If you are undertaking R&D that is eligible under the R&D Tax Incentive (R&DTI) program, you can claim a refund from the Australian Government.
But how do you know if you have eligible R&D? This is actually trickier than it sounds because you need to recognise that you have a potentially eligible piece of R&D before you do it.
Why? Because you need to document that R&D as you undertake it – AusIndustry may want to see this documentation later if they review your R&DTI application.
First of all, you need a technical problem that you are having trouble solving. This technical problem can be related to a product development, process or service. Note that the problem must be technical – it can’t be a product concept issue or a business/marketing issue. This is step 1.
You must try to find a solution to your technical problem by looking in all the places that someone expert in that field could have been expected to look. For example, trade journals, online blogs/forums, searching the Internet, asking experts you know, suppliers/vendors etc.
Make sure that you document this searching as you do it. Yes, you guessed it – AusIndustry may want to see it later. What you are doing is demonstrating that the knowledge you need to solve your technical problem is not already available – this is step 2.
Based on this searching (or perhaps as a result of other information you have obtained and/or experience/knowledge you have), you came up with a theory or proposition that may help you uncover the knowledge you need (or at least part of it). This is called the hypothesis in the R&DTI – this is step 3. Yes, you need to document how you came up with this theory.
You then need a way of testing your theory in an experiment, so you need to work how you are going to do that, and design/plan that experiment (and document that planning). At this point, you also need to decide how you are going to know from the results of the experiment whether your theory is valid or not (and yes, write that down too).
You also need to document the results of your experiment, how you evaluated those results, and what conclusions you were able to draw from that evaluation.
To summarise, you must have a technical problem which can only be solved by conducting an experiment – that knowledge cannot not be known upfront. Also, document each step as you do it – this is called contemporaneous documentation (or evidence).
It is extremely difficult (impossible really) to define what is eligible R&D in any objective way. The guidance given above is general by necessity. To tease out eligible R&D, you really need a specialist in the R&DTI. If you try to filter your own ideas, you will invariably either discard perfectly valid candidate R&D, or you may include R&D that isn’t eligible.
For more information, please see Do you have eligible R&D?
Finally, if you think that you may potentially have eligible R&D, talk to a competent R&DTI specialist early on in that R&D (preferably before you start). Any reasonable R&DTI specialist will be happy to give you some initial (complimentary) feedback.
Please contact us at email@example.com for more information on the R&D Tax Incentives.