• Service: Tax, R&D Incentives
  • Type: Regulatory update
  • Date: 28/06/2013

Tax Insights

KPMG's analysis of tax issues and developments.

Mark Prentice

Mark Prentice
Partner, Tax

+61 3 9288 5508

Substantiating R&D claims 

by Mark Prentice, R&D Tax Specialist

The recent decision of the AAT in Ozone Manufacturing Pty Ltd v Commissioner of Taxation [2013] AATA 420 (“Ozone”) highlights the importance of record-keeping that establishes the link between the R&D activities and tax return claims.

In Ozone, the taxpayer sought review of the Commissioner’s decision to disallow the R&D Tax Offset it had claimed under the R&D Tax Concessions for the 2001/02 year in respect of its project to develop beverage purifier devices.


The AAT affirmed the Commissioner’s decision, finding the taxpayer had not substantiated the nexus between the R&D activities and the expenditure. The AAT held that the taxpayer had not:

  • adopted contemporaneous record-keeping practices to capture time spent by its employees on R&D activities;
  • distinguished R&D related purchases from other business purchases; and
  • produced documents which could be understood by an independent expert.


This decision is the latest in a series of AAT decisions against relating to their R&D claims including RACV Sales and Marketing Pty Ltd v Innovation Australia [2012] AATA 386, NaughtsnCrosses Pty Ltd v Innovation Australia [2012] AAT 743 and Hadrian Fraval Nominees Pty Ltd v Commissioner of Taxation [2013] AATA 127. The cases provide guidance on the nature and extent of record-keeping expected. The onus is on taxpayers to demonstrate that claimed activities are experimental in nature and different to ‘business as usual’.


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