If you are doing innovation work with product development or improved systems, the R&D Tax Incentive is a rebate for any eligible work. To be eligible to start with, you must be a Pty Ltd company, spending more than $20,000 pa, conducting the work in Australia, and showing that you have created new knowledge.
The catch with this program is that the application process is quite complex and requires you to provide detailed information that matches the Government’s requirements. In summary, in your application, you must provide:
- A hypothesis related to the new knowledge you are seeking to create (4,000 characters)
- The experiments you will conduct to test this hypothesis (4,000 characters)
- How you evaluated or plan to evaluate results from your experiment (4,000 characters)
- Include your conclusions from the experiment (4,000 characters)
- What new knowledge was this core activity intended to produce (1,000 characters)
- Explain what sources were investigated, what information was found, and why a competent professional could not have known or determined the outcome in advance (1,000 characters)
This is information your Accountant cannot complete on your behalf, and they will need to see evidence supporting the above.
Managing the risk
While you may be tempted to view the above list as the bare minimum, in truth, if you want to manage the risk, you must create the following documentation:
1. Product strategy with project roadmap and new knowledge assessed
2. R&D project documentation with project hypothesis explained
3. R&D work records that track time and materials as core and supporting
4. Experiment plans to prove hypothesis documented*
5. Experiments conducted and evidence recorded with the results evaluated/reported*
6. Minutes of meetings to formally evaluate results, correct, and iterate on the hypothesis
The areas marked with an asterisk* need to use scientific language to describe your hypothesis, experiments conducted to test the hypothesis and capture the new knowledge you produce.
Using a set of templates is the easiest and quickest way to put the proper evidence and documents in place. It means that you have a framework to follow like a checklist – and ensures you have the ‘right’ documents in the correct format and scientific language as required by the Government.
We also run a regular R&D Discussion Group where you can learn more from both us and other companies leveraging the R&D Tax Incentive and are looking to make the process and implementation as slick as possible.
We have several other resources that may be of interest.
> 6 Step R&D Tax Incentive Audit Survival eBook
> Orphaned Legacy Software Rescue and Maintenance eBook
> Take R&D Tax Records Self Assessment, Receive a Free Report
> Learn more: R&D Tax Incentive Compliance Requirements
Please take a look at our other free resources on the Softlogic Solutions website.