Specific Issue Guidance – Mining

BSI Admin

In November 2016, AusIndustry released a series of Specific Issue Guidance that detail what companies and their tax advisers need to consider when self-assessing the eligibility of R&D activities.  The guidance also highlights common areas where companies may be incorrectly self-assessing their activities as being eligible R&D activities.

This article focuses guidance for R&D claims in the mining industry only.  The specific AusIndustry guidance can be accessed here https://www.business.gov.au/~/media/Business/RDTI/Research-and-development-tax-incentive-Getting-Mining-RD-Tax-Incentive-claims-right-PDF.ashx?la=en

If you would like a refresher of what constitutes an eligible R&D activity please click here http://www.bsiinnovation.com.au/?p=3580 .

When detailing activities unlikely to qualify as core activities, a common thread in the guidance is that many mining claims are based on a company conducting activities that solve challenges through the application of existing knowledge to unexplored mineral deposits. Such activities often consist of ‘trial-and-error’ rather than ‘hypothesis-driven experimentation’ according to AusIndustry. Examples of activities specifically flagged as unlikely to have a specific hypothesis include:

Qualification testing

  • Mineral beneficiation
  • Comminution processes
  • Separation techniques
  • Site-specific tests
  • Metallurgical testing
  • Making changes to existing flowsheets

AusIndustry goes on to state that a company will not be able to rely on classifying an activity as being a core activity where they rely solely on the following propositions:

  • a flowsheet has not been developed for a particular mineral deposit
  • the proposed combination of processing methods is different to those combined elsewhere
  • the only technical uncertainty is in the inherent geological risk of the ore body including:
  • not knowing the details of the specific site for the application of an established technique or technology (an ‘Australian first’, or ‘unique deposit’) or
  • the unknown details of the specific test subject (such as a sample from a suspected ore body)
  • the application of an established technique/technology in a way that is known to work but adjusting the technique/technology to account for different mineral composition.

Points to note

Whilst the guidance specifically relates to issues with mining claims, there are a number of important themes which could equally be applied to other sectors. These include:

  1.  Activities that involve solving challenges through the application of existing knowledge and expertise without experiments are unlikely to be classified as experimental, and should therefore be excluded from classification as core R&D activities;
  2.  Activities that are undertaken using existing design/modelling software or other technologies in the manner for which they have been designed to be used are unlikely to qualify as core activities;
  3.  Although the R&D Application Form begins the technical discussion section by asking for a statement of the ‘Objectives of the Project’, eligibility under the R&D Tax Incentive program does not apply to projects. Rather, eligibility discussions must be specific to separate R&D activities. The guidance states that ‘if it is a project that is being described, then it is very likely that it will not be a specific eligible activity.’
  4. Following on from point 3, companies must be sure to address all relevant eligibility criteria with respect to each individual activity and should ensure that, where required, the core activity exclusions and dominant purpose tests are applied.
  5. Uncertainty in projects comes from a number of both technical and non-technical sources (such as commercial viability), but the mere existence of uncertainty in a project will not be sufficient to satisfy the eligibility requirements.
  6. Activities are less likely to be core R&D activities where they are associated with simply complying with statutory requirements or standards. In contrast, activities that are being conducted for an R&D purpose and are incidentally subject to regulation may be eligible.
  7. In situations where companies do not have the contemporaneous evidence sufficient to demonstrate that an activity conducted satisfied all the relevant eligibility criteria for either a core or supporting R&D activity, then that activity will not be eligible.

As always, guidance produced by AusIndustry is tailored to specific segments of stakeholders associated with the R&D Tax Incentive and is based on the current AusIndustry interpretation of the legislation. Very little case law has been produced in relation to the programme and there are interpretations of the legislation that are yet to be tested.

For more specific advice on this material, or any other matters, you should contact your specialist BSI advisor on (02) 9126 9100.