We fought the ATO and we won: PH2 in $13mn turnaround after three year R&D standoff
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In a massive boost for the coffers and contentment of the team at Pure Hydrogen, the Aussie clean energy firm has just been handed a more than $13 million cash turnaround after settling a long-time dispute with the Australia Taxation Office (ATO).
Here’s what happened and why MD Scott Brown calls it “a huge win.
In July 2020, Real Energy announced plans to merge with Strata-X Energy (SXA), with the intent of the combined companies becoming the entity we all know and love as Pure Hydrogen (ASX:PH2).
Since then, Pure Hydrogen has laid claim to being the first Australian company – and one of the first globally – to cover not only hydrogen fuel cell vehicles, but to focus on building out the supply and manufacture of hydrogen and its delivery systems.
Now, as a keen energy innovator Real Energy was eligible and received around $7.2 million worth of R&D tax claims as part of a national corporate tax incentive for the three years between 2016 and in 2019.
But one morning in 2019, the company copped an adverse finding from the Department of Industry and Science (ISA) and the ATO came knocking for the funds to be paid back.
Real Energy went straight to the Administrative Appeals Tribunal (AAT).
And as the gears of government grind both slow and fine, since then Real Energy and Strata-X became Pure Hydrogen and the clean energy firm inherited a dispute which has taken over three years to resolve.
And in that time there’s been an additional three years’ worth of R&D tax incentive claims which Pure Hydrogen hasn’t been allowed to claim.
Today PH2 has finally been given a decision from the AAT. And it’s a nice one for the company.
Real Energy’s R&D tax incentive claims for the financial years ended 30 June 2014, 2015, 2016, 2017, 2018 and 2019 have been upheld and the adverse finding of the ISA have been cast aside.
Real Energy is no longer required to repay any R&D tax incentive refunds and there’s no income tax liability fullstop.
PH2 will check the bank accounts today and find a turnaround of approximately $13.1mn.
It will no longer be liable for a claim from the ATO of the $7.2mn AND instead be entitled to a refund estimated at $5.9 mn.
“We were always confident that we have complied with all the requirements to successfully claim the R&D tax incentive,” Scott Brown says.
But the whole mess has been a bit of a ‘Sword of Damocles’ which has got to have had an adverse impact on the sleeping patterns of PH2’s executive and their advisers over at KPMG.
“The decision of ISA to deny what was then Real Energy’s eligibility of the R&D tax incentive did adversely affect the share price of Real Energy and its ability to raise capital,” Brown told Stockhead.
“While we are disappointed that it took this long, Pure Hydrogen is now pleased to bring the matter to a close and as a result we will receive ~$5.9M which significantly strengthens our balance sheet and our ability to fund current opportunities.”
PH2 stuck to its guns on this one.
In a note to the exchange, the company said it always believed that it fully complied with the 1986 Industry Research and Development Act (IRDA) and was ‘confident in the eligibility of the R&D activities of the Windorah Gas Project located in the Cooper Basin, Queensland.’
On Monday, PH2 investee Botala Energy successfully raised $5mn in its initial public offering (IPO) to fund a five-well program to test the Serowe CBM project’s gas flow capacity.
Pure Hydrogen will hold a 19.99% stake in Botala as part of a sale and purchase agreement – and in a show of confidence says its shareholders got stuck right into the IPO due to the quality of the Serowe project, and their interest in companies with exposure to the gas thematic.
Brown said the success of the Botala IPO was a great result in a challenging market.
“We are excited about the opportunities for collaboration between Pure Hydrogen and Botala and we plan to build out a portfolio of projects in Southern Africa with a focus on CBM, Hydrogen and other clean energy opportunities,” he adds.
“Given the success of this IPO and the current high prices for natural gas in Australia, Pure Hydrogen is reviewing its gas portfolio and assessing the best way to unlock the value of these assets for shareholders.”
A mission which just got a lot easier with a supercharged balance sheet and one less thing to worry about.
This article was developed in collaboration with PH2, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.