The first producer of heavy rare earths in Australia, Northern Minerals (ASX: NTU), is set to finally resume business as normal having reached a settlement with the Australian Taxation Office over a claim that dates back to 2016, albeit conceding $21.3 million in the process.

The dispute relates to Research and Development expenses incurred by Northern Minerals in the development of their Browns Range Pilot Plant which was commissioned in 2018 and made Northern Minerals the first significant producer of dysprosium outside of China.

While the tax claims were initially under review, the ATO agreed to release 50% of the tax claim to Northern Minerals in February 2019 which saw $10.78m released, assisting the Company with cash flow as the Pilot Plant went through testing.

In May 2019 however, Northern Minerals was notified by the ATO and AusIndustry (Department of Industry Innovation and Science) that R&D claims for FY17 and FY18 were “ineligible R&D activities” which would not be eligible for the R&D tax offset for those income years.

In June 2019, Northern Minerals reached an agreement with the ATO to repay the $13.4 million over the next two years while the Company sought further advice on AusIndusty’s decision. It further resulted in Northern having to raise capital to cover the cash shortfall originally factored in from the R&D refund.

Over the next six months, discussions between Northern Minerals and AusIndustry progressed to the point where middle ground was reached and that AusIndustry would reverse their decision if Northern amended their R&D claim to remove some activities that were previously part of the claims. This has now qualified Northern for some R&D tax offsets but not the entire $21.5m originally claimed.

As of today, Northern Minerals have now settled the matter with the ATO whereby the original tax offsets claimed for FY17 and FY18 have been reduced by $21.3m, the debt repayments to the ATO will cease and Northern Minerals will be refunded $9.9m which includes R&D offsets for FY19.

“Whilst a lengthy period of time has passed from the date of lodgement of the 2017 and 2018 returns, the Company is pleased that this matter has come to a close and we would like to thank all involved including the ATO and AusIndustry in reaching an amicable settlement of this dispute,” said recently appointed Northern Minerals CEO, Mark Tory.

As part of the settlement, Northern has adopted recommendations from the ATO for improving its internal policies and procedures with the aim of streamlining future R&D claims.

Northern Minerals resumed operations at their Browns Range Pilot Plant at the beginning of July following a COVID-19 shutdown in line with biosecurity restrictions applied to the Kimberley region.