The importance of Supporting Documentation in your R&D Tax Incentive claim

The first decision from the Administrative Appeals Tribunal (AAT) in relation to the R&D Tax Incentive was handed down last month (available here). The claim submitted by Docklands Science Park (DSP) for activities undertaken in their 2012-2013 income years was ultimately rejected after review, in main due to a lack of adequate documentation substantiating its R&D activities.

The emphasis on sufficient supporting documentation should come as no surprise – when introduced in 2011 the guidelines outlined for the Incentive heavily stressed the need for contemporaneous documentation detailing the creation of new knowledge, as well as the systematic progression of activities from hypothesis to experiment, observation, evaluation and conclusion. That is, clearly detailing the ‘scientific experimental method’.

The Docklands case is somewhat of an extreme example, in that, whilst not only failing to distinguish ‘core’ and ‘supporting’ activities, DSP also provided little evidence to suggest that the activities claimed had taken place at all. The AAT was eager to point out that simply registering activities as either core or supporting does not automatically make them so. Furthermore, DSP could not provide any evidence of a claimed $1.2million transaction, not an insignificant amount.

The R&D Tax Incentive is based on self-assessment. That is, it is the responsibility of the claimant (or a registered tax agent undertaking claim preparation on their behalf, such as NOAH) to determine the eligibility of the activities and associated costs to be claimed. To substantiate the claims, it is advised that supporting documentation be created concurrently whilst activities are undertaken i.e. not in retrospect – this a much more rigorous approach in capturing the correct data used when articulating the technical argument.

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Jan 18, 2016.