Are you Eligible for the R&D Tax Incentive?

The Research and Development (R&D) Tax Incentive registration deadline for those companies with a 30 June 2019 year end is rapidly approaching with the statutory deadline for lodging an application for the year ended 30 June 2019 being 30 April 2020.

Eligibility Criteria for R&D Tax Incentive

You can only benefit from the program if your initiatives are considered eligible R&D activities and meet the legal requirements.

Firstly, o be eligible for the R&D Tax Incentive, you must be a for-profit company incorporated in Australia with at least AUD $20,000 of eligible expenditure on eligible R&D activities.

With increased compliance and audit focus around the R & D Incentive it is important to get it right. We also want to maximise your benefit by making sure you don’t miss anything; while taking up as little time and resources for you as possible.

To help with this we have prepared a guide to help you understand the incentive and determine the eligibility of your project.

To test your eligibility – ask yourself these six questions:

Question 1 – Was an experiment (or a set of related experiments carried out?

Identifying an experiment, or set of related experiments, is one of the most important parts of the self-assessment process.

An experiment is what you do to test a technical or scientific idea. The experiment is set up so that the relationship between the idea’s relevant variables can be tested and, as a result, the idea proven right or wrong.

Experiments can take place in virtually any environment – from laboratories to manufacturing plants, to offices, farms and greenhouses.

Question 2 – Could the Outcome of the Experiment Have been known or determined in advance?

For the R&D Tax Incentive, the overall outcomes of projects, or commercial viability for instance, are not the relevant outcomes. The relevant outcome of an experiment is the knowledge of whether the technical or scientific idea you were testing is correct or not. The legislation requires that this cannot be known or able to be figured out in advance using current expertise or knowledge i.e. experiments with an outcome that is predictable or already publicly or commercially available will not be core R & D activities, even if it is new to your business.

In essence, core R&D activities address technical or scientific issues that will extend the existing knowledge in the field.

Question 3- Did the Experimental Activities Employ the Scientific Method?

Eligible experiments must be conducted as part of a systematic progression of work that involves three main parts:

1. An experiment designed to test the technical or scientific idea (the hypothesis).
2. Observation and evaluation of the experiment and its results to evaluate the technical or scientific idea (This may include some failures)
3. The drawing of logical conclusions about the technical or scientific idea i.e. validating or discrediting the hypothesis.

The idea you want to test must be specific and either technical or scientific in nature, and must be able to be proven or dis-proven by conducting an experiment.

Question 4- Was the purpose of the Experiment to Create New Knowledge?

Eligible experiments are conducted for the purpose of generating new knowledge of a scientific or technical nature. This must be a significant purpose, not just a minor reason.

Some purposes can conflict with a purpose of generating new knowledge. Experiments that produce goods and services that have commercial value could be undertaken for only a minor reason of generating new knowledge. Once the new knowledge is generated, an ongoing activity can lose that purpose.  An exception to this is computer software that requires constant development. The development of each new version of software is a new project for R&D purposes.

Question 5- Is the Activity on the core R&D Activity Exclusions list?

Some activities are excluded from being core R&D activities, though you can still consider whether they are supporting R&D activities (but they would need to have a dominant purpose of supporting core R&D activities).

These activities are:

1. Market research, market testing or market development, or sales promotion (including consumer surveys);
2. Prospecting, exploring or drilling for minerals or petroleum for the purposes of discovering deposits; determining more precisely the location of deposits; or determining the size or quality of deposits;
3. Management studies or efficiency surveys;
4. Research in social sciences, arts or humanities;
5. Commercial, legal and administrative aspects of patenting, licensing or other activities;
6. Activities associated with complying with statutory requirements or standards, including maintaining national standards; calibrating secondary standards; routine testing and analysis of materials, components, products, processes, soils, atmospheres and other things;
7. Any activity related to the reproduction of a commercial product or process:

(i) by a physical examination of an existing system; or

(ii) from plans, blueprints, detailed specifications or publically available information;

1. developing, modifying or customising computer software for internal administration of the entity or a connected entity.

 

Question 6 – Was the Activity conducted in Australia or an External Territory?

Generally, only R&D activities conducted in Australia qualify for the R&D tax incentive unless specifically approved by Innovation and Science Australia makes a finding that your activities meet

If you believe you have a project which would be eligible for an R & D claim but have not yet commenced the FY19 R&D claim process, please contact us now to find out how we can assist you to access the R&D Tax Incentive program.

The experts in our specialist R&D and Innovation Division will be able to assist you in testing your eligibility and completing and lodging your claim for Aus Industries.