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An R&D Activity is Not A ‘Business As Usual’ Activity Is It?

At the joint AusIdustry/ATO R&D Tax Incentive Workshop conducted in Sydney this June, one of the risk areas associated with the R&D Tax Incentive (the Incentive) that was explored was the claiming of ordinary business activities as R&D.

The argument runs that, by broadly defining projects, taxpayers are sweeping up ordinary business activities, along with eligible experimental and directly related activities, and including these ineligible costs in their R&D tax claims. AusIndustry correctly pointed out that labelling a project as ‘R&D’ does not automatically confer eligibility on the activities contained therein. The claimed activities must fulfil the legislative requirements either as core or supporting R&D activities. The compliance argument then goes on to say that activities that do not qualify are appropriately labelled as ‘business as usual’ and must be excluded.

The problem with this approach, is both one of form and substance. The workshop notes pointed out that there appears to be different meanings associated with the words “ordinary business activities” in the eyes of consultants, regulators, scientists and industry experts. We submit that there is a more fundamental problem afoot with the above approach.

MJA has spent more than 30 years sharing our view and our evidence with the market that innovation is a fundamental requirement to the sustainable success of any business. As such, where technical R&D activities form part of that innovation, then those R&D activities NEED to be part of the company’s business as usual remit of activities. R&D activities, by their very nature, need to be executed in a disciplined, managed and orderly manner that reflects their own particular routine. They are a constant and integral feature of a company’s operation. They are not a glamorous, isolated, haphazard add-on.

So labelling ‘business as usual’ activities as ineligible under the Incentive is simply wrong. The label is lazy and it not illustrative or useful.

The focus needs to be on identifying which activities in a project are eligible under the applicable legislation and those that are not eligible. It’s as straightforward as that.

The day the phrases ‘business as usual’ and ‘ordinary business’ are removed from the Incentive’s lexicon will be a day where the objectives of the program will have made a significant stride forward.

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