Are you maintaining adequate documentation to support the eligibility of your R&D trials? You often can't solely rely on existing production or operational systems to substantiate R&D intentions or the experimental nature of your activities.
Ensure you are correctly applying the feedstock provisions to your unique situation. Consider if an adjustment should be made when crops, livestock, or materials are processed into products for sale during the course of R&D activities.
Consider what an appropriate sample size for your R&D project should be and ensure there is a link between registered activities and the associated expenditure claimed.
Consider the distinction between the different aspects of the project (new development vs customisation vs configuration) and how different types of activities undertaken as part of your project are assessed against the R&D eligibility requirements.
Consider how you can use existing development tools to better identify and document your R&D activities. Agile development and record keeping practices are great at reducing administrative overheads, but mean companies tend to keep less project documentation.
Consider the internal business administration rule, specific to software and IT claims, which prevents companies from claiming the R&D Tax Incentive on activities that fall within this exclusion.
Consider that costs associated with the protection of IP are not typically eligible R&D expenditure.
You may be able to claim R&D expenditure on R&D activities conducted overseas but only after your application for Advance/Overseas Findings of eligible overseas activities has been approved by Innovation and Science Australia. You must justify the reason why the R&D activities cannot be conducted in Australia and this typically means demonstrating a lack of expertise, facilities or equipment in Australia but can also include specific populations overseas required for certain clinical trials.
The R&D Tax Incentive can provide a refundable tax offset even when you have also received support in the form of specific government grant funding. However, it's worthwhile to understand the implications of the interaction between the funding, for example to understand whether a clawback adjustment is required.
Consider how core R&D activities are distinguished from routine engineering processes, and how well these differences are documented? It is important that you can substantiate the iterative and experimental nature of R&D activities with contemporaneous documentation.
Consider how you will identify when R&D is completed during a production trial or site-based testing.
If your R&D is directly or indirectly related to the production of goods or services, consider how this may impact on the eligibility of activities. You may need to consider the impacts of the 'dominant purpose' test in these circumstances and potential feedstock adjustments.
It can be difficult to determine the extent of the eligible R&D activities in development and production environments – where the R&D ends and business as usual begins?
The specific exclusion for exploration-type activities should be considered when undertaking R&D in a mining or prospecting context.
Depreciation can form a large portion of R&D expenditure where heavy plant and equipment is involved. By developing a system for apportionment and adjustment of tax asset registers where required, these costs can be captured in a simple and traceable way.
A lean company structure and rapid prototyping means you might not be focussed on preparing contemporaneous documentation or recording changes to your hypothesis or experimental outcomes. Consider how you and your team can use existing tools to document your R&D activities to ensure you claim every eligible dollar you can.
As you move through Seed, Series A and Series B growth stages, investors will want confidence that you have a robust R&D Tax Incentive structure and claim process in place. Consider whether your record keeping practices meet the requirements and whether you and your team are up to date on the latest guidance. Do you need help with understanding the details of the program and are you confident your team understand the R&D criteria and level of documentation expected?
We can also assist you with understanding how and when investor tax incentives might help you raise more capital faster.