Eligible Activities

Identification of Core R&D Activities

The R&D Tax Incentive requires specific activities to be considered to determine their eligibility against specific criteria. Eligibility under the program depends on identifying at least one core R&D activity. Core R&D activities are experimental activities which satisfy certain conditions, while supporting R&D activities are activities that are directly related to a core R&D activity. Supporting R&D activities that produce goods or services, or that are in defined exclusions, also have to be done for the dominant purpose of supporting core R&D activities.

The best place to start when assessing the eligibility of your R&D activities is to identify the experiment/s you are undertaking.

This decision tree describes the process for identifying core R&D activities

Question 1

Identifying an experiment, or set of related experiments, is one of the most important parts of the self-assessment process.

An experiment is what you do to test a technical or scientific idea. The experiment is set up so that the relationship between the idea's relevant variables can be tested and, as a result, the idea proven right or wrong.

Experiments can take place in virtually any environment - from laboratories to manufacturing plants, to offices, farms and greenhouses.

Was an experiment (or set of related experiments) carried out?

Question 2

For the R&D Tax Incentive, the relevant outcome of an experiment is the knowledge of whether the technical or scientific idea you were testing is correct or not. The legislation requires that this cannot be known or able to be figured out in advance using current expertise or knowledge.

The overall outcomes of projects, or commercial viability for instance, are not the relevant outcomes.

Experiments that have an outcome that is already publicly or commercially available anywhere in the world at the time the activity was conducted will not be core R&D activities. This is also true if a competent professional in the field knows or can figure out or predict the outcome of the experiment.

In essence, core R&D activities address technical or scientific issues that will extend the existing knowledge in the field.

Could the outcome of the experiment have been known or determined in advance?

Question 3

Eligible experiments must be conducted as part of a systematic progression of work that involves three main parts:

  1. An experiment designed to test the technical or scientific idea (the hypothesis).
  2. Observation and evaluation of the experiment and its results to evaluate the technical or scientific idea.
  3. The drawing of logical conclusions about the technical or scientific idea.

The idea you want to test must be specific and either technical or scientific in nature, and must be able to be proven or disproven by conducting an experiment.

Did the experimental activities employ the scientific method?

Question 4

Eligible experiments are conducted for the purpose of generating new knowledge of a scientific or technical nature. This must be a significant purpose, it cannot just be a minor reason.

There can be many reasons for conducting an experiment. The purpose of generating new knowledge doesn't have to be the strongest reason, however it does have to be a significant reason.

Some purposes can conflict with a purpose of generating new knowledge. Experiments that produce goods and services that have commercial value could be undertaken for only a minor reason of generating new knowledge. Once the new knowledge is generated, an ongoing activity can lose that purpose.

Was the purpose of the experiment to generate new knowledge?

Question 5

Some activities are excluded from being core R&D activities, though you can still consider whether they are supporting R&D activities (but they would need to have a dominant purpose of supporting core R&D activities). These activities are:

  1. market research, market testing or market development, or sales promotion (including consumer surveys);
  2. prospecting, exploring or drilling for minerals or petroleum for the purposes of one or more of the following:
    (i) discovering deposits;
    (ii) determining more precisely the location of deposits;
    (iii) determining the size or quality of deposits;
  3. management studies or efficiency surveys;
  4. research in social sciences, arts or humanities;
  5. commercial, legal and administrative aspects of patenting, licensing or other activities;
  6. activities associated with complying with statutory requirements or standards, including one or more of the following:
    (i) maintaining national standards;
    (ii) calibrating secondary standards;
    (iii) routine testing and analysis of materials, components, products, processes, soils, atmospheres and other things;
  7. any activity related to the reproduction of a commercial product or process:
    (i) by a physical examination of an existing system; or
    (ii) from plans, blueprints, detailed specifications or publically available information;
  8. developing, modifying or customising computer software for the dominant purpose of use by any of the following entities for their internal administration (including the internal administration of their business functions):
    (i) the entity (the developer) for which the software is developed, modified or customised;
    (ii) an entity connected with the developer;
    (iii) an affiliate of the developer, or an entity of which the developer is an affiliate.

You can find more information on the meaning of the exclusions in R&D Tax Incentive: A Guide to Interpretation.

Is the activity on the core R&D activity exclusions list?

Question 6

Was the activity conducted in Australia or an external territory?

Answer

On the basis of the answers you have given, the activity appears likely to be a core R&D activity

These questions are intended to provide useful information for companies considering accessing the R&D Tax Incentive. However they are not exhaustive and they, and any outcomes arising from answering them, are not legal or financial advice. It is your responsibility, with the assistance of any advice you wish to seek, to satisfy yourself about the eligibility of your activities for the R&D Tax Incentive. The Commonwealth disclaims all liability for any loss or damage arising from you or anyone else relying on these questions, any statement contained in them, or any outcome arising from them.

You must retain records that describe the activities you have conducted in sufficient detail to demonstrate that they were conducted in a manner that meets the definition of core R&D activities. For more information, see AusIndustry's record keeping guide Compliance Readiness: Importance of record keeping and R&D Tax Incentive: A Guide to Interpretation.

 

Answer

On the basis of the answers you have given, the activity appears likely to be a core R&D activity

These questions are intended to provide useful information for companies considering accessing the R&D Tax Incentive. However they are not exhaustive and they, and any outcomes arising from answering them, are not legal or financial advice. It is your responsibility, with the assistance of any advice you wish to seek, to satisfy yourself about the eligibility of your activities for the R&D Tax Incentive. The Commonwealth disclaims all liability for any loss or damage arising from you or anyone else relying on these questions, any statement contained in them, or any outcome arising from them.

You must retain records that describe the activities you have conducted in sufficient detail to demonstrate that they were conducted in a manner that meets the definition of core R&D activities. For more information, see AusIndustry's record keeping guide Compliance Readiness: Importance of record keeping and R&D Tax Incentive: A Guide to Interpretation.

Alert / NoteYou can only claim expenditure on R&D activities that are carried out overseas if the activities are registered with AusIndustry and are covered by an Overseas Finding.  

An Overseas Finding is a decision made by Innovation Australia regarding whether activities performed outside Australia and the external Territories are eligible under the R&D Tax Incentive. 

Overseas work must satisfy four requirements in order to be eligible as an overseas activity:

  1. the overseas activity must be an eligible R&D activity
  2. one or more core R&D activities conducted in Australia must be unable to be completed without doing the overseas activity.
  3. the overseas activity must be unable to be conducted in Australia (for specified reasons); and
  4. the total actual and reasonably anticipated expenditure in all income years on the overseas activities is less than the total actual and reasonably anticipated expenditure in all income years on the related Australian R&D activities.

An Overseas Finding will only cover activities conducted during or after the income year in which AusIndustry receives the application for the Overseas Finding.  You need to complete and lodge your application form before the end of the relevant income year because Innovation Australia does not have any discretion to backdate late applications. 

You can apply for an Overseas Finding by completing the application form on business.gov.au.