AusIndustry updates two key R&D Tax Incentive guidance documents

14 August 2024

In May 2024, AusIndustry released updated R&D Tax Incentive guidance materials - ‘R&D Tax Incentive Guide to Interpretation’ and ‘Software-related activities and the R&D Tax Incentive’. These documents are intended to help companies self-assess whether their activities satisfy the definition of core or supporting R&D activities, and to help claimants understand their obligations when claiming benefits under the R&D Tax Incentive. In this piece, we summarise the key changes in these guidance products.

Although there has been no legislative change to the R&D Tax Incentive program, both updated guides aim to reflect recent decisions from the Federal Court and the Administrative Appeals Tribunal. AusIndustry considers the updates to both guides to be relatively minor with the aim being to improve the clarity and usefulness of each guide. Both documents emphasise the importance of substantiating all aspects of R&D eligibility with documentary evidence.

Key updates to ‘R&D Tax Incentive Guide to Interpretation’ 

The main changes made to this guide include the following:

• Enhanced details on record-keeping expectations are provided in dedicated sections and within the descriptions of the R&D activity eligibility criteria. AusIndustry emphasises that it expects contemporaneous records of:
  • conducting a worldwide search prior to commencing core R&D activities, and
  • developing a hypothesis before proceeding to experiments. 
• Further detail is provided in the ‘Outcome cannot be known or determined in advance’ section on AusIndustry’s expectations, along with definitions and clarity on what constitutes ‘current knowledge’.
• Minor changes have been made to pre-existing sections, along with the addition of new sections and subsections:
  • Continuing AusIndustry’s emphasis on documentary records, additional detail is provided in ‘Do I have evidence to support my claim?’
  • The ‘Projects and R&D Activities’ section is intended to help claimants distinguish between a project and an activity.
  • A section has been added to help claimants understand when the dominant purpose test needs to be applied, and how to assess the dominant purpose of an activity.
  • Other new sections are, ‘Q3: Are my activities covered by a determination?’, which is of particular relevance to biotech and life sciences companies, and a short section on the meaning of ‘Principles of Established Science’.

We recommend that all R&D Tax Incentive applicants review this updated guide. It is intended to help financial and technical personnel understand AusIndustry’s expectations early, and enable the creation of processes to comply and be prepared in the event of an AusIndustry review.

Key updates to ‘Software-related activities and the R&D Tax Incentive’

The main changes made to this guide include the following:

• A detailed explanation and example are provided to help claimants understand the meaning of the dominant purpose test and its application, including an example illustrating the operation of the dominant purpose test where a software R&D activity is directly related to producing a good or a service.
  
• More detailed guidance is provided to help R&D Tax Incentive applicants assess whether their software development activities are captured by the ‘internal business administration’ exclusion, including guidance on assessing the dominant purpose of the software.
• Again, the document updates guidance on record-keeping requirements, with a few software-specific examples.
• The ‘Far Side’ hypothetical case study has been removed from the PDF version of the guide, but is still available on the business.gov.au website, alongside three ‘customer stories’ and the software R&D taxpayer alerts.

We encourage all software R&D claimants to review the ‘Software-related activities’ guide.

Please contact us if you have any questions or wish to discuss whether your activities are eligible under the R&D Tax Incentive Program.