Eligible R&D – the checklist
Do you have eligible R&D?
To be confident that you have eligible R&D, you should consult a specialist R&D Tax Incentive consultant. However, the following checklist can be used to determine if you are likely to have eligible R&D:
- Do you have a technical (problem) and a knowledge gap that you don’t know how to address?
- Have you done reasonable searching in the public domain for that knowledge?
- Have you come up with a theory for how you might tackle the problem?
- Have you designed a systematic experiment (or a series of experiments) to check your theory?
- What did the results of the experiment show – was your theory confirmed or not?
The Australian Taxation Office also provides a checklist where you do an initial self-assessment – see Checklist for claiming the R&D tax incentive.
Where claimants go wrong
Many RDTI claimants go wrong at the first step – identifying the technical gap.
Business innovations or innovations in product concepts are not technical. Extremely innovative products or services can often be achieved with well-known technologies. The technical gap must also be at the detail level, not at the system or product level. Tech Abstract can assist you in identifying valid technical gaps.
There are also exclusions and exceptions in the AusIndustry guidelines and many qualifications you need to be aware of.
The eligibility of the R&D as an R&DTI claim is not related to the success of the R&D or the product or service. A failed product or R&D activity can still be eligible R&D.
The Technical gap and the knowledge gap
R&D is about solving (technical) problems. In the R&DTI this is called a technical gap. See What is a technical gap in R&D Tax Incentive?) for more information.
Essentially, R&DTI is about generating new knowledge to address a technical gap (via an experimental process). Establishing that you have a knowledge gap is critical to your application.
The assumption are:
- You (your company) do not have this knowledge.
- Without this knowledge, addressing your technical gap isn’t possible.
- This knowledge is not available in the public domain (see below).
- The knowledge is only available by conducting an experiment.
Demonstrating the knowledge gap
A key step is showing that the knowledge you require is not available in the public domain. The AusIndustry test is whether an expert in your field could reasonably have been expected to find that knowledge by looking in the places such as expert could reasonably be expected to look:
- Accessing available in-house expertise and knowledge.
- Reviewing available in-house technical references.
- Searching technical trade or industry journals
- Searching online blogs, forums, whitepapers and newsletters
- Completing an adequate analysis of the underlying issues – perhaps you know, but have to work through some reasoning.
This is a subjective assessment, but you must have made a credible attempt as AusIndustry will likely check this in a review. (see Prior art searching for R&D Tax Incentive for more detail).
Note that trade secrets are excluded – this information is not publicly available.
The Hypothesis and the Experiment
The R&DTI is built on the principles of scientific experimentation. This means that you have done enough research or analysis to postulate a possible (perhaps partial) solution to your problem– the hypothesis.
This hypothesis must be testable and must be tested in an experiment. The knowledge you gain must only be obtainable via this experimental process. See What is an R&D Tax Incentive experiment.
Note that a failed experiment can still generate new knowledge.
Eligible R&D – getting it right
Use the checklist and guidance above to decide if you might have eligible R&D. If you think you do, look for a good R&D Tax Incentive specialist (See “Using an R&D Tax Incentive consultant“)
Most importantly – get advice before you start the R&D as the consultant will be able to advise you on the record-keeping you will need to do.
Structuring your R&D in the right way at the start will help your record-keeping enormously – see Structure your R&D for the R&D Tax Incentive.
It will be difficult for you to capture the information you need after the experimentation has been performed. Records of eligible R&D (supporting documentation) must be created at the time of the R&D, and certainly not in the following financial period.