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It’s that time of year again! With the End of Financial Year rapidly approaching, there are several things to consider when claiming the Research & Development (R&D) tax incentive.

Prepaid R&D

If you plan to engage contractors to provide R&D services that will be completed in the next 12 months, ensure that you have received the invoice or signed contract prior to 30 June.

Recording this as an accounts payable or accrued expense before the end of the financial year allows you to legitimately claim the expense for this financial year.

Payments to Associates

Payments to associates need to be made by 30 June.

Associates may include shareholders of the company, company directors, and related legal entities such as Trusts. If amounts incurred to associates are not paid prior to 30 June they can be either:

1. carried forward and claimed as under the R&D tax incentive in a future year when paid; or
2. claimed as an income tax deduction under the normal tax provisions in the year they are incurred, and the R&D tax incentive forgone.

Prime’s R&D specialists are here to advise you regarding the application of the associate rules to your specific circumstances, however we need to act quickly.

Documentation to support R&D claims

We understand that AusIndustry and ATO review activity will continue to increase over the next 12 months.

The End of the Financial Year is an important time for companies to ensure they have the necessary documentation to support their R&D Tax Incentive claims.

If claims are reviewed, companies must substantiate to AusIndustry and/or the ATO that:

• the registered activities occurred; and
• the registered activities were in accordance with the R&D Tax legislation.

Key focus areas are likely to include the following:

• documentation and explanation of the process companies undertook prior to conducting R&D activities to determine that the knowledge sought to be generated was new, and unable to be determined in advance;
• ensuring registered activities reasonably relate to core and supporting R&D activities, not activities outside the scope of the R&D Tax Incentive criteria such as business as usual activities;
• maintenance of records available to substantiate R&D expenditure, including:
  • Accurate determination of R&D hours for employees;
  • Detailed records establishing the nexus between other R&D expenditure with the registered activities; and
  • Ensuring the base of any apportionment reflects the extent to which the expenditure has been incurred on R&D activities. 

Additional information on R&D Tax Incentive documentation requirements is available here:

AUSINDUSTRY GUIDANCE – CLICK HERE ATO GUIDANCE – CLICK HERE

To discuss further on how we can best assist you, please contact:

Brisbane:

John Driscoll – johnd@primefinancial.com.au

Melbourne:

Brendan Brown – brendanb@primefinancial.com.au

Simone Quin – simoneq@primefinancial.com.au