Straightforward R&D Claim process
A high-level summary of Fullstack’s thorough but straightforward procedure for the R&D Tax Incentive is below:
| 1 WEEK | |
| Due Dilligence |
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| 2 - 7 WEEKS | |
| Prepare Application |
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| Finalise Tax Return |
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| 8 - 10 WEEKS | |
| Process & Payment |
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| Co-ordination |
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Registration of R&D Activities in the Application
Companies must register annually with DISR before claiming expenditure with the ATO.
Registration involves submitting a the R&D Tax Incentive Application form through the R&D Tax Incentive customer portal.
This application must be lodged within ten months of the end of the income year in which the activities were conducted, with the annual deadline to submit generally being April 30.
The application requires relevant technical information about the eligible R&D activities comprising the company’s R&D program and financial information around the R&D expenditure.
Classifying your projects & activities
Your R&D efforts must also be classified as either core R&D activities or supporting R&D activities in the application.
Projects
A project is the overarching development of a new product, system, process or service, etc. From a business perspective, these projects are often made up of many different activities – admin, marketing, promotion, commercialisation, and of course, the development activities.
It is important to understand that the scope of Core and Supporting R&D Activities is not one-to-one with how most businesses would view a product development project for internal purposes. From an R&D Tax perspective, care must be taken to only include the relevant Core and Supporting R&D Activities in the claim.
Core R&D Activities
These are experimental activities pursuing new knowledge and technology which have not been done before that require an approach based on an area of established science that require development of hypotheses and experiments, observations and evaluations to address these.
These are conducted for the purpose of generating new knowledge or improved materials, products, devices, processes or services.
Supporting Activities
Supporting Activities are those that are directly related to a Core R&D Activity. These are those activities that are not experimental but are nonetheless required for a Core R&D Activity to be conducted.
Some examples include:
- Literature research supporting development of the hypothesis
- Project resourcing and management
- Manufacturing parts to be used as part of the experiment.
- Production activities where they are conducted for the dominant purpose (i.e. the main purpose) of supporting the Core R&D Activities.
- File notations and updated records to track the progress of an R&D activity.
Certain activities are excluded from being eligible core activities but could function as eligible supporting activities in the right circumstances.
Examples of excluded core activities include:
- Management studies
- Market research, testing and development
- Software development for the purpose of internal administration
- Research into social sciences, arts and humanities
- Any activity related to the reproduction of a commercial product or process; by a physical examination of existing systems, detailed specifications, etc.
Production activities includes undertaking initial production runs of items where the production goes beyond the minimum amount of items required for the experiments.
Example of R&D Project Scope
As an example, a significant project for Tesla could the development of Model X. This would likely constitute a number of discrete R&D Activities (or even mini projects), as well as activities which fall outside the scope of eligible R&D Activities.
From an R&D Tax Perspective, the projects could be (a) developing novel geo-sensitive auto-lock technology, (b) development of the improved battery system and (c) development of improved navigation technologies using machine learning. Depending on the complexity of each of these projects of these could have multiple Core R&D Activities relating to specific streams of experimentation.
Along with more generic Supporting R&D Activities such as background research, project management etc., it is likely that specific R&D Activities may be required for each project, for example the manufacture of prototype batteries used in testing, or data collection relating to road systems that is used to train and develop the machine learning models.
It is likely that the development of the overall finished Model X would include many activities that are part of the overall project (as viewed internally) but fall outside the scope of the R&D Tax Incentive because they do not deal with attempting to resolve technical uncertainties (e.g. the selection of the paint, design of the layout of the dashboard, etc.).
Lodging the R&D Tax Incentive via a Tax Return
After the company has registered its R&D activities with DISR it should receive a unique registration number.
An R&D Tax Incentive Schedule can then be prepared that includes the total expenses by category and the registration number.
The R&D Tax Schedule is then lodged as part of the company’s income tax return, with the refundable R&D Tax Incentive offset (if applicable) paid out after the return has been processed.