The R&D tax incentive isn’t one to get wrong. We don’t mean this in a scaremongering way: while there are penalties for incorrect applications, the benefits of the incentive scheme are massive. By getting your paperwork in line and correctly applying for the incentive, you can be reimbursed ten of thousands of dollars. For many small businesses, that’s the kind of sum that can make or break their business.

Yet year after year, operators still make the same R&D tax incentive mistakes. Here are seven ways yours could go wrong, and how to avoid them.



1) Incorrect claims of R&D

The Australian Taxation Office (ATO) is concerned that many wine industry operators have been claiming the incentive because they paid the Wine Grapes Levy. This is a fee paid to Wine Australia for its ongoing research and development, but the body is not an official Research Service Provider (RSP) or Cooperative Research Centre.

Businesses should always check that the activity they wish to claim for is officially recognised as R&D, or they may miss out. If you have disputes, these can be brought to the ATO.

10 Things to Know About The R&D Tax Incentive


2) Activity takes the wrong kind of risk

R&D activity must pose a risk to the technical elements of your production, rather than to commercial performance. This is of particular concern to the ATO in the agricultural sector but can apply to any business. Ensure your R&D activity is focused on changing process and procedures rather than just making money.


R&D Tax Incentive
What kind of mistakes are businesses making around their R&D?


3) Issues are resolved with existing knowledge

This primarily occurs in the building and construction sectors, and is when a company is claiming for R&D work around technical uncertainties. However, the ineligibility arises in how the uncertainty is resolved, as often it is done through the application of existing knowledge.

Essentially – if you solve a new problem with existing fixes, you may not be able to claim the incentive.


4) Inexperienced or incorrect consulting

There are many R&D consultants in operation – and while the consultants advise the clients, the ultimate liability rests with the company. Many consultants will tell businesses that their operations are unique, and that this forms the basis of a sound R&D tax incentive application.

However, the ATO has warned that poor consulting has lead to concerning applications. Always ensure the people you work with are giving you clear, accurate advice.


5) Treating a feasibility study as R&D

This is a prominent issue for the mining industry, according to the ATO. In its own words, “activities relating to modelling of mines are not R&D unless it is associated with a physical experiment”.

Essentially, the ATO is noting that feasibility studies to not definitively confirm that R&D will happen – companies must go further in their activities to be successful in an application. Note that mining exploration is also prohibited from being core R&D.

Has your business ironed out any kinks in its R&D tax incentive application?


6) Claiming for ineligible tools

In software development and data-based industries, the ATO has expressed concern around the tools used to conduct R&D activity. Specifically, that operators have claimed for expenditure that was used to secure tools that do not qualify for a notional deduction.

To circumvent this, ensure the expenses you are claiming for are exclusively qualified – even if they were just part of creating the R&D activity.


7) No scientific method

A general problem the ATO has identified is the lack of a scientific process to illustrate that R&D has occurred. Businesses have conducted activity that they deem to be R&D, but without the proving (or disproving) of a hypothesis through a rigorous testing process.

Business need to document and track every step of their activity to show their work really is R&D.

This seems like a lot – and it is! In fact, it is just the beginning of things that can go wrong with your application. But given the windfall on offer from the Australian government, every business interested in R&D should apply. If you want to apply and do it right, get in touch with the team at Techwitty.


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R&D Tax Incentive