R&D Tax Incentive – Director Fees
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R&D Tax Incentive – Can You Claim Directors’ Fees?
One question that often pops up when clients are working through their R&D tax incentive claims is: Can we claim directors’ fees? The short answer is not as straightforward as a simple yes or no.
While many businesses try to include directors’ fees,
the ATO is clear that directors’ fees are generally ineligible as R&D expenditure.
However, there are circumstances where you may be able to claim, depending on the activities being performed. Let’s break it down.
What are Director Fees?
Director fees refer to the remuneration paid to company directors for their services. These can be a fixed sum, based on meeting attendance, or tied to company performance. For R&D purposes, it’s essential to identify when these fees relate directly to R&D activities.
ATO Guidance on Directors’ Fees
According to the ATO’s guidance on R&D expenditure:
“Ineligible expenses are those without a sufficient link to the R&D activities… These ineligible expenses could include: directors’ fees.”
This means directors’ fees are typically excluded from R&D claims because they are often linked to general company administration rather than direct R&D activities. But—and it’s a big but—there may be some exceptions if the director is directly involved in conducting core R&D activities.
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When Can Directors’ Fees Be Claimed?
The R&D tax incentive, under Division 355 of the Income Tax Assessment Act 1997 (ITAA 1997), allows for some administrative expenses, overheads, and labour costs that are directly connected to R&D activities. This includes costs incurred on eligible R&D activities. Directors’ fees, however, fall under a more restricted category.
Here’s where the nuance comes in:
- If a director is actively conducting or overseeing core R&D activities—such as designing experiments, managing technical testing, or leading innovation efforts—there might be a case for claiming a portion of their fees.
- The fees must be linked directly to R&D activities, not general management, administrative duties, or operational oversight.
The ATO expects businesses to provide clear evidence of the director’s involvement in R&D activities, including detailed documentation like timesheets, project records, or notes to back up any claim.
Are There Workarounds?
There are a few potential ways businesses can ensure they are maximising their R&D tax claims while staying compliant:
- Allocate directors’ fees separately for their R&D work—keeping these distinct from their general management fees.
- Document R&D-specific tasks and time spent on R&D activities, ensuring there’s a solid audit trail.
- Consider employing directors in dual roles, such as including them in a research or technical position alongside their directorial duties, allowing a clearer link between their fees and R&D activities.
But tread carefully—these workarounds are complex and require robust documentation.
Why It’s Important to Get Expert Help
Claiming directors’ fees under the R&D tax incentive can be tricky business. With the ATO clearly flagging these expenses as ineligible in many cases, it’s essential to proceed with caution. The last thing you want is to make an incorrect claim and face an audit.
At Bulletpoint, we’ve seen many claims hit roadblocks over directors’ fees—often leading to audits and rejected claims. With over 10 years of experience, we’ve helped businesses avoid these pitfalls and maximise their R&D tax incentive claims. Our proven track record includes 250+ Google reviews (4.8 stars on average), showing we know how to cut through the jargon and get straight to the point.
Before you dive into claiming directors’ fees, let our team of experts guide you through the process. We’ll ensure your claim is watertight, compliant, and stress-free.
Disclaimer
If you’re feeling confident about including directors’ fees in your R&D claim, that’s great—but let’s be honest, it’s a bit like playing with fire. One wrong move and you could be staring down the barrel of an ATO audit. Get it right the first time by booking a consultation with us for just $295. After all, we’re Australia’s highest-rated R&D tax consultants for a reason!
Book a consultation today and get expert help that cuts straight to the point.
Documentation Required to Claim Directors’ Fees (Are You Sure You Want to Fight the ATO? Alright, Let’s Go for It!)
So, you’re feeling bold and ready to take on the challenge of claiming directors’ fees in your R&D tax incentive claim? Well, buckle up—it’s going to be a ride. The ATO isn’t exactly a pushover, but if you’ve got your documentation in order, we can give it a shot.
Here’s what you’ll need to keep the ATO off your back:
- Detailed Timesheets – Not just any timesheets, but ones that specifically show how much time the director spent on actual R&D activities. If it looks like they were just sipping coffee and signing off on reports, you’re going to have a problem. Make sure the time logs clearly document tasks tied to R&D, like designing experiments, testing, or solving technical challenges.
- Project Notes and Records – The more detailed, the better. Think of this as your ATO defence dossier. Project records should highlight the director’s direct involvement in the research and development process. The ATO will want to see exactly what the director was doing that justifies the claim.
- A Separate Role Breakdown – Directors wear many hats, but for the purposes of the R&D claim, you’ll need to focus on the R&D hat. Create a clear separation between their general duties and R&D activities. If they’re juggling CEO tasks and R&D, make sure their R&D responsibilities are well-documented.
- Clear Connection to Core R&D Activities – Here’s the kicker: the ATO is only interested in activities that meet the definition of core R&D. That means technical problem-solving, experimentation, and hypothesis testing. Filing paperwork or running board meetings doesn’t count.
- Invoices or Payment Records – You’ll need to show that the director was actually compensated for the time they spent on R&D work. If their fees don’t line up with the hours dedicated to R&D activities, expect some tough questions from the ATO.
Now, if all of this sounds like a lot of work (and trust us, it is), that’s because it is. The ATO isn’t going to let you slide on a vague claim for directors’ fees, so you need to back it up with rock-solid evidence. Ready for the challenge? If you’ve got your documentation lined up like a battalion, then go for it.
Just know that one wrong move, and it’s the ATO audit squad knocking on your door.
Or better yet, how about you let us handle the paperwork? Book a consultation, and we’ll make sure your claim is airtight—and we’ll even throw in a little peace of mind.
FAQ
Generally, directors’ fees are not eligible unless they are directly linked to core R&D activities. The ATO considers directors’ fees as ineligible if they pertain to general management or administrative duties.
You’ll need detailed documentation, such as timesheets, project notes, and records showing that the director was actively involved in R&D activities, not just overseeing the project.
If you incorrectly claim directors’ fees, your business could be subject to an ATO audit, and your claim may be rejected. This could result in penalties and repayment of the tax offset.
Yes, in some cases, you can allocate directors’ fees specifically to R&D-related work. Documentation and careful separation of general management and R&D tasks are essential.
Yes, some administrative costs like rent, electricity, or insurance linked directly to R&D activities can be claimed. However, they must have a clear connection to R&D efforts.
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Do you want to know more?
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Bulletpoint is a Melbourne-based consultancy specialising in guiding businesses through the complex process of the R&D tax incentive. With a decade of experience under our belt, we’re proud to be led by Australia’s highest-rated R&D tax consultant. We’ve successfully lodged over 500 R&D claims, demonstrating a proven track record.
Our approach is straightforward and personable, focusing on cutting through the jargon to help businesses truly understand the definition of R&D in government terms. We’re passionate about what we do, and our clients appreciate this, often commenting on the difference our expertise has made to their businesses. They’ve praised us for uncovering grants they wouldn’t have otherwise known about and for making the whole process less stressful for them.
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At Bulletpoint, we excel in helping businesses navigate the complexities of the R&D tax incentive process, ensuring they reap the benefits they deserve. As experts in our field, we’re well-versed in what works and what doesn’t when it comes to aligning businesses’ perceptions of R&D with the government’s eligibility criteria.
So, if you’re looking for accessible expertise and a proven success rate, you’ll find it with us at Bulletpoint. We’re ready to guide you through the R&D tax incentive process with a blend of professionalism and personality, ensuring your experience with us is not just successful, but enjoyable as well.