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How to conduct eligible R&D activities for the R&D Tax Incentive
Systematic progression of work
Your systematic progression of work must include all of the following elements:
- Hypothesis
- Experiment(s)
- Observation
- Evaluation
- Logical conclusions
You may conduct one or more elements of your systematic progression over several years.
We expect you to keep evidence to show when and how your activities proceed from one element to the next.
We understand that your R&D may not proceed according to your plan. So you should keep records to show your intent to conduct all elements of your systematic progression of work. While the R&DTI is a self-assessment program, we may review your application. If we do, we'll review your systematic progression of work as a whole.
What is scientific research?
The Australian Government’s R&D Tax Incentive encourages businesses of all sizes, to generate new knowledge through research and development (R&D). The program offers a generous tax offset for companies investing their time and effort in conducting eligible R&D.
Narrator: The R&D Tax Incentive offers a generous tax offset for companies who conduct eligible research and development. Let’s follow George’s story about research; the way we generate new knowledge.
Narrator: Research is what we do when we want to understand how the world works, or we want to find a better way to do something by building a new product or process.
George: These are annoying, they stick to everything.
Narrator: This observation gave him an idea, one that would take a lot of research to result in something useful.
George: I could use this hook and loop structure to make a new way to fasten things together.
Narrator: Great, an idea! But is this a new idea? Just because you haven’t thought of it before, doesn’t mean no one else has. Find out if your idea is new, George. Read what others have done. Ask experts.
George: No one in the world has tried this before.
Narrator: Excellent! You’ve got a new idea.
George: Where do I start?
Narrator: If even the experts can’t predict what will happen, you’ll need to discover for yourself.
George: The burrs stick because they have these small flexible hooks. If I can make a fabric with the fight length and flexibility of hook, it will stick to a fluffy surface.
Narrator: That’s your hypothesis, George. Now you have to make a plan to test your hypothesis; an experiment.
George: But I don’t have a lab.
Narrator: An experiment doesn’t have to happen in a lab, it can happen anywhere.
George: I can design experiments to discover what the best materials to use are, how to make them, and whether it will all stick.
Narrator: A good experiment will generate a result that will clearly support or disprove your idea, and it should be repeatable by other people.
Narrator: By testing your hypothesis, you are generating new knowledge. This new knowledge can lead to a new material or product (like Velcro) or a process, device, or service.
Narrator: George de Mestral’s invention of Velcro took nearly a decade of research to result in the product we use today in everything from kids’ shoes to space suits.
Narrator: What is an experiment? Watch the next video where George puts his idea to the test.
Narrator: To find out more about the R&D Tax Incentive go to business.gov.au or call 13 28 46.
Hypothesis
Your hypothesis is your idea or proposed explanation for how you could achieve a particular result. It also includes why that result may be or may not be achievable.
You may express your hypothesis in a single statement or in several statements. You should set out what you plan to do and why.
We expect you to explain:
- what result you aim to achieve
- how and why you think you can achieve it, informed by your background research.
We expect to see evidence that shows how your background research helped you develop your hypothesis.
Your hypothesis will guide your investigation. You need to develop it before you start your eligible core R&D activities. You need to be able to test it through experiments you conduct to determine the outcome of your core R&D activities.
Experiment
An experiment is a scientific procedure that you undertake to test your hypothesis, observe what happens and compare this to what you expect. You may also compare your results to those from previous experiments. We expect you to explain how you conduct or plan to conduct your experiment. For example, you might describe the parameters you vary, those you hold constant, and those you observe or measure.
What you observe and evaluate in your experiment may support your hypothesis, or it may not. That is, you may get the result you expect, or you may get a different result. Either way, your R&D activities may still be eligible for the R&DTI.
You may group a series of experiments in one core R&D activity if each aims to test the same technical or scientific idea.
Experiments can take place in many environments. These may include laboratories, process plants, offices or farms. Experiments in these different environments can also take different forms. The details and design of experiments may vary between industries and organisations. However, they must aim to test a hypothesis as part of a systematic progression of work.
What is a hypothesis and an experiment?
To apply for the R&D Tax Incentive you need to conduct research in a scientific way. The program offers a generous tax offset for companies investing their time and effort in conducting eligible R&D.
Narrator: To apply for the R&D Tax Incentive you need to conduct research in a scientific way with a hypothesis driven experiment.
Narrator: This is George, he has an idea to test.
George: These stick to everything. Hmm… I wonder if I can make something useful with that.
Narrator: That’s the start of an idea George, but just exploring by trial and error isn’t science. To test it scientifically you need a statement you can test to see if it’s supported or not proven: a hypothesis.
George: The burrs stick because they have these small flexible hooks. If I can make a fabric with the right length and flexibility of hook, it’ll stick to a fluffy surface.
Narrator: That’s it, that’s your hypothesis! The next step is to test it with an experiment.
Narrator: In a good experiment you need to be able to compare outcomes; what happens compared to a control?
George: Does it stick?
Narrator: Compare one variable at a time in an experiment.
George: This time I’m varying the length of the hooks on the fabric. They’re all made of the same stuff and I’m testing them all sticking to the same surface. How many times should I do my experiment?
Narrator: Do it enough times to tell a real effect from chance. Design it in a way to avoid bias.
George: That feels stronger.
Narrator: No matter how hard you try, bias can sneak into observations. But you can try to reduce this as much as possible. You can then analyse your results to decide if your idea is supported, or does it give you a way to change your idea and test it again?
George: Right, now I’ve got an idea on what size hooks I need. My next experiment will test which fabric is strongest.
Narrator: Experiments are the key to the scientific method and allow us to better understand our world and solve problems.
Narrator: Want to know more abut the R&D Tax Incentive program and how it can help your business? Go to business.gov.au or call 13 28 46.
Observation
Observation is where you observe, measure and record information and results that relate to your experiment.
Such information can be:
- qualitative which is descriptive
- quantitative which is numerical data.
Evaluation
Evaluation is where you assess and analyse the results of your experiments. You need to consider what the results of your experiments mean.
We expect your records to show that you evaluate the results of your experiments. The evaluation should show that you understand why and how you achieve or do not achieve your desired outcome. You should analyse how or why something occurs and explain your insights through description. We expect you to analyse numerical data using established techniques.
We also expect you to evaluate causal relationships between the parameters you vary, hold constant and measure in your experiment.
Leads to logical conclusions
The final part of the systematic progression of work is to draw logical conclusions about your hypothesis.
When you test your hypothesis through an experiment, your results may support your theory about how to achieve your desired outcome or they may not.
You need to form logical conclusions about why your results support your hypothesis or not. Your logical conclusion may be that you need to investigate different solutions and test a new hypothesis.
You could then test this new hypothesis through new experiments. Your new experiments may be similar enough to include as part of the same core R&D activity. Or, they may be different and need to be part of a new core R&D activity.
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Learn what is required for R&D activities to be eligible under the R&DTI.
Assess if your R&D activities are eligible