Does your company have an innovative idea that could improve the Australian economy? You might be looking to apply for the R&D tax incentive. While this money could inarguably help your research and development efforts, you need to understand how the tax incentive works – specifically, how it should be spent.

That’s because system still has its flaws. The eligibility criteria are very particular, but only some applications are actually properly audited so ineligible companies can still receive the incentive. Recently, however, and because these criteria are so specific, some companies that have been found misusing the money on software development activities – whether they were aware of it or not. As a result, the Australian Taxation Office (ATO) is cracking down.

This means, before you apply you need to ensure you’d be using those funds the correct way. Otherwise, you risk investigation which could damage your business.

10 Things to Know About The R&D Tax Incentive

Your software development might not be eligible for the R&D Tax Incentive.


Understand eligibility criteria to avoid the big mistakes

In order to be eligible to apply for the R&D tax incentive, you need to understand the three main criteria:

  1. Eligibility requires you to have at least one experiment that you do not know the outcome of,
  2. This experiment cannot be based on current knowledge, information and experience,
  3. The experiments must be based on principles of established science seeking to resolve hypotheses on technical issues or risks.


But when the ATO says these experiments cannot be based on your previous experiences, they mean it. And how often does developing software really, truly meet that criteria?

Because developers are constantly building on top of existing software, they aren’t necessarily creating something new. After all, version 2.0 isn’t a completely different program, it’s just a couple of enhancements from the original.


You are not eligible if…

If your business is doing the following, you are not eligible for the incentive:

  • Developing new software,
  • Modifying off-the-shelf software,
  • Customising existing software,
  • Or upgrading existing software.


So, if you’re considering claiming software development projects in your application, you need to be able to demonstrate the following:

  • How the experimental activity was carried out.
  • That the activity was for the purpose of generating new knowledge.
  • How the activity applied systematic progression of work.
  • That the outcomes were completely independent of current knowledge, information or experience.

Do you still have questions? Come talk to the team here at Techwitty.


Punishing those who misuse the R&D tax incentive

Whether you have good or bad intentions, getting an application approved is relatively easy. That means you can technically claim an activity that wouldn’t be deemed eligible but get the money anyway and continue to invest in that research and development. Regardless if you were aware or not, your business will be in trouble if you are caught.

The ATO is prioritising chasing those who are misusing the incentive. A company that doesn’t understand or comply with this eligibility criteria could come under fire of the ATO, halting any business progression.

Punishments of misusing the tax incentive can be severe and even result in prison time. The tax office has recently confirmed that a tax agent who was found guilty of two fraudulent R&D claims was sentenced with 29 months in prison and will serve at least 18.

This information shouldn’t deter you from applying for the tax incentive if you truly qualify. The Techwitty team is specialised in preparing and lodging R&D Tax Incentive applications with AusIndustry and know what the ATO is looking for. We can help navigate your business through this process, and show you what activities are actually eligible to claim. Reach out to our team to get your application started today.

R&D Tax Incentive

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