New AusIndustry Guidance Released on Software Development

February 21st, 2019 software development

AusIndustry have released two additional guidance documents particularly relevant to claimants conducting software development R&D activities:

  • Software activities and the R&D Tax Incentive;
  • Guide to Common Errors;

This guidance has been released following earlier material from AusIndustry indicating concerns over inappropriate claims for Software Activities, and reports in the media of large software development R&D claims being found to be ineligible during review.

The general principles within this new guidance remains consistent, in that claimants must demonstrate how their software is generating new technical knowledge, rather than merely applying existing knowledge.

Some important extracts from the guidance are as follows:

  • It is important to note that ‘innovation’ does not necessarily equate to eligible ‘core R&D activities’. Innovation is not part of the test for eligible R&D activities under the R&D Tax Incentive and innovation tends to encompass a broader range of activities that extend beyond experimental R&D activities and what is eligible under the program;
  • The R&D Tax Incentive registration application will ask you questions about your project for context purposes and to get a sense of your business, and will then ask for information on the specific activities within that project that you believe are eligible and that you would like to register for the R&D Tax Incentive. When registering, you must identify those specific R&D activities you intend claiming the R&D Tax Incentive for;
  • Core R&D activities are experimental activities conducted for the purpose of generating new knowledge;
  • The experiment must be carried out by applying a systematic progression of work. To establish this is the case at each stage, you must record: 
    • the hypothesis you are testing
    • what the experiment, or set of related experiments, was and how it was conducted
    • what the results of the experiment were; and 
    • what conclusions were drawn from the results;
  • While you can’t absolutely prove that the knowledge you need doesn’t already exist, you are expected to make reasonable attempts to find out;
  • A hypothesis relates to a specific, technical or scientific uncertainty, or a set of related gaps, that is being tested by an experiment, it is not the objective of a project as a whole;
  • Experiments involve a series of tasks that are undertaken in a planned and systematic way to evaluate a hypothesis. The experimental steps should be recorded in such a way that they can be repeated by a competent professional in the field;
  • Knowledge that is new to the world (or not reasonably available to a competent professional in the relevant field). It is not sufficient that the knowledge is just new to the organisation conducting the research;
  • The following examples are given in the Frascati Manual of software development activities that may involve R&D:
    • the development of new operating systems or languages
    • the design of new search engines based on original technologies
    • the effort to resolve conflicts within hardware or software based on the process of re-engineering a system or a network
    • the creation of new or more efficient algorithms based on new techniques or approaches
    • the creation of new and original encryption or security techniques;
  • The Frascati Manual notes the following will not involve R&D:
    • software-related development activities of a routine nature
    • solutions to technical problems that have been overcome in previous projects that have the same technical characteristics, such as the same operating systems and computer architecture
    • the development of business application software and information systems using known methods and existing software tools
    • adding user functionality to existing application programs (including basic data entry functionalities)
    • the creation of websites or software using existing tools
    • the use of standard methods of encryption, security verification and data integrity testing
    • the customisation of a product for a particular use, unless during this process knowledge is added that significantly improves the base program
    • routine debugging of existing systems and programs, unless this is done prior to the end of the experimental development process;
  • To demonstrate how your activities meet the eligibility criteria, you can make use of less formal records, such as screenshots, instant messaging histories, and exported content from task tracking or project management tools. The information you keep in your records needs to support your claims that particular activities meet the definition of R&D activities and be understandable by someone outside of your R&D project;

A link to the guidance material is available here.

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