If you’re claiming the R&D Tax Incentive, there needs to be a thorough and detailed paper trail that outlines the exact costs you incurred and the specific R&D activities that led to those costs. You also need to prove that the costs were incurred during the financial year you filed for the incentive, so time and date tracking are crucial.
The best way to achieve this type of detailed documentation is with a daily, fixed plan and real-time approach to recordkeeping. This approach records every R&D related activity that you take part in. This article will discuss the best way to keep real-time records for your R&D activities.
Summarised: keep daily records!
Provide specific and detailed descriptions
Being specific is vital in R&D recordkeeping. Whether you plan on claiming an entire employee’s salary as R&D or just a few software programs they used as research, there needs to be a detailed description of how those costs were used for R&D. If you’re claiming contractor wages or employee salaries, you’ll need a job description and employment contract or contractor agreement that outlines the specific R&D activities the person hired is and has been responsible for that financial year.
We suggested that the job description contains keywords that will help your claim. A title like “Software Developer” may be too broad, and it will come down to the ATO agent’s discretion at the time of review. Nobody wants to be audited so be sure you cover your bases!
Back it up
You need to keep your documentation for at least four years—ideally more, so we suggest investing in a system to back up and safeguard your records. A cloud-based solution is likely best, as it won’t be vulnerable to outages and hardware problems. It will also save you a world of time trying to track down your documents when it comes to lodging your claim. Be sure to back up all records, especially human resources documents, emails, old calendars, time cards, etc. You should also keep historical records of employee job descriptions, and yes, even if the employee has left the company.
Use the right tools to track progression
The right cloud-based software tools can help you create an R&D database to document your activities and show the structured progression of new knowledge generated across your organisation. This level of documentation can safeguard your data and boost visibility and accessibility for your teams.
Document test results from all activities
You want to show that your R&D activities have led to some results – an initial knowledge gap and a structured progression toward closing that gap. Test reports, market analysis reports, design specs, clinical trials, and quality control tests can prove finding and developing results. If you want to claim R&D expenditure, it’s not as simple as providing the go-to-market or advertising plan. You must prove that the technology did not exist in the industry prior.
Link R&D costs to activities by providing context
Any costs directly or indirectly incurred through R&D can qualify for the tax incentive, but you’ll need to link those costs back to a specific activity you engaged in. Be clear and show accurate numbers such as percentages claimed, ledgers, invoices, etc. Utilities and rental costs, for example, can be claimed for R&D purposes—but only a percentage of them (equal to the percentage of R&D work done in the office). You’ll also need to keep invoices and bills from rental and utility providers to document those costs. Unfortunately, a bank statement with direct debit expenses won’t cut it. Did you know you can also claim travel and accommodation expenses if someone on your team is collaborating with other locations on R&D or attending an industry-specific conference? But, again, you’ll need to link those expenses back to the specific R&D activity being performed.
Need assistance with managing and tracking your R&D activities? Book a time to chat with us and discover how Clearpoint Ventures can help. Contact us now.