R&D Tax Incentive in IT & Communications

IT & Communications Case Study

As part of a large multinational, Teltech has access to research and development teams across the globe. Commercial conditions dictate that much of the new product development occurs in overseas entities and Teltech must take these new products and introduce them for the first time to the Australian market.

Teltech has historically made R&D tax claims, under the old R&D Tax Concession program and more recently the R&D Tax Incentive program, however the quantum of these claims has traditionally been small and in isolated areas of the business.

NOAH was engaged by Teltech to unpack potential new areas of R&D tax claim. In the first year of engagement, NOAH conducted presentations on the program across multiple arms of the business to Program and Technical Managers. The presentations were designed to encourage discussion and solicit feedback on existing approaches to claim.

NOAH was able to successfully challenge entrenched views within the company regarding the eligibility of its activities against the R&D Tax criteria. NOAH helped to demystify the language of the R&D Tax Incentive program and explained how an “hypothesis” was really no more than a “proposition” or “conjecture” that was put forward and then tested in some way meaningful to the business. NOAH also facilitate a discussion around the notion of “new knowledge” and helped Teltech understand that it might be sufficient that the knowledge is new to the company in circumstances where it is not otherwise available in the public domain or on normal commercial terms.

With NOAH’s encouragement, Teltech became more willing to reassess its approach to R&D tax, and subsequently found that its claim levels increased more than 10-fold.

Core R&D activities

The most significant change to Teltech’s perspective came from the recognition that although it did develop new software and hardware products per se, it was nevertheless generating new knowledge in respect of the how to successfully implement these new technologies in a live telecommunication network.

A live telecommunications network is an incredibly complex environment and a lot of work is required to ensure that the release of a new product or feature will not adversely affect the performance of the network.

NOAH helped Teltech understand how these activities – mostly involving the development of new methods of procedure to configure, combine and integrate the software and hardware elements – could be characterised as “experimental” core R&D activities.

At a high-level, the hypothesis was that if the new software and hardware was correctly configured and integrated into the network architecture, then the desired key performance indicators would be met. These indicators encompassed network traffic flow, security, issues monitoring and latency. Teltech tested the hypotheses through extensive beta testing in a model network environment prior to testing in the live production nodes. This process of proposing a configuration pathway, testing it and then analysing outcomes ensured that any technical issues that may have been overlooked during product development were identified and rectified prior to full live deployment.

Thus, with NOAH’s assistance, Teltech was able to recast many activities that it had previously considered more business as usual as core R&D activities.

Supporting activities

Teltech also conducted a range of other activities in support of the project, which again although seemingly business as usual, had a direct nexus with core experimental activities. This nexus allowed them to be classified as “supporting” and hence claimed. These activities included literature reviews and research, project management and regression testing.

Another area where NOAH’s advice was critical was in determining to what extent installation and live deployment could be claimed to have been undertaken for the “dominant purpose” of supporting the core experimental work.

What documentation did Teltech need to keep?

As part of a large multinational, Teltech has to conform to standardised reporting methodologies that are not specifically geared to R&D tax compliance requirements. NOAH showed Teltech how these existing record keeping practices could be augmented with a few templates that would support the R&D tax claims without undermining the spirit and purpose of the in-house standards.