A competent R&D Tax Incentive consultant will help you prepare and submit your Tax Incentive application to AusIndustry and the associated R&D tax incentive schedule to the Australian Taxation Office. The R&D Tax Incentive consultant will also be able to maximmise your claim, ensure that your application is compliant, and minimizing the impact on your business. This article talks about the AusIndustry R&D Tax Incentive application, as this is most commonly what separates good R&D Tax Incentive consultants from poor ones.
Why do you need a Tax Incentive consultant?
In principle, you don’t need an R&D Tax Incentive (R&DTI) consultant in order to draft your submission to AusIndustry – you can do it yourself.
However, despite the resources available from AusIndustry, preparing and submitting an R&DTI submission to AusIndustry is complex, and is full of pitfalls for claimants new to the R&DTI program.
While newcomers to R&DTI can master the skills and knowledge required to draft their own applications, the learning curve is steep, and that time is probably better spent on your core business. There is also the ever-present risk of mistakes.
Where do claimants go wrong?
Achieving an effective and compliant application is much harder than it might appear. The R&DTI is a self-assessment program, so it can appear that you have successfully secured a refund, only to find out (up to 5 years) later that your application has been rejected or at least questioned when AusIndustry subjects the application to a review.
In the worse case scenario, AusIndustry may reject your latest R&DTI application, and as a result, then go back another 4 years reviewing (and possibly rejecting) those applications as well. Even if you really do have eligible R&D, recovering from that situation is extremely time-consuming and expensive.
See “Are you making mistakes in your Tax Incentive application?” for an explanation of the traps awaiting new claimants.
What an R&D Tax Incentive consultant can do for you
There are a number of good reasons why you should use a specialist tax incentive consultant for your R&DTI submission.
An R&D Tax Incentive consultant will:
- Be a registered tax agent, so they can submit your R&DTI application.
- Understand the requirements of the R&D Tax Incentive (R&DTI) program in detail.
- Have skill and experience writing effective AusIndustry R&DTI applications – how you present your R&D actually matters.
- Ensure that you have provided sufficient technical explanation to allow a compliant and coherent application to be drafted by the consultant.
- Ensure that the scope of the claimed R&D activities covers everything you are entitled to, and nothing that you are not.
- Ensure that the technical explanation in the completed R&DTI application is understandable to a lay person in AusIndustry and demonstrates compliance with R&DTI requirements.
- Confirms that the financial information is correct in the AusIndusry submission for the claimed R&D.
- Ensures that the core and supporting R&D activities are handled correctly.
The caveat is that you need a good consultant – a poor consultant can literally do more harm than good.
Analysis of technical information by Tax Incentive consultant
Great R&D is typically undertaken by smart and talented technologists, engineers, scientists and technicians. Unfortunately, brilliant people often have trouble explaining their work to lay people – they are literally too close to their work and often get stuck in the detail. Also, they will often forget about the amount of assumed (context) knowledge needed to understand what they are doing.
Extracting the essence of your R&D and presenting it in simple terms to a lay person outside the company is a skill that a good tax incentive consultant should have.
The other point to remember is that the aim is not so much to explain the R&D in detail, but to show that your R&D is compliant with the R&DTI requirements – that is what the AusIndustry reviewer will be trying to achieve. Many claimants get excited about describing their R&D and miss that subtlety.
Why STEM qualifications?
A good R&D Tax Incentive consultant will have solid technical skills, experience in R&D in industry, and sound STEM (Science, Technology, Engineering and Math) qualifications. Do not use a consultant without these skills, for reasons explained below.
These skills will allow the consultant to extract the key points from your claimed R&D and present this information in the most effective context to show compliance. The consultant will be looking for:
- Technical/knowledge gaps that required the R&D
- Your theories and strategies for tackling those technical gaps
- What experiments you ran to test your theories
- Results from these experiments and what those results said about your theories – confirmed or not
What AusIndustry is wanting to see is a systematic progression of work involving the elements noted above.
The consultant will be presenting this information in an easy to follow narrative that allows the AusIndustry reviewer to follow along and efficiently tick off the R&DTI requirements, without requiring additional information.
The more roadblocks you put in the way of the AusIndustry reviewer (lack of information, requirements not addressed, hard to follow explanation), the higher the risk that the reviewer will start questioning your application.
Without technical skills and STEM qualifications, your consultant will struggle to explain the connection between the elements noted above and the connection with the R&DTI requirements. The result is often an incoherent and confusing explanation that the AusIndustry reviewer will find enormously frustrating. Deliberately obscuring your explanation to cover up the lack of eligible R&D is also a bad idea.
These technical skills also allow the consultant to know when they don’t have enough of an understanding of your claimed R&D, and when to ask for additional information or clarification. It also means that they know the right questions to ask and can minimize the impact on your time (see R&D consultant understand your R&D?)
You may think that without knowledge of your industry (or your R&D domain) that technical experience and STEM qualifications may be of limited use. However you will be surprised how much a good consultant will understand, and how far good analytical skills will take them.
A poor tax incentive consultant may not even realise that their technical explanation of your R&D in the R&DTI application doesn’t make sense. This is particularly true when the consultant has taken your own words and used them out of context or has joined passages of text in ways that don’t make sense. This is unfortunately very common.
Yes, a competent consultant will ask you to review the application before it is submitted. However, a good consultant will be confident that the explanation should basically make sense, and that they are asking you to just check that they haven’t gotten some of the details wrong.
How to choose an R&D Tax Incentive consultant
These are the things you should ask a prospective R&D Tax Incentive consultant:
- Are they a registered tax advisor?
- Is the R&D Tax Incentive program their main focus, or is it a side-line?
- Do they have STEM (Science, Technology, Engineering, Math) qualifications?
- Do they have industry R&D experience? In what industries?
- How many successful R&DTI applications have they made?
- How many AusIndustry reviews have they had? Were they successful?
- Do they keep up with current changes in R&DTI legislation?
- Do they participate in the AusIndustry/ATO State Reference Group?
- Do they have a number a number of testimonials from clients?
- How many ATO audits have they had? Were they successful?
- What do they expect from you?
- Do they have an application process that sounds workable for you?
- What standards do they have on supporting documentation?
- Who will be drafting your application?
- Do they have experience in AusIndustry? (unlikely, but possible)
Some of these questions relate to the Tax Incentive consultancy as a whole. Other questions relate more specifically to the individual who will be handling your particular application.
There are many roles in the R&DTI process, each with a different skill set. A registered task advisor is required to submit the R&DTI application. A technical writer is needed to draft the technical explanation of the R&D activities. A technical specialist from the client is needed to provide the technical ‘meat’ that the R&DTI technical description is based on.
The need for a registered tax advisor often means that R&DTI applications are written by accountants and tax advisors. However, the resulting applications are often incomprehensible as a result, due to the lack of technical skills.
It is common practice (especially with the larger accounting firms) for you to get the sales pitch from senior (experienced) partners, only to find later that your application is being handled by a junior clerk or recent graduate without a lot of experience with either the R&DTI program or R&D in industry.
R&D experience and STEM qualifications are essential – not only will this help achieve a solid and readable application but will minimize the impact on your time in the long-run.
However, be suspicious if the consultant downplays what they need from you or trivialises the process – it may be warning that they are prepared to churn out rubbish applications rather than engage with you to make sure that the application is correct.
The reality is that is a successful R&DTI application requires all three roles noted above – a tax advisor and a competent technical specialist/technical writer from the tax incentive consultant, and a technical specialist from the client. Both the tax advisor and the technical specialist/technical writer need to now the R&DTI requirements inside out.