Assess if your R&D activities are eligible for the R&D Tax Incentive

To register eligible R&D activities, you need to conduct or plan to conduct at least one core R&D activity. Some activities are excluded from being core R&D activities.

Any supporting R&D activities must directly relate to your core R&D activities. You must specify your activities when you register them for the R&D Tax Incentive.

Eligible R&D activities may occur over several income years. You may conduct an eligible core R&D activity over more than one year. You may conduct R&D supporting activities in different years to your core R&D activity

To be eligible, you must do the following:

• Conduct or plan to conduct at least one core R&D activity.
• Assess that your core R&D activity is not an excluded core R&D activity.
• Register your core R&D activity.
• Only register supporting R&D activities that directly relate to a core R&D activity. In some cases, they must also be activities you conduct for the dominant purpose of supporting a core R&D activity.

You may be able to claim an offset for R&D activities conducted overseas but you must have a positive Overseas Finding before you claim.

You can find the legislative definitions of core and supporting R&D activities in sections of 355-25 and 355-30 of the Income Tax Assessment Act 1997.

Core R&D activities are activities with outcomes that a competent professional can't know or determine in advance, based on current knowledge, information and experience.

The outcomes of core R&D activities  can only be determined by applying a systematic progression of work that:

• is based on principles of established science
• proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions.

You must conduct them for the purpose of generating new knowledge. Your new knowledge can be in the form of new or improved materials, products, devices, processes or services.

We exclude some types of activities from being core R&D activities. Some of these excluded activities may be eligible as supporting R&D activities if they meet all of the legislative requirements.

The Income Tax Assessment Act 1997 has excluded some activities from being core R&D activities.

You can't register these activities as core R&D activities.

However, excluded activities may still qualify as supporting R&D activities.

Supporting R&D activities are those that directly relate to core R&D activities.  

You need to demonstrate how your supporting R&D activity directly relates to a core R&D activity. 

We expect you to record what that relationship is when you conduct your activities. You also need to explain what that relationship is when you apply to register your activities.

Whether your supporting R&D activity directly relates to a core R&D activity will depend on your circumstances. We expect you to analyse your specific circumstances and keep records to support your claim.

Activities that don't directly relate to your core R&D activities can't be supporting R&D activities.

Some supporting R&D activities can only be claimed if they are undertaken for the dominant purpose of supporting your core R&D activities. These include activities that:

• are excluded from being core R&D activities
• produce goods or services
• are directly related to producing goods or services.

We expect you to make records around the time you plan and conduct your activities. These are called contemporaneous records. These records will be the strongest evidence to support your claims when we review your application or registration.

The ATO may also ask for records to show the expenditure you want to claim relates to eligible R&D activities.

Keeping records helps you to:

• self-assess R&D eligibility
• meet compliance obligations
• minimise cost if we conduct a review of your application or registration
• verify the amount of expenditure incurred on R&D activities.

When you keep records to show how your activities are eligible, we expect to see details of:

• how you could not know or determine the outcome in advance
• how your R&D activities follow a systematic progression of work from hypothesis through to experiment, observation, evaluation and logical conclusions
• how the substantial purpose of conducting the activity was to generate new knowledge.

We also expect you to keep records that show how your supporting activities directly relate to at least one core R&D activity. In certain circumstances we also expect evidence to show that you conduct them for the dominant purpose of supporting a core R&D activity.

Evidence can include written records, videos, oral statements and expert opinions.

If you would like certainty about whether your R&D activities are eligible before registering, you can apply for an Advance Finding.  An Advance Finding is a decision by Industry Innovation and Science Australia about your activities. An Advance Finding will inform you of the eligibility of your planned R&D activities.

You can ask for an Advance Finding for:

• activities you conduct in your current income year, whether you start or complete them in that year
• activities you plan to conduct in the subsequent 2 income years.

If you want to apply for an Advance Finding, you must do so before the end of the first year in which you propose to conduct your activities.

The Finding Process

When you apply, we'll assess the information you've provided. We'll determine if it demonstrates how your activities meet the definition of eligible core or supporting R&D activities.

Examples of information that you may provide to support eligibility include:

• how you self-assessed your activities
• records of how you plan, conduct and evaluate your experiments.

There are 4 possible findings we can make on your activities:

• Eligible
• Ineligible
• Partially eligible
• We may refuse to make a finding

We’ll provide you with a finding certificate for all instances where we make a finding. This finding certificate will be copied to the ATO. If we refuse to make a finding no certificate will be supplied.

A finding is not a registration. If you apply for an Advance Finding you'll still need to apply to register your R&D activities. However, you do not need to have an Advance Finding to apply for the R&D Tax Incentive.

From June 2021, independent contractors may assist in assessing your advance finding application. Your information remains secure and confidential. The department will make the final decision.