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A warning for companies using AI to assist with drafting their R&D Tax Incentive Applications

Businesses are increasingly leveraging Artificial Intelligence (AI) to streamline various tasks in a bid to achieve significant time savings and efficiency gains.

However, when using AI to assist in the drafting of documents that present legal obligations (such as an R&D Application), care should be taken to ensure the information disclosed is correct.

In recent months, we have observed a growing trend of companies using AI to assist with the collation of the initial draft content for their Research and Development (R&D) Applications. This may be a trend that the R&D Tax Incentive programme regulators are also noticing, and they may adapt their processes to target compliance accordingly.

AI offers the potential to enhance efficiency in certain aspects of R&D Activity documentation, such as assisting to compile literature reviews at the outset of activities to assess the current state of existing knowledge.

However, companies preparing R&D Applications with the assistance of AI must use caution, noting that an R&D Application is a formal document submitted to a federal government agency, requiring a factual and evidence-based approach to account for R&D Activities genuinely undertaken by the company.

The declarations within the R&D Registration Application require the company to acknowledge (among other things) that:

• the information in this application is true and correct and accurate in all material details, and that the activities and corresponding expenditure described in this application meet all prescribed eligibility requirements for the R&D Tax Incentive … giving false or misleading information is a serious offence;
• the R&D entity, while undertaking the activities described in this application, has maintained records, while the activities were conducted, that substantiate the conducting of the activities to be registered for the R&D Tax Incentive;
• the R&D entity will provide further information as requested by the Department or Innovation Science Australia to support my registration in the future, and the R&D entity will do so in a reasonable amount of time after receiving a request.

Any deviation from a factual description of R&D Activities put forward for registration due to AI-assisted drafting presents a serious issue.

Swanson Reed strongly advises all companies using AI to assist with drafting their R&D Application to ensure that the final submission undergoes a thorough human review, ideally conducted by an experienced R&D tax advisor and personnel responsible for the company’s governance. This review should confirm that the company’s R&D application is a factual and accurate reflection of the company’s actual R&D Activity (and not something exaggerated or containing hallucinations).

Companies submitting claims themselves (or using an agent or consultant not conducting a thorough review) that have used AI to draft descriptions may expose themselves to risk of their applications not being correct or presenting credibly if not checked thoroughly.

As part of our processes, Swanson Reed works with companies to review the R&D Application to confirm that the R&D Activity descriptions are correct and align with records they have kept during the year.

Review of R&D Applications that are identified as likely to have been drafted using AI may be a compliance focus of regulators in the year ahead.

Please get in touch with our office if you require assistance, would like to speak to someone about a potential claim, or check out our website for more information.