Written by Jeremy Levitt, Government Incentives Manager at Catalyst Solutions Australia.
The Research & Development (R&D) Tax Incentive is a broad-based Australian Government Incentive to promote Private Sector innovation. The R&D Tax Incentive provides tax offsets (refundable for companies with Aggregate Turnover of less than $20m) for qualifying expenditure on eligible R&D activities. The program is open to eligible companies of all sizes in all industry sectors.
This Incentive is administered by AusIndustry (eligibility of activities) and the Australian Taxation Office (eligibility of expenditure) and falls under the Australian Tax System’s self-assessment regime. Under that regime, companies claiming the R&D Tax Incentive need to maintain contemporaneous records that demonstrate their activities meet the eligibility criteria for the program, as defined in the legislation.
Of the more recent cases assessed in the Administrative Appeals Tribunal (AAT), a number of companies have lost out on their R&D Tax Incentive benefits and laid themselves open to penalties because of a lack of substantiating documentation. Trying to locate and assemble R&D records post-fact is also difficult. Don’t let your company fall into that trap – it can be costly and time-consuming!
What do you need to do to help you meet the substantiation requirements?
R&D records typically comprise the following types of documents:
- Opportunity/problem statements
- Surveys of the state-of-the-art
- Documents identifying the technology gaps
- Development plans
- Hypotheses (the concept being investigated through the systematic progression of work)
- Experiment designs and records of experimentation
- Results and analyses
- Progress reports and conclusions
- Staff time records
- Invoices and other accounting records relating to costs incurred.
The depth and extent of records you need to keep will vary depending on the nature of your business and the R&D activities you are conducting. We would recommend empowering someone within your company with the responsibility for managing R&D records; scheduling and conducting periodic R&D planning and review sessions (e.g. monthly) to both guide and monitor R&D progress and to ensure appropriate documentation is being maintained and retained. This is no more than good R&D management.
If your R&D registration is selected for an examination, you would be asked to provide records that you kept during the time that the R&D was conducted and that were used to self-assess eligibility. If your company has put in place and adhered to the above broad guidelines, your review experience should be far more streamlined and efficient, and less stressful on your resources.
In the event that a company has insufficient contemporaneous records to demonstrate that an activity has been conducted and meets the eligibility criteria, that activity could be found to be ineligible for the R&D Tax Incentive, and then claimed expenditures could be reversed and penalties applied.
Maintaining good records while you conduct your activities is not only good R&D practice, but it is also an eligibility requirement and can ultimately save you time and reduce the risk of not being able to prove eligibility.
Need help? Send us an email at firstname.lastname@example.org and one of our consultants can review your R&D Tax Incentive documentation processes and advise on any appropriate improvements.