Following our publication of the registration deadline alert, we’ve been asked to give examples of some of the pitfalls to watch out for in the registration form.
The R&D Registration Form is 12 pages long and is accompanied by the AusIndustry notes to help you complete it. If you follow the instructions found in the notes, you should be able to complete the form with some degree of confidence. After all, you know your company information as well as anyone, and Part 1 of the form should not be a great issue.
If you’ve already prepared the R&D costs, then it’s just a matter of transposing them into Part 2 of the form. Naturally, you would have scoped all the development projects first, identified all the eligible R&D activities, determined if any exclusions or limitations apply and then worked out all the costs related to the activities claimed. You may have retained a dedicated resource within your company to do the work or hired a specialist consultant to manage the data gathering, analysis and reporting process.
Part 3 of the form, however, is one that requires the closest attention. It asks you to outline the R&D projects and activities you wish to claim for the year. The layout of the form itself can be misleading, as it only gives you a few lines to outline the nature of the project being claimed i.e. its technical objective and areas of innovation/high levels of technical risk and does not give much room to describe the activities in a meaningful way. This gives an impression that bare minimum description is required. And this is where many companies stumble.
In AusIndustry’s September 2010 R&D Tax Concession Information Bulletin No. 54 it states that the authorities base their decision whether to conduct further investigations based on the information provided by companies in this section. AusIndustry started to carry out desktop reviews for smaller claims prior to performing formal audits and you need to be thorough in your descriptions to avoid further investigations, which can be time confusing and frustrating.
Here are some tips to guide you along the way in attempting to complete Part 3, Question 20 of the form.
1. Divide the project description into sections:
- Technical Objective
- Project Background
- Innovation / High Levels of Technical Risk
- R&D Activities claimed
2. In the Technical Objective section explain what new or improved product, process, service, device or material you are trying to develop.
Give examples of the KPIs you are trying to achieve and word them in terms of technical specifications rather than financial outcomes.
Return on investment or increases in sales may be the ultimate company objective, but this type of language should be avoided when describing technical objective of an R&D project.
After all this is industrial R&D, not a feasibility study. Design specifications, throughput rates, software functionality or material performance indicators are better suited here.
3. In the Project Background section outline what the company does and how the project related to its strategic aims. Write a couple of paragraphs on the nature of existing technology in this area and your expertise to date.
In cases, where you are developing software, make sure that you talk about how the multiple sale rule is satisfied.
Give examples of the technology gaps, the literature and patent searches you’ve investigated, and feasibility studies and options papers you’ve developed, and as well as risk management analysis undertaken. This will naturally lead you to the next section.
4. Innovation / High Levels of Technical Risk Section
Although the definitions talk about either innovation or high levels of technical risk, you’ll be hard pressed to find a project that had elements of innovation but did not involve any high levels of technical risk.
Don’t forget that innovation is not about being unique in the world, though it doesn’t hurt. If you are developing a novel manufacturing process new to your company and you can’t obtain t information how it’s done elsewhere on normal commercial terms, then this could satisfy the innovation requirement.
And if you are unsure whether the new process will deliver the desired outcomes, such as increased speeds and throughput rates, as well as ability to integrate with the existing processes and procedures, then the high levels of technical risk or uncertainty may also be present.
Include any problems or even failures you’ve encountered during development, as this will be a good sign of technical risk.
And this leads us to the next section – the R&D Activities that led to an innovative solution or overcoming the technical risk present.
6. R&D Activities Section
This is where you list and describe the R&D activities undertaken during the claim year. You may also include an outline of activities undertaken in previous years to give a perspective of the current activities.
- If you’ve done patents searches, reviewed the existing solutions, products, technologies available in the industry, and analysed your current situation, include these under a broad heading of Preliminary Investigations and then describe what was actually done and found.
- If you’ve come up with a series of design options or formulations, describe them under a broad heading of Concept Design. Give examples of how the designs are different to each other and the innovations or technical uncertainty they entail.
- If you’ve done some modelling and testing on the design options, then include this under a Concept Design Review and Analysis heading. Don’t forget to include the results and consequent decisions.
- If you’ve designed, constructed and tested prototypes or samples then describe your findings under the Prototype Development heading.
- Once you’ve come up with a detailed design and constructed it for testing, describe these activities under a Final Design and Construction of Plant/Product/Device heading.
- Any trials undertaken need to include the trial period, specific technical objective sought, any problems encountered, their resolution, next steps and final outcome (if known). This can go under the Production Trial heading.
- Any follow up work, monitoring and subsequent design iterations can go under the Feedback R&D heading.
- When the project comes to an end, make sure you mention it in the project description.
This of course is only a rough guide and may not apply to your industry or situation. If you are a software developer you may go through a similar iterative process but the headings will be different.
Just make sure you don’t leave any eligible activities out, because you will be barred from claiming them.
7. R&D Incremental (175% International Premium) Tax Concession Section
If you’ve done R&D work in Australia on behalf of a grouped foreign company then you need to give more information in this section. You’ll be entitled to claim this R&D work under the 175% premium claim, which you otherwise would not have been able to claim under the 125% program.
Completing the R&D form itself should not be of a great concern if you’ve done all the necessary ground work – scoped the projects, identified the eligible R&D activities, ensured that all records are kept up to date and written up project descriptions which reflect the breadth and depth of the R&D activities undertaken.
From our experience, effective planning procedures and management policies implemented during the year can greatly assist in expediting and maximising the claim as well as ensuring that all compliance matters are covered.
The above information is only of general advice and may not apply to your organisation.
We strongly urge that you review your company’s operations and seek further assistance from a reliable specialist to deal with any uncertainties or compliance issues.
To find out if you are eligible to apply for the R&D Tax Concession or if you want your company's R&D claim process reviewed call us on (03) 9555 3551