Updated R&D Tax Incentive guidance material released

AusIndustry has just released an updated version of its ‘Guide to Interpretation’, which supersedes the last version that was released in 2016.  The intention of the document is to use clearer language in the document and have less duplication of information, making for an easier read.

Whilst much of the 2020 guide is similar to the 2016 version, there are two very key changes that AusIndustry has made in its interpretation regarding eligibility:

  1. The definition of a ‘hypothesis’.  The 2016 version stated that a hypothesis was a ‘technical or scientific idea and is commonly expressed as a relationship between variables’.  This was a problematic definition, particularly for the ICT sector, as defining variables for software is often not as straightforward when compared with R&D projects involving tangible items.  The new definition of a hypothesis is ‘an idea or proposed explanation for how you could achieve a particular result and why that result may or may not be achievable’.  This new definition seems to apply much better across the full spectrum of R&D projects.
  2. What constitutes ‘new knowledge’.  The 2020 version acknowledges that ‘new knowledge’ can reside in a new or improved material, product, device, process or service in and of itself.  AusIndustry’s previous interpretation had been that every R&D project must intend to generate ‘new knowledge’ itself.  This is a significant shift in mindset, as previously only research projects could qualify for the tax incentive, whereas now development projects can also qualify.  However, it should be noted that AusIndustry’s current approach is simply the implementation of what was always intended by legislation.

Catalyst Solutions welcomes both of these changes, as they represent a step in the right direction towards recognising the various ways that R&D can occur and that should be supported through the correct interpretation of the R&D Tax Incentive legislation.  It’s a shame that these changes have taken four years to occur, as there have undoubtedly been many genuine R&D Tax Incentive claims that have been rejected in recent years because of AusIndustry’s overly restrictive (and fundamentally incorrect) interpretation of the law.

If you would like to discuss how this new guidance could impact your business, please get in touch with us to arrange a tailored discussion.

By Dave Corbin, Managing Director of Catalyst Solutions Australia.