The R&D Tax Incentive rules for eligibility have not changed since it replaced the R&D Tax Concession in July 2011. They still rely on the legislation definition in ITAA 1997 Div 355- 25:
Core R&D activities are experimental activities:
(a) whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that:
(i) is based on principles of established science; and
(ii) proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and
(b) that are conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes or services).
So why are the actions of the ATO and AusIndustry causing angst amongst the thousands of great Australian businesses that are developing new and innovative products and processes? In particular, many software developers are now foregoing their entitlement to the 43.5% rebate to avoid the risk of an audit.
The answer is because businesses are not told that they need to maintain a parallel process to capturing their R&D evidence. This needs to capture specific evidence for the R&D Tax Incentive and is not easily satisfied using normal software development tools (Github, Jira, Trello, Asana, etc).
A Parallel Process for Compliance
To be compliant business need to keep documentation at:
- commencement of the R&D project (the project plan or technology roadmap)
- during the research phases (establish the state of the art and why experimentation is required)
- during testing (experimental results)
- at the end of testing (was the hypothesis proven or not)
To be eligible you need to have records that show your activities were compliant with the legislation and this is needs to be recorded at the time you conduct your R&D.
A real solution to R&D Tax Compliance Capture
We know that maintaining a parallel system may seem like hard work. There was nothing out there that we could find to do this. So we went and made one.
Our R&D Tax Compliance Capture Bot that walks you through the questions, captures your reports, emails and comments and stores them. When you are audited you simply produce a report and send to AusIndustry.
Every month we remind you to update your R&D records.
Every month we check and provide feedback on the level of compliance.
If you don’t have a compliance system then you run the risk of failing an audit, which can result in repayment of past R&D claims plus penalties.
Free Trial for your R&D Compliance
Contact us for a free trial of our R&D Tax Compliance Capture Bot (03) 9008 5937 or email.