As the close of the financial year approaches, companies are now turning their efforts to preparation of their tax return and the lodgement of their Research & Development tax incentive claim for 2013 for a hopefully fast return of the benefit.

The self assessment tax system requires all taxpayers to maintain appropriate records of their business transactions and with an increased focus on substantiation under the R&D tax incentive scheme, it is important for companies to be ‘compliance ready’.

Making a successful claim for the R&D Tax Incentive is also subject to these substantiation requirements, and documentation to verify your claim should be available for review upon request.

Companies need to collate the documents supporting their 2013 R&D claim and also need to make sure systems are in place to capture the R&D information for the coming year.

Registration of claims for the R&D incentive can take place up to 10 months after the financial year in which R&D activities took place. For companies looking to claim for the 2013 FY finishing June 30, lodgement can take place up to April 2014 however to obtain the benefit sooner, companies need to register their R&D activities with AusIndustry as soon as possible. Once a Registration Number is received from AusIndustry, companies can include the R&D tax schedule in their tax return. It is important to note that companies need to lodge the activities with AusIndustry prior to lodging the R&D expenditure in their tax return.

In reviewing registered R&D claims via an audit, both AusIndustry and the ATO would expect to see documentation to evidence that:

  • the activities, as disclosed in registrations, actually took place
  • the activities satisfy the requirements of the definition of R&D activities, and
  • the amounts incurred on those activities have been accounted for and claimed correctly.

For your R&D activities, AusIndustry would expect to see documents relating to background searches, tests and experiments which have been carried out, all of the important results of the experimentation, and conclusions. Companies need to ensure they maintain documentation of the experiments taking place. This might be in the form of reports or emails, external test results and analysis of outcomes.

Documenting the R&D process and its results has never been more important. This is therefore an ideal time to review and update your procedures for the new Tax Incentive for the upcoming year, and to make sure that the type of documentation that you produce and maintain is adequate for this purpose.

Now is also the time to review your existing documentation created during the R&D process, to ensure that you are not one of the claimants which falls short of the ‘compliance ready’ requirements.