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IN FOCUS: Research and Development Tax Refunds

30 May 2022

A recent New South Wales Supreme Court decision in Re Spitfire Corporation Limited (in liquidation) [2022] NSWSC 340 has provided clarity with respect to the characterisation of Research and Development (“R&D”) refunds and how they are to be applied in the context of a distribution to creditors in an external administration.

Spitfire Corporation Ltd (in Liquidation) (“Spitfire”) and its subsidiaries (“the Spitfire Group”) conducted an online wealth management technology business.

Aspirio Pty Ltd (“Aspirio”) being a subsidiary within the Spitfire Group served as the employer of record for almost all of the employees of the Spitfire Group. Aspirio did not perform any other function or service, had no external clients and did not charge Spitfire Corporation or any other group entities any fee or other amount for being the “employer entity” or providing employment related services.

After Spitfire and most entities in the Spitfire Group went into Voluntary Administration on 7 August 2020, the Administrators (and subsequently the Liquidators) attended to the lodgement of income tax returns (including R&D tax incentive applications) for the financial years ended on 30 June 2019 and 30 June 2020. The lodgement of those tax returns led to the receipt of ATO R&D Refunds totalling $2,024,812.90.

The Liquidators subsequently sought directions from the Court as to:

  • whether the R&D Refunds comprised a “circulating asset” within the meaning of Section 340(1)(b) or Section 340(5)(a) of the Personal Property Securities Act 2009 (Cth) (“PPSA”); and
  • whether Spitfire or Aspirio was the “true employer” of the employees of the Spitfire Group.

The resolution of these issues would determine whether the group’s secured creditor being Resilient Investment Group Pty Ltd (“Resilient”) or the Spitfire Group employees would, pursuant to section 561 of the Corporations Act 2001 (Cth) (“the Corporations Act”), have priority in respect of any dividend declared from the proceeds of the R&D Refunds.


The Court found that the R&D Refunds satisfied the definition of “circulating asset” in section 340(5)(a) of the PPSA and therefore were an asset subject to a circulating security interest available for distribution in priority to priority employee creditors in accordance with Section 561 of the Corporations Act. The Court also found that the true employer was Spitfire.

As a result of the decision, the R&D refund collected from the ATO in the amount of $2,024,812.90 was to be applied to priority employees claims as a priority over secured creditor claims.


The Spitfire judgement makes clear that R&D tax refunds comprise circulating assets for the purposes of Section 561 of the Corporations Act. Where, as with Spitfire, the key asset of a technology start up is a potential entitlement to ATO R&D Refunds, the decision provides important clarity for financiers of such businesses, as well as for liquidators (and employees) of those businesses which fail.

By their nature, a subset of start up businesses in the technology/research and development space are candidates for failure. The decision provides a degree of comfort for employees in such businesses.

Alternatively, the decision is not so comforting to the financiers of such businesses.

The decision would presumably be welcomed by the Commonwealth and FEG which often funds unpaid employee entitlements in a liquidation scenario and is subrogated to the priority position of employees for the funds they advance under the FEG scheme.


In circumstances where a taxpayer has outstanding other liabilities owing to the ATO, the ATO has an ability to offset these liabilities against the R&D refund receivable.

The ATO sets out in its Practice Statement 2011/21 the Commissioner’s approach to offsetting refunds and creditors including for companies in Liquidation.

Offsetting occurs when a taxpayer’s credit or running balance account (RBA) surplus is applied to another liability of the taxpayer.

The Practice Statements sets out that for Companies in Liquidation credits due to a company in liquidation must first be applied against any debts of the company before a refund can be made. Credits in respect of post-liquidation periods should first be applied against post-liquidation debts and then any other debts of the company.

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