The tribunal needs evidence to find R&D activity as eligible

If there is not contemporaneous evidence that an activity was conducted to meet all the eligibility criteria, then that activity is not eligible.

Docklands Science Park is a Melbourne-based company that registered activities under the R&D Tax Incentive.

In 2014 Innovation Australia found that the activities registered by the company were not eligible R&D activities. This decision was confirmed by Innovation Australia during an internal review process - the company then applied to the Administrative Appeals Tribunal (AAT) for an external review.

The AAT affirmed Innovation Australia's decision. An observation that summarised much of the AAT's views was:

Common to all the activities claimed by Docklands Science Park, there is scant documentation which points to that entity having conducted any activities at all let alone proceeding to conduct core R&D activities in the manner required by s. 355-25(1) of ITAA 97 [Docklands Science Park Pty Ltd v Innovation Australia [2015] AATA 973, 14]

The AAT noted that detailed documentation, recording the process of each activity as it develops, is necessary to:

  • substantiate that the activity took place; and
  • establish that the activity meets the legislative eligibility requirements of the R&D Tax Incentive scheme.

The AAT observed that:

... [D]ocumentation is necessary to substantiate the R&D activities claimed by an applicant. It is the absence of documentation which has resulted in my findings. Such documents are required for the purpose of evidencing experimental activities whose outcome cannot be known or determined in advance but can only be determined by applying a systematic progression of work based on established science; and which proceeds from hypothesis to experiment, observation and evaluation and leads to logical conclusions. That process will establish that the purpose of conducting the activities is to generate new knowledge in the form of new or improved materials, products, devices, processes or services. An applicant cannot succeed in establishing those requirements in the absence of detailed documentation recording the process of each activity as it develops [at 63].

When a company is self-assessing whether activities are eligible R&D activities, it cannot simply assume or assert that it thinks an activity was eligible if it does not have evidence to support its self-assessment. If it does not have evidence to substantiate eligibility of an activity, then it will not be reasonably justifiable to register that activity or claim expenditure for it.

To assist companies to properly address their self-assessment obligations, both AusIndustry and the Australian Taxation Office (ATO) provide detailed guidance about eligibility requirements and the record keeping requirements necessary to support eligibility:

The AAT has consistently found that activities without evidence that substantiates eligibility are not eligible. Previous cases include:

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