TaxTrex
TaxTrex

The importance of record keeping

Increases in AusIndustry and ATO review/audits means claimants should expect and be prepared for a review of their R&D claim. It is imperative that claimants invest in good record keeping practices and engage further with an R&D Tax Incentive specialist to ensure claims meet AusIndustry requirements.

An emerging theme from failed R&D tax incentive cases is the lack of supporting documentation and/or poorly prepared documentation. Generating, collecting and retaining strong records that give evidence to R&D activities and associated expenditure is critical to sustaining a R&D claim. Additionally, claimants need to distinguish R&D activities from those done only for production (non R&D) purposes. Therefore, the ‘experimental’ nature of the R&D activities must be proven.

Companies claiming R&D activities must ensure they retain:

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  • Documentation identifying the knowledge gaps and technical unknowns which the R&D will explore (with reference to pre-existing technology at the time of the project’s commencement).
  • Evidence of initial hypotheses and the purpose underlying the R&D activities and how those may have changed over the course of the project.
  • Records of trials or experimentation undertaken to test hypotheses, results generated and analysis undertaken and any conclusions reached.
  • Records documenting and focusing on technical risk of the experiment itself (not on the wider risks of the company’s operations – the unknown outcome must be because of technical risk, not economic or other non-technical risks)

TaxTrex is based on academic research conducted by Swanson Reed and works by issuing three surveys at regular intervals during the year to collect, interpret and store relevant claim documentation and information.

Relevant information necessary for the R&D claim will be:

  • extracted,
  • time-stamped; and
  • securely stored.

The information gathered through the surveys will assist in substantiating the scientific process and purpose of conducted activities.

The reports generated from the surveys will be useful in defending a claim in the event that is reviewed or audited.