When applying for R&D tax record keeping is absolutely crucial. Getting it right from the start makes the process of applying easier and if reviews are called, it will help reduce delays in payment of your rebate.
Keep it simple
Maintaining contemporaneous records that are required by the Australian Tax Office (ATO) is the simplest and best way to demonstrate your R&D activities around the time you conducted them. Record keeping doesn’t have to be hard if you build it into your processes.
We’ve put together two underrated practical tips to help you get things organised and make record keeping a little effortless.
1. R&D employee: time keeping
You must substantiate the time spent on eligible R&D projects by your employees. This can be done by keeping timesheets, worklogs, diaries, employment contracts, meeting minutes and contractor invoices. You will need to show that you kept records during the time you conducted R&D. Records must include:
- the name(s) and salaries incurred/paid
- the periods each employee was employed in respect of the R&D activities
- a brief description of work undertaken in relation to R&D activities
Here are some platforms/apps that can help track R&D allocations. These are compatible for integration with Xero, QuickBooks and MYOB:
Or you can go low-tech with an Excel spreadsheet to track the time over 52 weeks in the year.
Employees who are deemed 100% R&D do not necessarily require a timesheet, providing there is a signed employment contract valid for the period of claim in place and sufficient evidence to link them with the eligible R&D activities. The contact must include a detailed position description outlining the roles, responsibilities and activities carried out by the individual.
Those activities must be in line with the R&D activities submitted to AusIndustry, e.g., “developing and testing new software for R&D”.
2. R&D contractors: activity description and IP
If an R&D activity is undertaken for you by a contractor the documents relating to the contract and the R&D activities (for example, the project report and invoices) must contain:
- the dates the R&D activities are undertaken
- sufficient detail to ascertain the amount of expenditure incurred on the R&D activities as opposed to other goods or services being provided under the contract
- a description of the ownership of, or rights to, the resulting intellectual property (IP) as opposed to an end product
When engaging with an external contractor conducting R&D activities on your behalf, we strongly recommend you request they provide you with:
- Detailed invoices itemising R&D related work versus non-R&D related work. Often we see invoices that lack a detailed breakdown, if you are provided with an inadequate invoice, immediately request a more detailed one.
- Final signed agreements with correct dates with respect to the year of claim. Details on the contract should include the work that will be carried out, those activities undertaken should be able to have a direct link drawn to the core activates submitted to AusIndustry, e.g., contract states “the development of XYZ formula.”
Substantiating your R&D activities
Documentation should show there is/was a knowledge gap at the start of the project and the kind of research you undertook. These may take the form of:
- time sheets, time sheets, time sheets!
- project planning and design documentation
- test plans, test results, metrics and statistics
- technical specifications
- technical reviews, product evaluations
- literature reviews and web search (capture this!)
- meeting notes
- progress reports
- prototype photos
- ATO compliant tax records
For a detailed description on what RDTI scheme is, you may download our free R&D Tax Incentive eBook.
Keep for 5 years
Don’t forget to keep your documentation safe and accessible. ATO requires you to keep tax receipts and the like for 5 years and AusIndustry can call on you to substantiate your claim going back up to 4 prior years. Paper-based files are okay but putting it in the cloud means you can get the documents quickly from anywhere.
We have over 15 years of experience preparing EMDG and R&D tax incentive claims and can assist in making sure you receive your maximum rebate.
Working with us means you get the maximum grant with minimum risk and effort. Our expertise includes R&D Tax Incentive registration and tax schedules, Export Grants, Capital Expenditure and Infrastructure Grants.
Get in touch with us and let’s discuss this more in detail.
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