Maritime & Boating

December 18th, 2014

This case study exemplifies the application of key legislative requirements for eligible R&D activities as they apply to relevant activities in the maritime and boating industry.

Business Scenario

Carter Marine Group (CMG) specialises in marine infrastructure projects.  In 2013, the company was approached by a client to create a permanent wharf in a high traffic import and export area.

CMG conducted R&D work to fulfill its client’s request with the main business objective being the design and development of a permanent wharf  to assist in the  importing and exporting of products in the oil and gas industry.

First and foremost, CMG needed to determine the eligibility of its proposed R&D activities  in order to know if it qualified for the R&D Tax Incentive. Once it identified the specific activities that qualified as R&D, it needed to assess whether each activity was a core or supporting  R&D activity.

CMG’s Core R&D Activities

Design and development of a series of prototypes to achieve the technical objectives (design of the permanent wharf).

The hypothesis for CMG’s core activity was that it could design a permanent wharf  to support imports/exports of the oil and gas industry.

After conducting theoretical design experiments, CMG concluded that such a design was feasible, but needed to be prototyped and fully tested to prove the hypothesis.

Trials and analysis of data to achieve results that can be reproduced to a satisfactory standard (prototype development and testing of permanent wharf).

CMG  developed and tested the wharf design to prove that it could be permanently installed to help the organisation achieve its project objectives.

CMG concluded that the theoretical conclusions from the design phase could be realised through prototype development and related tests. CMG stated that the new knowledge generated would be used for further iterations of design and development and further field testing.



Identifying Core R&D Activities
There are two types of core R&D activities:
  1. Experimental activities whose outcome can not be determined in advance on the basis of current knowledge, information or experience, but can only be known by exercising a systematic progression of work that follows the principles of established science, proceeding from hypothesis to experiment, observation and evaluation, and lead to logical conclusions.
  2. Experimental activities that are conducted for the purpose of creating new knowledge.
Hypothesis Defined
AusIndustry recognises a hypothesis as a statement or proposition about what result is expected if certain conditions are put in place and certain actions are carried out in an experiment. It can range from an assumption or proposition to a theory, but it must establish the experimental activity and form part of a broader systematic progression of work undertaken by the company. It must be evident that the claimed experiment has been designed to test the hypothesis.

If the outcome of an activity can be obtained without a hypothesis, then the activity will not be considered R&D.

CMG’s Supporting R&D Activities

Background research to evaluate current knowledge gaps and determine feasibility (background research for permanent wharf).

CMG conducted the following activities:

  • Literature search and review
  • Initial discussions with marine engineers to discuss the feasibility of the project
  • Review of existing drawings
  • Consultation with industry professionals and potential customers to determine the level of interest and commercial feasibility of such a project
  • Preliminary equipment and resources review with respect to capacity, performance and suitability for the project
  • Consultation with key component/part/assembly suppliers to determine the factors they considered important in the design and to gain an understanding of how the design needed to be structured accordingly

The activities conducted during the background research were necessary to support the core activities because they assisted in identifying the key elements of the research project.

Ongoing analysis of customer or user feedback to improve the prototype design (feedback R&D of the permanent wharf).
This supporting R&D activity included:
  • Ongoing analysis and testing to improve the efficiency and safety of the project.
  • Ongoing development and modification to interpret the experimental results and draw conclusions that served as starting points for the development of new hypotheses.
  • Commercial analysis and functionality review.

These activities were directly related to CMG’s core R&D activities because the feedback was necessary to evaluate the performance capabilities of the new design in the field and to improve any flaws in the design.



Identifying Supporting R&D Activities
Activities that do not form part of the core experimental activities may still be eligible as supporting R&D activities. Supporting R&D activities are directly related to an eligible core R&D activity. They must have been performed for the primary purpose of supporting a qualified R&D activity.

What records and specific documentation did CMG keep?

To meet the R&D Tax Incentive requirements, CMG had to save documents that outlined what it did in its core R&D activities, including experimental activities and documents to prove that the work took place in a systematic manner.

CMG saved the following documentation:

  • Literature review
  • Travel reports
  • Project plans
  • Photographs
  • Progress reports
  • Test results and analysis
  • Customer feedback
  • Field-test results

By having these records on file, CMG confirmed that it was ‘compliance ready’ — meaning if it was audited by the ATO, it could present documentation to show the progression of its R&D work, ultimately proving its R&D eligibility.

Click here for the PDF version of this case study.


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