The Importance of record keeping for the R&D Tax Incentive
R&D Tax Incentive - 02 Dec 2021
In order to claim the R&D Tax Incentive, you must keep contemporaneous documentation evidencing both the conduct of your eligible R&D activities, and the extent to which expenditure has been incurred on R&D activities.
Regulators cracking down on R&D claims that are not supported by evidence.
It has been observed that the R&D regulators (Australian Tax Office and AusIndustry) have increased their expectations on the type of documentation that companies should maintain. This is evidenced by a number of recent AAT cases, which have disallowed R&D claims due to a lack of contemporaneous evidence. In the case of Docklands Science Park Pty Ltd and Innovation Australia  AATA 973; the tribunal found that an applicant cannot establish the legislative requirement of the R&D Tax Incentive program without documentary evidence. This position was further reinforced in the more recent case of Royal Wins Pty Ltd and Innovation and Science Australia  AATA 4320 (28 October 2020).
New online R&D Tax Registration form record-keeping disclosures.
In addition, as part of the new online R&D Tax Registration form, launched in July 2021, it is a requirement for companies to disclose whether they have kept supporting documentation in respect of the registered core activities. This includes:
- Evidence of searches or enquiries you made to find current knowledge
- Evidence to show that you could only determine the outcome of the core activity by conducting experiments as part of a systematic progression of work
- Evidence of your hypothesis and design of your experiments
- Documented results and evaluation of your experiments
How should you document your R&D activities?
Whilst there is no prescriptive requirement for how, or in what form you should keep your R&D records, you should have regard to the specific eligibility requirements, and how your current documentation supports these requirements. You should seek to undertake a review of your documents and processes regularly throughout the year, to enable you to address any gaps in your record keeping.
In reviewing your current R&D record keeping practices, assess whether they adequately capture:
- Time and effort spent on R&D activities
- The link between the expenditure and R&D activities
- Your hypothesis and the variables you are looking to test
- The scientific approach and systematic progression of work you are undertaking
- How you have identified technical knowledge gaps and state of the art investigations?
- Why are your R&D activities not related or considered to be ordinary business activities?
Can good governance and technology help you keep better records?
Our R&D team at ABA have extensive experience in assisting companies to keep better R&D records and implement strong R&D governance practices. This may include by way of technology, staff training and awareness, and the implementation of R&D governance policies, processes, and frameworks.
How ABA Legal Group can assist you with supporting your R&D Tax Incentive claim.
If you would like to discuss your R&D record keeping processes, and how we can assist you in better substantiating and supporting your R&D Tax Claim speak with us here.
The information contained in this blog is general in nature and should not be considered to be legal, tax, accounting, consulting or any other professional advice. In all cases, you should consult with a professional advisor familiar with your factual situation for advice concerning specific matters before making any decisions. By reading this blog, you confirm your understanding of this disclaimer.