In the last 18 months, there has been a significant increase in the number of audits conducted under the scheme, and many companies have had to repay large amounts because they failed an AusIndustry and/or ATO R&D audit.
A failed audit isn’t a failing of the R&D tax incentive accountant, nor really of the work itself. Instead, companies have been a victim of a complex area of tax legislation and how it translates into the reality and practicality of implementing a tech-related project as R&D work.
Enter the gap between the remit and skills of an R&D specialist accountant and the necessary working knowledge within the project team.
As an IT company specialising in R&D funded product development, technology projects and custom software rehabilitation, we have unique insights on the recurring themes of R&D tech project where problems of complexity arise, opportunities are missed, and risks are not adequately managed.
Check your situation with our R&D Tax Incentive checklist
The following are the top 6 fails that we see.
- The business processes and required record-keeping from product strategy to cost tracking are not compliant with the R&D legislation.
What we see here is mostly a casual approach to record-keeping, lacking the understanding of how it will lead to a breach and an R&D tax repayment bill and fine. Your project team are technology professionals, not legislation experts, and your accountants can’t write and document your work on your behalf. This is a great example of the gap between team and accountant responsibilities.
- The language used to express your IP and the work done in your documentation is not what the ATO requires. Yep, they say paaaahtatooo, and you say potato
It is as simple as needing to follow a template of ‘approved’ language, which only those that have been through the ATO audit ring of fire know!
- Lack of understanding of your complete IP as it relates to the R&D tax incentive scheme, leading to lost or misunderstood opportunities to fund additional work under the R&D scheme.
This means that the eligibility assessment is sometimes missing or misguided and needs checking against the legislation. The determination of your Core R&D vs Supporting R&D is not clearly defined and documented. Costs are not tracked to the activities, and those costs that are captured are a fraction of those that could be.
Check your situation with our R&D Tax Incentive checklist
- Software Development is overlooked as R&D as it is not entirely understood or its risks acknowledged, and any New Knowledge (your IP) is not identified.
This is most often because custom software is overlooked, or the original ‘developers’ have moved on. It is one of the first things that we do at Softlogic. Thorough documentation of the software as it is today, after years of tweaks and updates, rather than what was first developed. We then extend this investigation into checking your eligibility and that your IP is unique within the marketplace, and ensure that you have documented the investigation correctly, as per the ATO requirements to pass muster at any audit.
- Lack of a coordinated and compliant approach to R&D processes and systems. There are processes needed to be in place across your Management, Finance, Engineering, and Research teams.
It is possible to take care of the ‘red-tape’ in such a way without the exorbitant overhead. When we work with a business, we focus on putting in repeatable processes and systems to ensure overtime you remain complaint without adding to the overhead.
- Missed opportunities on the value of your R&D project due to a lack of understanding of how IP and technology can be defined and leveraged.
Your accountant won’t understand the market or technology and it is usually missing knowledge within your project team on the finer technicalities relating to IP that is the problem here. But we argue – do you want a good programmer or do you want a lawyer writing your code? Seems like a sensible question to us!
Check your situation with our R&D Tax Incentive checklist
What’s your accountant’s role in your R&D project?
First and foremost, your accountant is not responsible for keeping or producing your project paperwork to ensure you remain compliant. They are expert in and will:
-
- Give you the guidelines of what can be claimed walking you through what can and can’t be claimed under the incentive
- Work out the cost of your claim for any ‘qualifying’ research (based on your definition) and offset this against your company tax bill
- Ask you if you have got all of the correct records in place.
How about an audit
We offer a quick over the phone audit on how your current R&D project would fair under an Austrade Audit.
If you’d like to chat about how we can help with either reviewing and doing a workshop for your project team on the R&D implementation or work with you on your custom software to rehabilitate and identify the IP opportunities, feel free to reach out via email or find out more at softlogicsolutions.com.au
- SoftLogic Solutions are a team of tech specialists expert at:
- Cost-effective custom software rescue, rehabilitation, and R&D funded redevelopment.
- Identifying IP within custom software and extending the value, leveraging the R&D tax incentive scheme to fund your work.
- R&D technology project implementations, working with project teams to ensure the processes and records are in the correct format, language, and frequency according to the requirements under the legislation and that they will pass audit should it ever be required.