Key points at a glance
- PwC R&D Specialist, Liz Dunn, tells you what you need to know about the new advice from AusIndustry.
- Covering Agriculture, Mining, Software and the Building industries.
Trying to work out if your business is eligible to claim the R&D Tax Incentive can be a little confusing. To make things easier and navigate the complexities of this incentive, in November AusIndustry released new advice specific to four key industries; agriculture, mining, software, and building/construction.
Of course, this advice can be just as unwieldy for businesses to comb through, so one of our PwC R&D specialists Liz Dunn has put together an overview to make sense of what you need to know.
Claiming R&D activities
If you are spending money to create/improve products, services, or processes there is a good chance you are doing R&D. It’s generally accepted that you’re doing research and development if you’re experimenting with different solutions to tackle an unsolved problem. Not just within your business, but within your industry.
The main thing to note is that the outcome of R&D activities can’t be known in advance. Outcomes are only determined by conducting an experimental progression of work.
Regardless of industry, the activity will involve developing work from a hypothesis to experimentation and evaluation, leading to logical conclusions. It sounds scientific, but R&D activities don’t need to take place in a lab. The progression of work could take place in a range of settings and businesses, as long as it generates new knowledge.
R&D claim advice for the agriculture industry
When it comes to the agri industry, activities that improve productivity and sustainability could be eligible.
So how do you distinguish R&D work from regular farming activities? The key is to define the scale of the trial and document a progression of work. For example, you assign a small plot of land for trialling a new irrigation process. You document the crop growth and yield compared to a reference site to validate your results. This activity would be R&D as you are taking on the financial and technical risk of conducting an experiment to improve your farm’s processes.
However, say you start this new irrigation process across a large section of your existing plots. This may show that you’re pretty confident that you already know it will work, which indicates an activity for a commercial purpose.
R&D claim advice for the mining industry
In mining, R&D activities can get confusing as project risks are often mistaken for technical risks. It’s not uncommon for testing and data collection to occur as a standard activity to determine the best way to approach a project.
The simple way to look at this is to ask whether you’re conducting a commercial activity or an activity for the purpose of creating new solutions. If the only technical uncertainty is in the inherent geological risk of the ore body and tests are carried out to assess this using an established technique or technology, these activities would probably not be eligible for R&D incentives.
R&D claim advice for the software industry
Developing software comes with its own unique set of challenges. Most new applications only use 20% original code, with the remaining 80% being publicly available and widely used in software development.
That doesn’t mean it’s impossible to claim R&D activities for software development. It means that you need to document specific knowledge gaps (in the industry, not just internal knowledge) and the activities conducted to solve these unknowns.
Just because an activity was undertaken through a development lifecycle, doesn’t automatically make it eligible for an R&D claim. You need to keep accurate records that detail the experiments conducted and progression of work. If you use the ‘Agile’ method, you need to generate additional R&D supporting documentation to evidence your claim.
You can read more about claims for software and app development here.
R&D claim advice for the building industry
Last but not least, the building and construction industry. R&D activities in this industry typically entail experiments that are necessary to develop/test new construction materials, or develop new processes for things like waste disposal or treatment. Activities can’t be claimed if they apply well-known engineering techniques, processes or materials to particular sites.
For example, if the design of a new structure is experimental because it was developed with the use of predictive modelling software or calculations — this would not be considered eligible, as existing technology and knowledge was used to conduct the experiment.
Again, if the activities were for commercial profit or to fill knowledge gaps within the company (rather than the industry), they won’t be eligible. If there is a small portion of experiential knowledge required to complete a project, then only these activities would qualify, not the entire project.
You can find a complete list of guidance from AusIndustry here, however the regulations are quite complex. It’s important for businesses to keep accurate records and documentation to make a tax claim. My best advice? Seek help from a specialist to navigate the challenges and complete your claim.
If you spend more than $500,000 per financial year on R&D, PwC R&D consulting services is the way to go. If your spend is less, check out Nifty R&D (backed by PwC). You can sign up online and if we find you’re ineligible to apply, you won’t be charged a cent.