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Acquisitions of goods and services as supporting R&D activities


The recent decision of the Federal Court in T.D.S. Biz Pty Ltd v Commissioner of Taxation [2023] FCA 710 emphasises that the acquisition of a good or service that is not off the shelf can constitute a supporting R&D activity requiring registration for the research and development tax incentive (RDTI).

The decision is a reminder to seek advice early in the RDTI process and ensure that the legal requirements are clearly satisfied before making a claim.

Case details

In this case, TDS had commenced designing and developing an electric tricycle in the 2014 income year and had registered aspects of the activities undertaken to do so as R&D activities.

TDS acquired some vehicle and electrical components from China that were customised by a service provider located in China for TDS to use according to TDS provided specifications.

To be eligible for the RDTI, an R&D activity that is conducted for an R&D entity solely outside of Australia must be covered by an overseas finding that is obtained in advance of the activity being undertaken. That is, where an overseas finding is not obtained in advance of activities being undertaken there is no discretion or power to allow one to be obtained later. TDS did not have an overseas finding for the work undertaken in China.

The Commissioner undertook a review and determined that the vehicle and electrical components purchased from China constituted a supporting R&D activity that ought to have been registered. Amended assessments were issued to TDS denying the Overseas Expenditure as R&D expenditure and allowing it as a general deduction instead.

TDS contended that the Overseas Expenditure was for the “mere supply of parts and components from China for the dominant purpose of supporting the core R&D activities”. Accordingly, an overseas finding was not applicable as no R&D activities were conducted outside Australia. TDS objected to the Commissioner’s amended assessments on that basis, but the objection was disallowed.

On review in the Administrative Appeals Tribunal (AAT), it was found that the development of the component parts was supporting activities conducted entirely overseas and that as there was no overseas finding they were not eligible for the RDTI. In the AAT, a finding of fact was made that the activities were much more than ‘mere supply’ and involved the ‘design, development and fabrication… for the assembly of the project’s prototypes.’

That decision was appealed to the Federal Court with the Federal Court also deciding in the Commissioner’s favour. The Federal Court’s reasoning differed focusing on the breadth of the meaning of “supporting R&D activities” and finding that it could extend to activities that produce goods or services.

Legal terms

“… supporting activities do not necessarily have to involve any actual research and development if other criteria are met as set out in s355-30(2)… so long as supporting R&D activities are directly related to core R&D activities, they may extend to activities that are not themselves core R&D activities… or to activities that produce goods or services, or to activities directly related to producing goods or services, provided that they are undertaken for the dominant purpose of supporting core R&D activities”.

Key points

The decision is a reminder to seek advice early in the RDTI process – before activities are commenced – and ensure that the legal requirements are clearly satisfied before making a claim.

The decision has clarified the meaning of what constitutes a supporting R&D activity for RDTI purposes –adopting an expansive definition that will be of benefit to most RDTI claimants. That noted, the nexus of supporting R&D activities to core R&D activities is still very much a focus of the enquiry and one that does often require detailed and careful analysis.

In the decision, the Federal Court upheld the Commissioner of Taxation’s (Commissioner) decision to deny TDS Biz Pty Ltd’s (TDS) RDTI claim because a supporting R&D activity carried out overseas was not covered by an overseas finding as required. TDS had understood that overseas acquisitions of components for its electric tricycle prototype were a mere acquisition of components required for activities solely undertaken in Australia, and therefore, did not constitute an “activity” for the purpose of the RDTI.


In this case, we witnessed the importance and complexity of applying for Research and Development Tax Incentive (RDTI). As a professional accounting firm, Wis Australia understands the significance of RDTI for businesses in Australia and has extensive expertise in this field.

If you need assistance, feel free to contact us before starting your application. As a reputable consulting service provider, we will offer clear guidance on the legal requirements and overseas investigation results, ensuring a smooth and successful application process. Collaborating with us will provide your business with professional support, enabling you to fully benefit from the advantages of RDTI.

* This article is reproduced from CCH iKnowledge, the original text comes from the website of Holding Redlich.


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