To exercise more? To improve your diet? To stop wasting time on cat videos?
Research suggests that most New Year’s resolutions are unlikely to succeed. However, if your resolution is to improve the documentation of your R&D activities, we would suggest that this is a resolution you should work hard to ensure you keep.
Following on from a long list of recent decisions relating to the R&D Tax Concession, which were primarily focused on documentary support, the first R&D Tax Incentive decision was made at the end of last year and, again, the focus was on the quantity and quality of documentation available to substantiate the claims made by the company.
This new decision in the Administrative Appeals Tribunal (AAT) further reinforces the message that it is crucial that you have sufficient documentation to support the R&D claims that you elect to make.
In December 2015, the AAT affirmed a decision by AusIndustry in relation to a claim registered by Docklands Science Park (DSP) for R&D undertaken in its 2012 and 2013 income years. In May 2014, AusIndustry determined that each of the claimed activities were not core R&D activities. This conclusion was subsequently confirmed by the R&D Incentives Delegate to the Board of Innovation Australia in November 2014. Then, in December 2014, DSP sought a review of the Innovation Australia decision in the AAT.
The Senior Member of the AAT, Egon Rice, concluded that:
DSP could not provide documentation to show that the activities were core R&D activities;
DSP could not provide documentation to show that the outcomes of experimental activities could not be known or determined in advance on the basis of current knowledge, information or experience;
the information provided did not demonstrate that outcomes could only be determined by applying a systematic progression of work based on principles of science and carried out according to the scientific method;
DSP could not provide documentation to show that its activities proceeded from hypothesis to experiment, observation and evaluation, leading to logical conclusions;
DSP could not provide documentation to show that the experimental activities were conducted for the purpose of generating new knowledge; and, possibly most importantly,
DSP did not provided records which demonstrated it undertook the activities or that they took place within the registration period.
The decision pointed out that, common to all the activities claimed by DSP, “there is scant documentation which points to that entity having conducted any activities at all let alone proceeding to conduct core R&D activities”. Furthermore, Egon Rice said that “(a)n applicant cannot succeed in establishing …. (the legislative) requirements in the absence of detailed documentation recording the process of each activity as it develops.”
To support an R&D claim, R&D entities must ensure they have prepared contemporaneous documentation that shows the R&D activities were (a) undertaken and (b) undertaken in an experimental manner to generate new knowledge. In addition, internal financial documentation should reflect the nexus between the R&D expenditure claimed and the R&D activities registered.
Should you wish to discuss this matter further, please do not hesitate to contact Melanie Reen or Sarah Lander on (02) 9810 7211.
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