Considering applying for the R&D Tax Incentive? We cover off on the 5 biggest questions…
R&D Tax Incentive – Preparing for 30 June
Wanting to optimise your R&D Tax Incentive claim, whilst ticking all the boxes for the application? Read on as we cover the pre 30 June process so you can have an application ready to lodge early in July.
Basic eligibility for the R&D Tax Incentive
Every year, a business needs to reassess their eligibility to claim the R&D Tax Incentive as prior year claims provide no future guarantees on making future claims.
- An essential aspect to self-assessing eligibility is being capable of demonstrating with evidence in the current year that there are:
- Experimental activities;
- Whose outcome could not be known or determined in advance on the basis of current knowledge; and
- They have the substantial purpose of generating new technical knowledge.
Other major aspects are of course having at least $20,000 worth of Australian R&D expenditure.
Our more detailed guide to assessing R&D and the various requirements for eligibility are found here and it’s always worthwhile to walk through this beforehand with a seasoned R&D consultant.
It is important to then understand how your R&D activities will apply to the R&D application.
- High-level it could be summarised as..
- Platform = Project
- Experiments towards New Functionality = Core R&D Activity
- Supporting activities to the experiments (such as testing, project management, background research) = Supporting R&D Activity.
For each project there might be as several as say 3 core R&D activities – it is dependant on the level of new experimental features you pursue.
Your R&D consultant can assist in terms of scoping this out effectively for the application. Feel free to download our basic project scoping map here.
Keeping your R&D Documentation
Just as important as preparing the claim is maintaining effective records in the first place.
The ATO calls for contemporaneous information – that is maintaining records during the period of experimentation not months or years after the fact.
Each Core R&D activity noted should be accompanied by at least a file note summarising your initial research into the existing technology, demonstrating that the experimentation is absolutely necessary to achieve a new technological outcome.
Other documentation should be maintained and filed alongside your core R&D activities could include:
Technical Planning roadmap
Project Reviews on a progressive basis
Timesheets – which should be maintained by all technical staff and can be as simple as detailing information under the following headings:
- Project Name
- R&D related? (Y/N)
- R&D Project Name
Getting your accounting records in order
In the application, we are required to report on the total R&D expenditure made throughout the year per your accounting records.
Key to lodging a claim in July is then having the bookkeeping done up to June (ideally on a monthly basis) so that your remaining June accounts are reconciled and ready to accompany the application in July.
A common area where startups get delayed is with managing their payroll records. Best practice is to have your payroll done also on a monthly or fortnightly basis to there is no backlog of records to finalise pre July.
At Fullstack we review your accounts on a line by line transaction basis to help accurately track relevant R&D expenses for the claim. Maintaining copies of your bills alongside the transaction will help your R&D consultant if they need to enquire on the particulars of a transaction.
Assuming you’ve gone through the above you are well on your way to commence the application preparation process. Contact our seasoned R&D Tax Incentive team to help make the claim a straightforward process whilst optimising the outcome.
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Stuart Reynolds is the founder of Fullstack Advisory, an award-winning accounting firm for businesses leading the future. He is a 3rd generation accountant who specialises in tech companies, crypto and entrepreneurs.