Unsure how to navigate your R&D
tax incentive claims for future core activities?
Did you know that you do not need to undertake a core activity during the claimed year in order to be eligible for the R&D Tax Incentive! You only need to plan to undertake one!
Introducing the Future Core Activity
Yes, you read that right! If your company intends to conduct core R&D activities in the future, this can be taken into account during your registration process for the R&D Tax Incentive and make the current R&D eligible.
The legislation confirms this with the phrase:
To register eligible R&D activities, you need to conduct or plan to conduct at least one core R&D activity.
So what is a core activity?
Before delving in the the future, it’s essential to define what constitutes a core R&D activity.
A core R&D activity is an experimental activity:
- Outcome – Whose outcome cannot be known or determined in advance on the basis of current knowledge, information, or experience.
- New Knowledge – That is conducted for the purpose of generating new knowledge (this could include new knowledge in the form of new or improved materials, products, devices, processes, or services).
No core activity this year?
It’s a common misconception that you must have a current core R&D activity to be eligible for R&D tax incentives. AusIndustry’s guidelines offer flexibility, allowing for the inclusion of future-planned core activities. There’s no strict requirement for the core R&D activity to be conducted within the current financial year. Planning for a core R&D activity in a future year is acceptable.
What helps with claiming a future core activity?
Understanding the role of future core R&D activities is crucial for maximising your R&D tax incentive claim. While AusIndustry values activities conducted in the current financial year, they also give importance to your future plans.
To enhance your current claim:
- Document Future Core Activities – Clearly outline your plans for future core R&D activities, showing their potential for scientific or technological breakthroughs.
- Current Supporting Activities are Vital – Continuously engage in and document current supporting R&D activities, as they lay the groundwork for your future core projects.
This strategic approach ensures you’re fully prepared to capitalise on future R&D opportunities while optimising the benefits from current activities.
Claiming the Wrong Things?
Mistakes can be a one-way ticket to an audit.
Worked Example: Black Box Flight Recorder
Setting the Scene
Imagine a company, AeroTech Innovations, dedicated to advancing aviation safety technology. They are at the brink of developing a new black box flight recorder that promises enhanced data retrieval capabilities and superior durability under extreme conditions.
However, they haven’t yet commenced their core R&D activities; they are in the crucial planning and feasibility stage.
Pre-Core Activity Phase
At this juncture, AeroTech is deeply engaged in preparatory activities. They conduct extensive market research to understand the specific needs within the aviation industry and the technological shortcomings of existing black box recorders.
This research is essential to ensure that their future product will meet the industry’s demands and represent a significant technological advancement.
Parallel to the market research, AeroTech is also involved in preliminary technological studies. They are exploring various materials and data storage technologies that could potentially make their black box recorder more resilient and reliable in extreme conditions, like high-impact crashes or deep-sea submersions.
This phase involves consultations with material scientists and data storage experts, along with a series of theoretical models and simulations to predict the performance of various materials and technologies under extreme conditions.
Strategic Documentation for Future Core Activity
Throughout this pre-core activity phase, AeroTech meticulously documents every research finding, expert consultation, and theoretical model. They understand that while these activities are not the core R&D activities per se, they are integral to laying the groundwork for the future core project.
This documentation will not only guide their subsequent R&D efforts but also serves as crucial evidence for R&D tax incentive claims, demonstrating their commitment to developing a future core R&D activity that holds the potential for significant scientific and technological advancements.
Need clarity on documenting
your future core R&D activities?
Message Bulletpoint for tailored guidance.
Want Tailored Advice?
Navigating the complexities of R&D tax incentives, especially around future core activities, can be daunting. That’s where Bulletpoint, with our wealth of experience and proven track record, becomes your ideal partner in this journey.
- A Decade of Expertise – With over 10 years of experience in the field, Bulletpoint stands as a beacon of knowledge and proficiency in R&D tax incentives.
- Over 500 Successful Lodgements – Our history includes more than 500 successful R&D tax incentive lodgements, highlighting our capability and consistency.
- Unparalleled Success in Reviews and Audits – We have successfully defended claims during both ATO and AusIndustry reviews and audits, showcasing our thorough understanding and compliance expertise.
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We understand the intricacies and challenges that businesses face when dealing with R&D tax incentives and future core activities. At Bulletpoint, we pride ourselves on our ability to cut through the jargon and provide clear, expert guidance.
Take the Next Step: Whether you’re looking to maximise your R&D tax incentive claims, need assistance with documentation, or want expert advice on navigating the R&D landscape, we’re here to help.
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At Bulletpoint, we’re committed to guiding you through the R&D tax incentive process with professionalism, ensuring your experience with us is not just successful, but also insightful.
Things you need to do to be eligible
In order to claim a future core activity, follow these steps:
- Thorough Documentation – Ensure detailed records of your plans for future core activities, including project objectives, methodologies, and expected outcomes.
- Alignment with R&D Definitions – Your future core activities must align with the legislative definition of R&D – involving innovation, scientific research, and technological advancement.
- Clear Timeline – Outline a clear timeline for your future core activities, demonstrating a realistic and structured approach to their execution.
- Technological Uncertainty – Establish and document the technological uncertainties your future core activities aim to resolve, which is a key criterion for eligibility.
- Continuity and Connection – Show a clear connection between your current activities (if any) and your future core projects, emphasising continuity in R&D efforts.
- Compliance with Regulations – Ensure that your planned future core activities comply with all relevant Australian laws and regulations, including environmental and safety standards.
- Budget and Resource Planning – Provide a detailed budget and resource plan for your future core activities, demonstrating sound financial planning and resource allocation.
- Expertise and Capability – Outline the expertise and capabilities, including human resources and technology, that will be utilised to carry out these future core activities.
- Innovation and Advancement – Emphasise how the future core activities will lead to innovation or significant advancement in your field, which is a cornerstone of R&D eligibility.
- Record of Experimental Activities – Keep a record of experimental activities and trials that will be part of the future core activities, including hypotheses, testing methods, and analysis of results.
When submitting R&D tax incentive claims, especially for future core activities, it’s crucial to be aware of certain red flags that might draw AusIndustry’s attention for a review or audit. Being cognisant of these can help you prepare a more robust and compliant claim.
- Vague or Generic Project Descriptions – AusIndustry looks for specific and detailed descriptions of R&D activities. Vague or overly broad project outlines can raise questions about the legitimacy and precision of your R&D claims.
- Lack of Technological Uncertainty – A key aspect of qualifying R&D activities is the presence of technological uncertainty. Claims that don’t clearly articulate these uncertainties or how the activities seek to resolve them can be a red flag.
- Disproportionate Expenditure – Excessive costs claimed in relation to the size of your business or the scope of the project can trigger scrutiny. Ensure your claimed expenses are reasonable and proportionate to the R&D activities.
- Inconsistencies in Documentation – Any inconsistencies between your R&D registration, technical descriptions, and financial records can raise doubts. Consistency and accuracy in all documentation are imperative.
- Claims for Non-R&D Activities – AusIndustry is vigilant about claims that include activities not qualifying as R&D under the legal definition. Including such activities can be a significant red flag.
- Lack of Continuity in R&D Efforts – If your business has a pattern of claiming for isolated R&D activities with little continuity or progression from year to year, it may signal a lack of genuine ongoing R&D effort.
- Over-claiming Staff Costs – Claiming a high proportion of staff costs, especially if they are not directly related to R&D activities, can be a cause for concern. Ensure staff costs are directly and clearly linked to your R&D activities.
- Inadequate Record Keeping – Failing to keep detailed and contemporaneous records of your R&D activities, including experimental designs, results, and conclusions, can result in increased scrutiny.
To avoid these red flags and ensure a smooth assessment process, it’s advisable to seek expert guidance.
At Bulletpoint, we specialise in assisting businesses with their R&D tax incentive claims, ensuring every aspect of your claim is compliant and well-prepared for any potential review or audit by AusIndustry.
What does the ATO look for?
When the ATO examines claims related to future core activities in the context of the R&D tax incentive, their focus is primarily on the costs associated with these activities.
It’s important to note that the ATO does not assess the eligibility of the actual R&D activities; this is the role of AusIndustry.
Instead, the ATO’s examination is concerned with ensuring that the costs claimed are in compliance with the tax incentive’s requirements.
Here’s what they typically scrutinise:
- Eligible Expenditures – The ATO reviews whether the expenses claimed as part of the R&D tax incentive are indeed eligible. This includes checking if the costs are directly related to the R&D activities and if they meet the specific criteria set out for allowable expenses.
- Proper Allocation of Costs – The ATO assesses how costs are allocated between eligible R&D activities and non-R&D activities. This is particularly important for future core activities where the distinction might not be as clear-cut.
- Documentation and Records – The ATO will look at the documentation supporting the expenditure claims. This includes financial records, invoices, contracts, and any other relevant financial documentation that justifies the R&D expenditure.
- Consistency and Accuracy – Consistency in the financial reporting and accuracy of the information provided in the claim is vital. The ATO checks for discrepancies between the reported R&D activities and the financial costs associated with them.
- Compliance with Tax Laws – The ATO also ensures that all aspects of the R&D tax incentive claim are in compliance with the broader tax laws and regulations. This includes adherence to any specific provisions or rules related to R&D expenses.
It’s crucial for businesses claiming the R&D tax incentive for future core activities to maintain robust and accurate financial records.
This not only facilitates a smoother examination process by the ATO but also helps in substantiating the legitimacy of the claimed expenses.
Future core activities refer to planned R&D projects that a business intends to undertake in upcoming financial years, which can be considered for current tax incentive claims.
Yes, you can claim for well-documented, future-planned R&D activities, as long as they meet the eligibility criteria set by AusIndustry.
No, it’s not mandatory to conduct a core R&D activity every year. Planning for future core activities can also qualify for claims.
Documentation is crucial. Detailed plans showcasing the potential scientific or technological advancements are essential for successful claims.
Absolutely, current supporting activities that are integral to future core R&D projects can be eligible for tax incentives.
A future core R&D activity is one that involves experimental activities planned for future years, aimed at acquiring new knowledge in science or technology.
AusIndustry recognises the importance of strategic R&D planning and allows for future core activities to be considered in tax incentive claims.
Yes, businesses can claim for both current supporting activities and well-documented, planned future core activities.
If in doubt, it’s advisable to consult R&D tax experts like Bulletpoint for guidance on eligibility and claim preparation.
Myths and Misconceptions
A common myth is that to qualify for the R&D tax incentive, future core activities must start in the current financial year. In reality, planned future activities, with proper documentation, can also qualify.
Many believe that only technology companies can claim R&D tax incentives for future core activities. However, businesses from various sectors undertaking eligible R&D activities can qualify.
There’s a misconception that larger companies have an easier time claiming for future core activities. In fact, businesses of all sizes can claim, provided they meet the eligibility criteria.
Some assume that a basic outline of future R&D plans is sufficient for claiming tax incentives. Thorough and detailed documentation is crucial for successful claims.
It’s often misunderstood that future core R&D activities have no impact on current tax incentive claims. Future plans, when well-documented, can significantly influence current claims.