New guidance material has been published for software developers who claim the R&D Tax Incentive and is now available on the AusIndustry website. The material seeks to provide clarity around what documentation is required for compliance and what defines eligible R&D Tax core and supporting activities.
Innovation is not part of the test for eligible R&D activities…
The first reminder is that the definition of R&D is not the same as Innovation. Developing an innovative product doesn’t mean you are eligible. A useful reference is made to R&D definitions in the OECD paper, the Frascati Manual
Evidence for developers:
A useful reference to understand the evidence required to make a claim is summarised in the following table:
|Eligibility requirement||Examples of evidence|
|1||The outcome of the experiments (whether the hypotheses were true or false), could not have been known or determined in advance. |
This requirement is assessed using the standard of a competent professional on the basis of their knowledge, networks, or information they could reasonably gain access to.
|• Records of literature reviews
• Email exchanges with industry experts
• Screenshots of questions posted on tech blogs
• Details of failed attempts to use existing technology
|2||Experiments are conducted for the purpose of generating new knowledge .||• Minutes of board, project or team meetings where the need to conduct experiments was discussed|
|3||The activities follow a systematic progression of experimental work from hypothesis to experiment, observation and evaluation and lead to logical conclusions. |
It is important to show that you conducted specific experiments based on specific hypotheses.
|• Records of each step of your experimental activity, e.g. what the hypothesis was, how you tested it, the data from your experiment, how it was analysed, whether the hypothesis was proven true or false, and how these results were used to create any new hypotheses
• Code repositories or software versions with comments including weaknesses that were identified and rectified in successive versions
• Testing strategy and approach
• Project management documentation such as GANTT charts
|4||Expenditure is clearly linked to an eligible activity. |
Where some or part of the work is being undertaken by contractors, you need to keep written agreements that set out the work to be undertaken, who performed the work and where it took place. If this applies to you, you should also look at For whom are the R&D activities conducted on the ATO website.
|• Design and scoping documents showing how purchased items were used in experiments
• Exported content from task tracking or project management tools (demonstrating the % of time that staff worked on eligible activities)
• How you determined what % of your utilities (excluding capital costs) was used for eligible R&D activities
• Contracts for any work, or parts of the work, undertaken by contractors
For more help on determining your eligible R&D activities and evidence required call us on (03) 9008 5937 or 02 8378 2520.