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Substantiating R&D tax claims – contractual agreements

Substantiating R&D Tax Claims requires inputs from all parties involved in a contractual agreement to ensure accuracy and transparency to comply with legislative requirements.

The recent case of JLSP and Innovation Australia [2016] AATA 23 highlights the importance of substantiating R&D claims from all parties involved in a contractual agreement, to eliminate uncertainty regarding whether or not a core R&D activity meets all requirements of s355-25(1) of the ITAA 1997, which outlines:

(1) Core R&D activities are experimental activities:

(a) whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that:

(i) is based on principles of established science; and

(ii) proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and

(b) that are conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes or services).

The AAT questioned whether the intention to generate new knowledge must be held by the R&D entity (rather than another party). The AAT agreed that the claimant must hold an intention to generate new knowledge but found regardless that the activities were being conducted under contract, the clinical trials were conducted with an intention to generate new knowledge about the drug’s efficacy.

Although JLSP were successful, the case highlights the risks carried in the event of an audit when claiming the R&D Tax Incentive. It is recommended that claimants seek professional advice when substantiating their R&D activities.

Click here to for more on JLSP and Innovation Australia [2016] AATA 23

What can we do to help?

TaxTrex Multi-level User Access

TaxTrex is the first platform that connects the:

  • R&D tax adviser
  • tax agent
  • tax agents client; and
  • R&D contractors and suppliers connected to the R&D claim

Each user will be granted a different level of access depending on the responsibilities of that user. This ensures communication, transparency and security between stakeholders is maintained at all times.