R&D Tax Incentive – What is a supporting activity?

What is a Supporting Activity

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What is a supporting activity?

A “supporting activity” refers to activities that are directly related to, but not part of, the core R&D activities. These activities facilitate and enable the main R&D work, helping it to take place more effectively.
 
 

What is the difference between a core activity?

A core activity is the central experimental work aimed at achieving a scientific or technological advancement. A supporting activity, on the other hand, is an activity that directly facilitates or enables this core experimental work but is not part of the experimentation itself.
The key difference is that core activities focus on resolving scientific or technological uncertainties while supporting activities assist in making that resolution possible.  
 
 

Why is there a distinction between the two?

This differentiation between both activities is crucial for compliance and maximising your claim. Both types of activities can be eligible for the R&D tax incentive, but they may be scrutinised differently and could have different documentation requirements.

Understanding the distinction ensures that you claim all eligible activities, helping to maximise your return on investment while maintaining compliance with regulatory requirements.

 

Criteria for a Supporting Activity

The identification of a supporting activity involves several considerations:

  • Direct Relevance – The activity must be directly related to a core R&D activity.
  • Facilitative Nature – It should aid or assist in the conduct of core R&D activities.
  • Exclusivity – The activity should not be an integral part of the experimental activities themselves, but rather serve as an enabler.

 

How Do I Determine if an Activity is Core or Supporting?

The line between core and supporting activities can sometimes blur, making accurate identification challenging but critical for compliance and maximising your claim. If an activity involves direct experimentation, hypothesis testing, and data analysis aimed at resolving uncertainties, it’s likely a core activity. On the other hand, if the activity aids these experimental processes without being experimental itself, it is generally supporting activity.
 
 

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Is it a Core or Supporting Activity?

Does the activity involve direct experimentation?
Yes: Likely a core activity
No: Proceed to next question

Is the activity aimed at resolving scientific or technological uncertainty?
Yes: Likely a core activity
No: Proceed to next question

Does the activity involve data analysis that directly contributes to resolving the uncertainty?
Yes: Likely a core activity
No: Proceed to next question

Is the activity necessary for the core activity to occur?
Yes: Likely a supporting activity
No: Likely neither a core nor a supporting activity

Does the activity directly aid or facilitate the experimental process?
Yes: Likely a supporting activity
No: Likely neither a core nor a supporting activity

If you find that the activity doesn’t fit neatly into these questions, consulting an expert may be beneficial. Understanding the distinction between core and supporting activities is crucial for accurately claiming the R&D tax incentive.

 

What Are Some Simple Examples of Supporting Activities

Here are some examples to give you a clearer picture:

  • Data Collection – Gathering data for the purpose of R&D experimentation.
  • Quality Control – Ensuring the conditions under which the R&D activities are conducted meet specific standards.
  • Pilot Studies – Preliminary studies conducted to decide the feasibility of the main R&D project.
  • Literature Reviews – Conducting research to understand the existing state of knowledge in the area of the R&D.
  • Software Development – Customising software to facilitate the main R&D activities.
  • Maintenance of R&D Equipment –Ensuring the equipment used for R&D is in optimal condition.

 

What Are Some Specific Examples of Supporting Activities

It’s important to recognise that supporting activities can differ significantly from one industry to another.

Here are the some supporting activities commonly encountered in some main industries

Technology and Software

  1. Code Review – Ensuring that code quality meets industry standards.
  2. Usability Testing – Collecting user feedback to improve the product.
  3. Data Analytics – Analysing user data to inform R&D directions.
  4. Infrastructure Scaling – Upgrading system infrastructure to support R&D.
  5. Documentation – Writing technical documentation to support development and training.

Pharmaceuticals and Biotechnology

  1. Literature Review – Researching existing studies related to drug development.
  2. Quality Control – Ensuring that laboratory conditions meet regulatory standards.
  3. Sample Preparation – Preparing biological samples for experimentation.
  4. Data Analysis – Processing and interpreting experiment results.
  5. Regulatory Compliance – Monitoring and documenting compliance with health and safety standards.

Manufacturing and Engineering

  1. Prototyping – Creating initial models for testing.
  2. Material Testing – Assessing the quality and suitability of materials.
  3. Equipment Calibration – Ensuring equipment accuracy for experiments.
  4. Supply Chain Management – Procuring materials needed for R&D.
  5. Quality Assurance – Checking product quality during the R&D phase.

Renewable Energy

  1. Site Surveys – Evaluating potential sites for energy production.
  2. Environmental Impact Studies – Assessing the environmental impact of energy technologies.
  3. Simulation – Computer modelling of energy systems.
  4. Grid Integration Studies – Researching how to integrate renewable sources into existing power grids.
  5. Policy Research – Understanding regulations affecting renewable energy technologies.

Food and Beverage

  1. Nutritional Analysis – Assessing the nutritional content of new food products.
  2. Taste Testing – Gathering consumer feedback on new recipes.
  3. Shelf-life Studies – Testing how long the product retains its quality.
  4. Packaging Research – Developing and testing new packaging solutions.
  5. Market Research – Identifying consumer needs and preferences for new food products.

 

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What Would NOT Be an Eligible Supporting Activity?

Understanding what doesn’t qualify as a supporting activity is just as important as knowing what does. Failure to identify non-eligible activities can lead to compliance issues and may jeopardise your R&D tax incentive claim. Here are some general guidelines on what would typically not be considered an eligible supporting activity:

  • Routine Operations – Activities like general administration, regular software updates, and daily operations are usually not directly related to R&D efforts.
  • Sales and Marketing – Activities focused on promoting or selling a product don’t usually support R&D in a way that’s eligible for the tax incentive.
  • Mass Production – Activities related to mass-producing goods for sale, as opposed to for R&D purposes, are generally not eligible.
  • Post-Production Customer Support – After the R&D phase has concluded, customer service and support typically don’t qualify as supporting activities.
  • Standard Data Backup and Recovery – While data management can be a supporting activity, routine data backup and recovery usually don’t directly contribute to R&D.
  • Compliance and Reporting – General compliance with industry standards or regulations, and the regular reporting related to these, typically don’t qualify.
  • Financial Management – Activities like budgeting, financial reporting, and procurement processes not directly related to R&D generally are not considered supporting activities.
  • Staff Training Unrelated to R&D – Staff training can be a supporting activity if it’s directly related to the R&D work, but general staff training does not qualify.
  • Business Strategy – Planning and strategy sessions that are not directly related to R&D are usually not considered eligible.
  • Regular Maintenance – General maintenance of equipment and facilities, not specifically related to R&D activities, is generally not eligible.

For tailored advice on differentiating between eligible and non-eligible supporting activities, consider booking a meeting or calling us.

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Remember, improper classification of activities can lead to difficulties when claiming the R&D tax incentive. Therefore, it’s crucial to align your perceptions of what constitutes a supporting activity with government definitions and eligibility criteria.

By clearly identifying what is and is not a supporting activity, you can maximise your R&D tax incentive claim while ensuring compliance with regulatory requirements.

 

Is Market Research an eligible supporting activity?

Market research is generally not considered a core R&D activity under the framework of the R&D tax incentive. This is because core activities are specifically focused on experimental efforts that resolve scientific or technological uncertainties. Market research, while valuable for understanding customer preferences or market trends, does not involve the kind of experimental testing required to meet the criteria for a core R&D activity.

However, market research can qualify as a supporting activity if it plays an essential, direct role in facilitating the core R&D activities. For instance, market research that informs the design or functionality of a product undergoing experimental development could be considered a supporting activity. In this context, the market research would need to have a direct impact on the experimental aspects of the core activity, such as shaping the hypothesis for testing or refining the variables involved in the experimentation.

To be clear, while market research can be an important part of the R&D process, it doesn’t fit the criteria for a core activity. Yet, it may still be eligible for inclusion in an R&D tax incentive claim as a supporting activity, provided it is directly linked to and facilitates the experimental work being carried out in the core activities. Proper documentation will be essential for demonstrating this linkage and ensuring compliance with the relevant regulations.

 

Is Customer Feedback an eligible supporting activity?

Customer feedback that is subjective in nature, such as opinions on taste or general likability, is generally not considered an eligible supporting activity under the R&D tax incentive framework. Core R&D activities focus on resolving specific scientific or technological uncertainties through direct experimentation. Supporting activities, in turn, must directly facilitate or contribute to these core experimental activities. Subjective customer feedback does not meet this criterion as it is not directly aimed at resolving a scientific or technological uncertainty.

For example, if you are developing a new food product and gather customer feedback on its taste, this feedback would not likely qualify as an eligible supporting activity for an R&D tax incentive claim. This is because the feedback is subjective and does not contribute to solving a specific scientific or technological problem.

In summary, while customer feedback can provide valuable insights for product development, only feedback that directly informs and facilitates core experimental work aimed at resolving scientific or technological uncertainties can be considered an eligible supporting activity. Therefore, it’s crucial to differentiate between subjective customer feedback and the type of feedback that can materially contribute to the resolution of technological or scientific uncertainties when preparing your R&D tax incentive claim.

To make customer feedback eligible as a supporting activity for R&D tax incentives, it must:

  • Directly Link to Core Activities – Feedback should be directly tied to resolving specific scientific or technological uncertainties.
  • Be Data-Driven: Feedback must be quantifiable and contribute to the experimental process.
  • Objective Metrics: Use objective, not subjective, criteria to evaluate feedback.
  • Documentation: Maintain clear records linking feedback to core R&D tasks.

In essence, the feedback must be necessary, objective, and directly inform your core experimental activities to qualify as an eligible supporting activity.

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How many supporting activities should you include per core activity?

Ah, the golden question: How many supporting activities should you include per core activity? Well, the answer isn’t as straightforward as “one per core” or “as many as you like.” It really depends on the specifics of your project. Some core activities might require multiple supporting tasks to get the full picture, while others could be self-sufficient with just one or two.

Now, I could write all your “homework” for you, spelling it out step by step, but where’s the fun in that? Plus, every project is a unique beast. It’s like asking, “How many sprinkles go on a cupcake?” Sure, there’s a point where you can go overboard and drown that poor cupcake, but only you, the cupcake artist, truly know the right balance. Similarly, the number of supporting activities should perfectly complement your core activities without overshadowing them.

So, if you’re scratching your head, wondering whether you’ve got too few or perhaps too many supporting acts for your main show, it’s time to consult an expert. Why risk getting caught out when you could just get it right the first time? Book a meeting, and let’s make sure your core and supporting activities are in perfect harmony.

 

What are the red flags to avoid?

So, you’ve included some ‘supporting activities’ in your R&D tax incentive claim? While you’re doing a victory dance, keep an eye out for these red flags that could make AusIndustry want to get to know you better:

  • Vague Descriptions: Lack of clarity or specific details about how the supporting activities relate to core R&D tasks can raise questions.
  • Unrelated Expenditure: Including costs that don’t directly contribute to the core R&D activities might prompt a review.
  • High Costs with Low Impact: A disproportionate budget allocation to supporting activities that don’t significantly impact your core R&D work could be a concern.
  • Lack of Technical Substance: Supporting activities should provide technical contributions to your R&D; failing to do so is a red flag.
  • Frequent Amendments: Constant changes to what you’re listing as supporting activities may draw attention and raise questions about their validity.

 

 

What Happens if I Misclassify an Activity?

Misclassifying an activity can have significant repercussions for your business. Incorrectly identifying a supporting activity as a core activity, or vice versa, can jeopardise the validity of your entire R&D claim, potentially leading to disqualification from the incentive program or reduction in the amount of claimable expenses. Furthermore, a misclassification can trigger an audit by the relevant governing body, which would require you to produce extensive documentation and evidence to validate your claim. This process can be time-consuming, stressful, and potentially expensive, especially if you need to engage professional help to navigate the audit.

Failing an audit or being found non-compliant could also result in financial penalties or the requirement to pay back any incentives already received, with the added risk of accumulating interest on these amounts. Beyond the immediate financial implications, your business could face reputational damage, which could be detrimental in the long run. Trust is a significant asset, and a compliance failure could cast a shadow over your business operations, affecting your relationships with stakeholders, investors, and even customers.

Given the high stakes, it’s crucial to exercise due diligence when classifying activities as either core or supporting. Consulting experts in the field or seeking third-party verification can be a wise investment, helping to ensure that your R&D tax incentive claim is both maximised and compliant with the relevant regulations. Adequate and accurate documentation should be maintained throughout the R&D process to substantiate your claims, thus safeguarding against the risks associated with misclassification.

 

 

The Expertise You Need for Navigating Supporting Activities

Identifying what truly constitutes a ‘supporting activity’ in the complex landscape of the R&D tax incentive is often easier said than done. Misclassifying your activities can not only lead to reduced or denied claims but can also put you at risk for audits and reviews by both ATO and AusIndustry.

This is where Bulletpoint’s decade of experience and proven track record come into play. With over 500 successful R&D lodgements under our belt, we have not only guided our clients through the labyrinthine tax incentive process but also successfully defended them from both ATO and AusIndustry reviews and audits. Don’t just take our word for it; check out our 4.8-star average rating from over 250 Google reviews.

If you’re navigating the complexities of R&D tax incentives, you don’t have to go it alone. Whether you’re unsure about which activities are truly ‘supporting,’ or you want to ensure your claim stands up to the highest level of scrutiny, now is the time to act.

At Bulletpoint, we’re not just here to help; we’re here to make sure you get the R&D tax incentives you rightly deserve. Don’t wait; reach out today. 

FAQ

A supporting activity is a task that directly contributes to the experimental work being carried out in the core R&D activities.

Market research can be a supporting activity if it directly informs and facilitates core R&D tasks.

Yes, but only if it’s objective and directly contributes to solving a specific technological or scientific uncertainty.

The number varies based on the project. It’s essential that each supporting activity directly contributes to a core activity.

Misclassifying an activity could result in your R&D tax claim being reduced or denied.

Staff training may qualify if it is necessary for carrying out the core R&D activities.

Generally no, unless they’re directly tied to the experimental aspects of the core R&D activities.

Absolutely, tasks like data collection and testing could be supporting activities in a software development project.

It must be directly linked to the core activity, be data-driven, and contribute to resolving scientific or technological uncertainties.

Navigating the complexities of the R&D tax incentive can be daunting. Bulletpoint can guide you through the process with unmatched expertise. Contact Us or call 1300 658 508.

By focusing on these commonly asked questions and keeping the answers brief and to the point, this FAQ aims to serve as a useful resource for those navigating the intricacies of supporting activities in the context of the R&D tax incentive.

Myths and Misconceptions

One common misconception is that all administrative tasks automatically qualify as supporting activities. While some admin work might indeed be essential for core R&D tasks, not all will fit the bill for R&D tax incentives.

Another myth is that market research is always a supporting activity. The truth is, market research can only be considered a supporting activity if it directly contributes to resolving a scientific or technological uncertainty in the core activities.

People often think that gathering any form of customer feedback is a supporting activity. However, only feedback that is objective and directly informs core R&D activities can be considered eligible.

Some believe that adding a plethora of supporting activities strengthens their R&D tax claim. However, only activities that genuinely support the core experimental tasks should be included; excessive or irrelevant ones can dilute the claim.

Another misconception is that supporting activities don’t require thorough documentation. The reality is that, like core activities, they need well-organised records to prove their relevance and direct contribution to the core R&D activities.

By debunking these myths, businesses can better understand what qualifies as a supporting activity and navigate the R&D tax incentive landscape more effectively.

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