• Service: Tax, R&D Incentives
  • Type: Regulatory update
  • Date: 11/10/2013

Tax Insights

KPMG's analysis of tax issues and developments.

Jonathan Turner

Jonathan Turner
Executive Director, Tax

+61 7 3225 6888

Substantiation remains key for R&D tax claims 

by Jonathan Turner, R&D Incentive Specialist

The recent AAT decision in DBTL and Innovation Australia [2013] AATA 573 (DBTL) represents a shift in the AAT’s approach to mining claims and has implications for all companies which conduct R&D activities in a production environment. Consistent with other recent AAT decisions, the generation, collection and retention of strong documentary records to evidence R&D activities and associated expenditure is critical to sustaining a R&D claim. Further, R&D activities should be distinguishable to those done for only production (or non-R&D) purposes. Contemporaneous documentation demonstrating the ‘experimental’ nature of the R&D activities remains key.

Whilst the decision was made in relation to the prior R&D tax concession, the message is clear that it will apply to the current R&D tax incentive.


In brief, companies claiming R&D activities must ensure they retain:


  • Documentation identifying the knowledge gaps and technical unknowns which the R&D will explore (with reference to pre-existing technology at the time of the project’s commencement).
  • Evidence of initial hypotheses and the purpose underlying the R&D activities and how those may have changed over the course of the project.
  • Records of trials or experimentation undertaken to test hypotheses, results generated and analysis undertaken and any conclusions reached.


Where clients undertake R&D activities but do not produce or retain strong evidence of those activities, it is likely that upon review, any R&D claim, whether under the old R&D Tax Concession (for claims prior to the 2012 income year) or the new R&D Tax Incentive could be disallowed. Increasing review/audit activity by AusIndustry and the ATO mean claimants should expect a review of their R&D claim and should invest in good record keeping practices and engage with R&D Tax experts to ensure their R&D claims are compliant with R&D Tax Incentive requirements.


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