As the cut-off for lodgement of R&D tax claims draws near, companies should now be turning their focus to the preparation and registration of their R&D tax credit claim for 2015. With higher levels of review activity and scrutiny by AusIndustry and the ATO, companies need to focus on, and be able to, reinforce and substantiate their R&D claims with suitable records and contemporaneous documentation in the event of an audit.
In short, companies must keep sufficient records to validate:
To elaborate on this, the type of records required for the R&D Tax Incentive can fundamentally be broken down into two categories:
1. Activity-based Record-Keeping
Activity-based records show that activities were actually carried out, and show how they are eligible core or supporting R&D activities. For example:
2. Expenditure-based Record-Keeping
Expenditure-based records justify expenditure claims for eligible R&D activities. For example:
However, this list is not exhaustive. Ultimately, financial records need to show a nexus amongst the expenditure and the R&D activity. Maintaining these documents is advantageous to companies as it will condense the expenditure that may be associated with a compliance review. It also supports the company to conduct its work and re-visit ideas, processes and solutions in the future. Moreover, if the company desires to commercialise its work, impending investors will expect having access to a wide-ranging range of records.
Overall, the records must be sufficient to verify:
If the R&D activity is undertaken by a contractor, documents involving to the contract, the R&D activities and the project report and invoices should contain:
Undeniably, the rules and regulations surrounding the R&D tax credit may be bewildering for some. However, with April 30 only two weeks away, a company may wish to seek external assistance to help identity their R&D eligible activities and evade error judgements. Many accountants are not acquainted with the ins-and-outs of the R&D Tax, thus you may wish to consider a consultant that specialises in the area. Swanson Reed specialises in the R&D Tax Credit – contact us today to discuss your eligibility and learn more about how the R&D Tax Incentive may benefit your business.