement of reasons, rather than upon its quantity or length.”
Addressing ASM’s second contention, Justice Goodman said “for activities to be ‘core R&D activities’ … both s 355-25(1)(a) and (b) must be proven”.
“However, the senior member’s findings concerning the second limb of s 355-25(1)(a) and s 355-25(1)(b) would stand as independent findings of fact with the result that the Claimed Activities are not ‘core R&D activities’.”
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