AusIndustry recently released new R&D Tax Incentive guidance material specifically for Software R&D Activities. While the Legislation and general concepts remain the same, the first document, ‘Guidance’, provides further insight into AusIndustry’s application of the Legislation. The second document, ‘Common Errors’, is not too dissimilar to its predecessor.
Key principles that we extracted from the Guidance document are:
It includes references to the Frascati Manual (an OECD manual that documents internationally agreed standard practices and conventions for measuring R&D undertaken by the business enterprise sector). The Frascati Manual includes useful descriptions of Software and ICT scenarios that can be helpful in defining R&D activities.
Reminder of the separation of ‘Innovation’ from the definition of eligible Core R&D Activities. The term ‘innovation’ does not explicitly appear in the definition of Core R&D Activities and the Legislation, other than being inferred via references to ‘new knowledge’.
Eligibility for the R&D Tax Incentive is assessed at the activity level rather than at the project level. When planning R&D projects and compiling claims, it is important to apply this ‘activity’ concept to ensure claims are appropriately described and substantiated.
The Guidance details two ‘black letter’ criteria for R&D Tax Incentive eligibility, including ‘conducting experimental activities’ and ‘generating new knowledge’ and provides some commentary around these issues.
R&D records must be compiled contemporaneously with the conduct of the R&D activities and must contain sufficient detail to describe the activities in the light of scientific / technical issues and the experimental approach. This includes documenting the existence of the knowledge gap, what scientific / technical principles the R&D activities are setting out to test, the conduct of the activities and the knowledge outcomes. This requires a deeper level of detail than overall ‘Project’ objectives.
Whilst there has been no change to the Legislation, there is in no doubt an increase in the level of detail that AusIndustry expects claimants to put into R&D Tax Incentive claims. Ensuring that you maintain contemporaneous records of the R&D activities that contain sufficient detail to support your claims of eligibility for the R&D Tax Incentive is key.
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