Business records must generally be available for at least 5 years, sufficient to enable a company to substantiate:
- the amount of expenditure incurred on eligible R&D activities
- the nature of the core and supporting R&D activities
- the required linkages between the registered R&D activities and their corresponding expenditure.
Methodologies that may have been acceptable in allocating eligible costs to R&D activities under the old R&D Tax Concession will not necessarily satisfy the ATO of the appropriateness of that method under the Tax Incentive. The Tax Incentive now requires the identification of eligible costs to be allocated to core R&D activities and supporting R&D activities.
In determining how to apportion each expenditure type, a company should be satisfied it can explain that the chosen apportionment method accurately represents the nexus between the expenditure that has been incurred on eligible R&D activities and the R&D activities as registered with AusIndustry. This includes record keeping by third party providers of R&D services, i.e. clearly identify linkages between the nature of the work completed, when it was completed and the amount of expenditure related to that work. KPMG’s R&D incentives practice has developed a methodology to capture such information and can provide assistance in compliance.