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Substantiating R&D Activities & Costs
Entities that claim the R&D Tax Incentive are expected to maintain R&D documentation to substantiate the activities claimed and their associated costs.
- Activities claimed in their application lodged with AusIndustry
- New Knowledge: How is the new knowledge created during the claimed experimentation process new, novel, different and/or improved from what is currently available on the market?
- Technical Uncertainty: What research and validation was performed to confirm that experimentation was required to resolve the technical challenges associated with development? This can include expert testimony, technical resources, and current state of knowledge in the industry.
- Experimentation: What experiments were conducted and what were their results?
- Links between the R&D activities and the expenditures claimed on their tax return.
- Employees: this can include:
- Formal timesheets allocating time to core and supporting activities
- Employee dairies outlining project related meetings and other R&D responsibilities
- Project tracking tool that assigns R&D tasks to specified individuals
- Communications, reports, and presentations created by specific individuals
- Contractors: this can include:
- Detailed invoices that outline what types of services were performed by the contractor
- Statements of work that specify milestones and the end deliverable generated by the contractor
- Communications from the contractor regarding R&D responsibilities
- Other Expenditures: this can include:
- Detailed invoices
- Explanations for the linkage between the cost and the R&D activities claimed
- Employees: this can include:
The heart of a successful R&D Tax Incentive Application lies in the detailed R&D Documentation of qualifying activities.
AusIndustry Guidance
AusIndustry has compiled a guide to help entities assess their compliance readiness. Within the guide, AusIndustry outlines five main principles of good recordkeeping to help entities develop processes and procedures to document R&D activities.
These principles are:
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Ensuring internal processes and systems allow for R&D Tax Incentive documentation requirements to be satisfied as part of the overall project planning and management process.
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Identifying and documenting R&D projects and eligible activities at the time they are conducted to improve the potential to capture associated costs in real time.
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Document your methods for evaluating projects, identifying eligible R&D activities and recording expenditures associated with eligible activities. This ensures a clear understanding of how information has been derived and creates a repeatable process for future years.
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Forge strong connections between those responsible for preparing and maintaining R&D Tax Incentive records and staff who understand the technical aspects of a project to enable a shared understanding of program requirements.
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Ensure strong links have been established between activity and expenditure records.
DOWNLOAD AUSINDUSTRY GUIDE
AusIndustry has compiled a guide to help entities assess their complaince readiness.
DOWNLOAD AUSINDUSTRY GUIDER&D Documentation Timing
Supporting documentation should be generated and maintained throughout the development cycle. The highest quality documentation is generated when the R&D activities occur. The best way to ensure this high-quality documentation is generated is to make it part of the normal operating procedures for individuals involved in R&D.
Making documentation generation a business-as-usual practice will ensure that high quality documentation is maintained to support your claim. In addition to substantiating your R&D claim, this documentation repository can be useful in other areas, including employee exits, raising capital, and meeting other compliance requirements.
ASSESS YOUR ELIGIBILITY
Learn more on how to self-assess your R&D activities against the legislative requirements.
FIND OUT ABOUT ELIGIBILITYHigh Quality R&D Documentation
There is not a single perfect piece of documentation. A single piece of documentation will not substantiate an entire R&D claim. A repository of various types of high-quality R&D documentation is the best way to substantiate your R&D activities and costs. Within this repository, there should be documentation that:
- Describes the technical uncertainty faced and why it cannot be resolved without undertaking a process of experimentation
- Defines the current state of knowledge at the start of your development
- Outlines the process of experimentation undertaken
- Shows the iterative development process and identifies instances of failure throughout
- Links individuals to the R&D activities they performed
- Identifies material costs and their nexus to R&D activities
Your document repository can include a wide range of documents, including:
- Competitor and market research
- Project reports and laboratory notes
- Literature reviews
- Meeting notes
- Development contract agreements
- Presentations to board members and key stakeholders
- Contractor invoices
- Employee timesheets
- Technical specification requirements
- Technology evaluations
- Design documentations
- Test plans and results
- Designs of experiments
- Pictures
- Design iterations
- Trial protocols
How Azure Group Can Help
Azure Group offers comprehensive services to support your R&D documentation needs, including:
- R&D Documentation Review: Our experts will review your existing documentation, identify gaps, and provide recommendations to improve documentation practices to meet AusIndustry’s and ATO’s standards.
- Templates and Tools: We provide example templates and tools to help efficiently document your R&D activities and expenses.
- Ongoing R&D Support: Our team can provide continuous support throughout the R&D lifecycle to ensure you are continuing to maintain high quality R&D documentation best practices throughout the years.
- R&D Audit Support: In the event of an R&D audit, we can assist in preparing responses and communicating with AusIndustry and the ATO.
Downloadable R&D resources
The R&D Tax Incentive downloadable resources contain information on a range of R&D topics to help you understand the R&D program.
Industry Specific Papers
We can assess your R&D Eligibility
Get the latest R&D insights and guidance
The R&D Tax Incentive articles contain information on a range of topics to help you understand the R&D program.
R&D Tax Incentive The Most Common Mistakes in R&D Tax Incentive Application and How to Avoid them
Research and Development (R&D) Tax Incentives are a fantastic way for businesses to recoup some of their costs associated with innovation and R&D. However, navigating the R&D Tax Incentive application process can be tricky, and many companies fall into common traps that hinder their chances of securing the deserved benefits.
In this article, we'll point out some of the most common mistakes in R&D Tax Incentive applications, helping you avoid these pitfalls and optimise your chances of a successful R&D claim.
R&D Tax Incentive Claiming Overseas R&D Expenditure under the Australian R&D Tax Incentive
"Can this offshore vendor be included in my R&D claim? We spent a lot of money with them.”
This is a question that we certainly aren't foreign to hearing from clients when preparing R&D applications! Whilst a simple question, it opens a whole can of worms.
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R&D Tax Incentive R&D For Industry 4.0 | Aeronautics Case Study
Multiple technical innovations and improvements have swept through the aeronautics industry in the past few years. When combining big data analytics with real time sensors and machine monitoring equipment, businesses are enabled to make informed decisions regarding quality control, maintenance scheduling, and improved production processes.
Smart robots can access high heat and electrical areas to increase safety on the production floor while increasing the speed of production. Parts can be designed faster and require less materials, resulting in a smaller, lighter, and less expensive parts when additive manufacturing is properly implemented.
R&D Tax Incentive Industry 4.0 | Why It Matters & How You Apply R&D
Technology has transformed the day-to-day operations of society, from how we communicate to how we learn to even how we think.
As a society, we are currently wading through the next wave of the Industrial Revolution which will have far reaching impacts to how businesses and society as a whole operate in the future.
R&D Tax Incentive R&D: Should you just worry about record keeping at the end of the Financial Year?
For our final blog post for the R&D month, we focus on best practice record-keeping that ensures a successful R&D claim that will stand up to rigorous audit activity.
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R&D Tax Incentive R&D Tax Incentive: A Checklist For Registering Your R&D Activities
If the financial year for your company ended on 31 December 2022, you have until the end of this month (31 October 2023) to register your eligible R&D activities. Eligible R&D activities must be registered with AusIndustry within 10 months of the end of your income year. If you don't register your R&D activities by the upcoming deadline, you will be unable to claim the tax benefit for eligible expenditures between January 2022 and December 2022.
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R&D Tax Incentive R&D for Industry 4.0 | Agriculture Case Study
Globally, the agricultural industry is less digitalised compared to other industries. In response to new technical advancements, the agricultural industry is starting to embrace Industry 4.0 technologies, and the next phase of agricultural advancement, coined Agriculture 4.0, is underway.
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R&D Tax Incentive R&D For Industry 4.0 | Automotive Case Study
In 2019 almost 70% of automotive manufacturers had committed to ongoing smart factory initiatives, a significant increase from 43% in 2017. In the automotive industry, smart factory initiatives are the focus of many original equipment manufacturers (OEMs) and suppliers.
Smart factories harness the digital technologies associated with Industry 4.0 to generate significant improvements in productivity, quality, flexibility, and services. Smart factories are enabled with connectivity, intelligent automation, and cloud-scale data management and analytics.
R&D Tax Incentive R&D For Industry 4.0 | The State of Advanced Manufacturing Capabilities
Manufacturing employs more than 10% of the Australian workforce, contributes more than $100 billion a year to the economy, and employs more than 1.27 million people across Australia.
Innovation and investment in Industry 4.0 technologies is extremely concentrated in Australia with only 5% of manufacturing companies generating 99% of the industry’s export value.
R&D Tax Incentive R&D: We can get R&D Incentives for 'Business as usual'
Last week, we explained that merely performing experimental activities doesn’t make them eligible for an R&D tax offset – the purpose of these activities must have been to generate new knowledge. This precludes accidental “eureka” moments from being eligible, and also those ‘business-as-usual’ activities that you would be performing regardless. This week we’ll look to examine why taking a ‘business as usual’, or similarly a ‘whole-farm’ approach to your R&D claim will leave you open to negative audit activity from Austrade and the ATO.
Find out moreR&D Tax Incentive Isn't the R&D Incentive meant to reward Innovation?
Over the past year Azure Group have heard some negative sentiment about the Research and Development Tax Incentive (R&D Incentive) – you may have seen the stories about Airtasker and CBA, or heard from your peers that the scheme is getting harder to access. Being an entitlement scheme rather than a competitive one, with a cash refund of up to 43.5% of eligible R&D expenses, the attraction to industry is obvious – as is the need for the Government to manage the program’s cost.
Find out more
R&D Tax Incentive Navigating R&D Tax Incentive This Tax Time With Confidence
Businesses with a financial year ended 31 December 2022 have to lodge their application for the Research and Development (R&D) Tax Incentive by 31 October 2023 with AusIndustry. This incentive can generate significant benefits for companies.
Learn moreR&D Tax Incentive R&D For Industry 4.0 | Software Development Case Study
Data is a huge component of Industry 4.0. As a society we are constantly generating data – transactional data, machine data, social data. In 2021 alone, it is estimated that approximately 79 zettabytes (or 79 billion terabytes) of data was generated. As more and more data is generated, we have the ability to glean insights that have previously been unavailable. The ability to analyse huge datasets has historically been limited by the compute power of your on-premise infrastructure.
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R&D Tax Incentive R&D For Industry 4.0 | Medical Case Study
Technical advancements in healthcare and medical technologies are just as influenced by Industry 4.0 technologies and innovations as other industries. Major advancements in genetics, precision medicine, and diagnostics are driven, in part, by Industry 4.0.
Industry 4.0 advancements pose a challenge to existing regulations, governance systems, and traditional care models.
Learn moreGrants and Incentives Government Grants And Incentives: Which One Is Right For My Business?
Getting a Government Grant and Incentive can be a great booster to elevate your business to the next level. There are lots of Grants and Incentives out there to consider and they can make a big difference to your business. For example, Research and Development (R&D Tax Incentives) and the Export Market Development Grant (EMDG) which don’t focus on whether you’re generating a big revenue as eligibility criteria but rather focusing on your expenses so these can be a good opportunities for startup and small businesses.
Find out moreR&D Tax Incentive R&D: Testing our Product brought about new knowledge, is that Eligible?
In our last blog we made it clear that companies performing eligible R&D activities must think scientifically – that their R&D must proceed from hypothesis to experiment, observation and evaluation, and lead to logical conclusions.
The very beginning of this systematic progression of work is the planning stage, and it is the focus of this week’s blog. We will discuss the myth that a company undergoing normal product testing or quality assurance can consider this eligible for R&D incentives – even if it leads to new knowledge that would otherwise be eligible.
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R&D Tax Incentive R&D: Hypotheses are for Scientists not for Businesses
Last week we busted the popular misconception that all innovative activities are eligible for the R&D tax incentive – instead explaining that eligible activities must be experimental and that their outcome can’t be known in advance. The next hurdle to meet is that the outcome must only be able to be determined by a scientific, systematic progression of work.
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