R&D Tax Incentive applications

Your R&D tax consultant should understand your R&D activities when drafting your Tax Incentive application to have a successful result.

There are two parts to an R&D Tax Incentive Application –

  • The technical description of the R&D that was performed, which is submitted to AusIndustry
  • The R&D Tax Incentive Schedule that is submitted to the Australian Taxation Office.

Both need to be done with care.

An R&D Tax Incentive consultant must be a registered tax agent. Provided that the scope of the R&D is correct, you should have no issue with the ATO R&D Tax Incentive Schedule.

The R&D Tax Incentive industry is dominated by accountants or accounting firms. ideally the consultancy firm will employ staff with STEM qualifications – Science, Technology, Engineering and Math. Unfortunately, that is not always the case.

So, why is it important for your consultant to understand your R&D?

There are two reasons why the consultant needs to understand your R&D –

  1.  The consultant may misunderstand the scope of the claimed R&D, which could cause issues when the application is submitted to AusIndustry.
  2. The consultant needs to summarize the claimed R&D activities in the application so that those activities can be assessed by AusIndustry.

Both points are important. It is the second point that gets many businesses into trouble. A nonsensical technical explanation of the R&D is likely to confuse an assessor in AusIndustry. This may result in the application being rejected or may prompt AusIndustry to ask for more explanation.

Another possible outcome is that a random audit in subsequent years may also lead to a request for further information for this past application. If the application is particularly badly written, just adding more information may not help the confusion. If the business is lucky, sorting out this confusion may just require time and expense. However it is better to draft a clear and understandable application in the first place.

Unfortunately, many R&D consultancies don’t have the time or the skill set (and sometimes the inclination) to understand your R&D well enough to draft a coherent description of your R&D activities. Technical documentation provided to the consultant almost certainly will not have been created with this purpose in mind.

Reviewing your technical description

Committed businesses may prepare documentation specifically for this purpose, but most do not have this time. If you are diligent, you will pick up problems in the drafted description before the application is submitted, but correcting the description may be tedious and expensive. Consequently, most businesses either don’t review the description or do the bare minimum to correct any errors they find.

A good tax incentive application will read well and will tell a clear and coherent story. Remember that the assessor in AusIndustry is unlikely to be knowledge of your industry or the R&D you are undertaking, so will be relying on the narrative in your application to explain the important concepts to them.

In summary

Also remember – you are responsible for the R&D Tax Incentive application, even if it is prepared by an external consultant, so it is in your interests to engage a consultant with STEM qualifications, and the diligence to understand your R&D.