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.