By Alan Baghdasarayan | Head of Government Incentives, CharterNet
December has been a tumultuous month for the R&D Tax Incentive. Recently, The Australian Financial Review published an article about Airtasker, who has been hit with demands to pay back millions of dollars in R&D tax offsets to the ATO. Just six days later, the publication released another story exposing one of the Big Four firms and their role in recent audit activity.
Being a boutique advisory firm with expertise in Government Incentives, these articles serve as a valuable reminder to both us and our clients – the integrity of the Australian R&D Tax Incentive must be upheld by advisers and taxpayers alike. As per the legislation and guidance issued by AusIndustry and the ATO, implementing best practice principles is something that we feel strongly about.
These principles can be summarised as:
1. Contemporaneous documentation
In addition to conducting R&D activities in Australia, any company claiming the R&D Tax Incentive must have documentation in place that proves that the R&D activity took place during a given financial year. The documentation that a company should include are files that:
- Demonstrate experimental activities conducted
- Highlight results derived from testing
- Note any observations and evaluations gathered during the testing process
- Provide evidence to illustrate the new knowledge being generated
- Illustrate the technical uncertainty of the R&D activities
- Clearly document the time spent on R&D activities. For example, detailed invoices for contractors engaged in R&D activities or timesheets to track employees time spent on R&D.
2. Tracking systems
There are a plethora of systems available that can be used in conducting a company’s everyday business operations – this can lend itself quite useful when it comes to preparing a conservative and defensible R&D Tax Incentive claim. We encourage our clients to maintain a tracking system (for example, Jira, Confluence, and GitHub for software R&D claims) in relation to its R&D projects. When used correctly, and integrated with accounting platforms such as Xero, these systems can track the R&D activities conducted with specific cost-categories. Additionally, these tracking systems can provide real-time substantiation and outline a strong methodology as to how an R&D Tax Incentive claim should be prepared.
3. Establishing a link
When receiving a tax offset from the ATO, the onus is on the taxpayer to establish both a link between the activities conducted and any costs incurred. At CharterNet, our service offering includes a review of the underlying source documentation to support the R&D Tax Incentive claim made. We ensure that it highlights any R&D activities conducted, illustrates the R&D specific costs incurred and ties the activities conducted to the costs incurred.
By establishing this link, clients can be sure that they’re lodging a conservative and defensible R&D Tax Incentive claim.
Know your R&D responsibility and duty
In summary, the integrity of the Australian R&D Tax Incentive depends on both claimants and their advisers. The direct benefits of innovation and the flow-on effects it has on the broader Australian economy are tremendous. Australia is renowned globally for having one of the most generous R&D Tax Incentive programs in place. Therefore, there’s a certain level of responsibility and duty to ensure that claims are lodged appropriately, and the longevity and effectiveness of the program are retained.
If you have any questions, or if you need assistance in lodging an R&D Tax Incentive claim, please reach out to the CharterNet team.