With the Turnbull Government pledging for an innovative society, the importance of research and development (R&D) has been increasingly discussed in the local community. In particular, the R&D tax incentive and its lucrative benefits have become progressively public knowledge. Despite this, however, there remains much confusion about the incentive.
Hence, in light of this, we look at the record-keeping that is needed if a company wishes to apply for the R&D tax incentive. Maintaining these documents is beneficial to companies as it will reduce the expenditure that may be associated with a compliance review. It also supports the company to conduct its work and re-visit ideas, processes and solutions in the future. Moreover, if the company wishes to commercialise its work, potential investors will anticipate having access to a comprehensive range of records.
What records should be maintained?
Companies must keep sufficient records to validate:
- They conducted eligible research and development activities
- They experienced eligible expenditure in relation to those activities
- Their R&D activities and expenditure met all other legislative requirements under the scheme
Record keeping for tax purposes:
A company’s business records must be sufficient to verify:
- The amount of expenditure incurred on R&D activities
- The nature of the R&D activities
- The relationship between the expenditure and the R&D activities. It is the company’s responsibility to satisfy the ATO of the accuracy of the method used to allocate and calculate the proportion of expenditure on core R&D activities and supporting R&D activities.
If the R&D activity is undertaken by a contractor, documents involving to the contract, the R&D activities and the project report and invoices should contain:
- The date the R&D activities are undertaken
- Sufficient detail to ascertain the amount of expenditure on the R&D activities
- A description of the activities performed by the contractor to link the fee with a particular R&D activity. Under tax law, records must generally be kept for a minimum of five years.
As can be seen from above, record-keeping is vital for companies if they are wishing to claim a tax incentive. Indeed, the details in the incentive means that there can be confusion when making a tax claim based on R&D activities. Hence, how can companies avoid errors when making a claim?
One way of escaping error is by engaging in a reputable R&D Tax Specialist, such as Ausgrant. Our specialists will be able to support any questions you may have. If you would like any more information on the R&D Tax Credit, please contact us today to find out more.
