R&D tax deductions are crucial in promoting innovation, but a recent Federal Court decision regarding the Delly1 basketball shoe underscores the challenges of meeting stringent eligibility requirements.
The Federal Court has rejected a sports company’s appeal to claim research and development incentives for the creation of an Australian signature basketball shoe.
The movie Air highlighted the significance of the Air Jordan signature shoe to Nike. While projections anticipated sales of around $3 million by its fourth year, the shoe far exceeded expectations, generating $126 million in its first year. Nike sold 1.5 million units within the first six weeks, leveraging clever marketing that suggested the vibrant shoes violated NBA regulations.
Nike’s recent fourth-quarter results show the Jordan brand is valued at $7 billion, with a 6% sales growth. In Australia, Peak Australia worked with NBA Champion Matthew Dellavedova to create the Delly1 basketball shoe. Dellavedova helped design the shoe, focusing on making it lightweight and low-cut for better agility in defence.
Accessing R&D concessions
However, Peak’s process to create the Delly1 did not qualify for R&D tax incentives. To access these incentives, activities must involve scientific or technical uncertainty and aim to generate new knowledge. Active Sports Management’s application for R&D status was denied because the shoe’s development was seen as based on subjective opinions rather than scientific experimentation.