Research and development has a specific definition under the R&D Tax Incentive that is different to everyday usage. Understanding the key concepts of 'Core' and 'Supporting' R&D Activities — and excluded activities — is essential to making a valid claim.
Core R&D Activities
Core R&D activities are activities with outcomes that a competent professional can't know or determine in advance, based on current knowledge, information and experience. The outcomes can only be determined by applying a systematic progression of work that:
- Is based on principles of established science
- Proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions
You must conduct them for the purpose of generating new knowledge — in the form of new or improved materials, products, devices, processes or services. Some types of activities are excluded from being core R&D activities, although some excluded activities may still be eligible as supporting R&D activities.
Supporting R&D Activities
Supporting R&D activities are those that directly relate to core R&D activities. You need to demonstrate how your supporting R&D activity directly relates to a core R&D activity, and AusIndustry expects you to record that relationship when you conduct your activities.
Some supporting R&D activities can only be claimed if they are undertaken for the dominant purpose of supporting your core R&D activities — including activities that are excluded from being core activities, produce goods or services, or are directly related to producing goods or services.
Excluded R&D Activities
The following activities are excluded from being registered as core R&D activities (though some may qualify as supporting activities):
- Market research, market testing, market development, or sales promotion including consumer surveys
- Prospecting, exploring or drilling for minerals or petroleum
- Management studies or efficiency surveys
- Research in social sciences, arts or humanities
- Commercial, legal and administrative aspects of patenting, licensing or other activities
- Activities associated with complying with statutory requirements or standards, including routine testing and analysis
- Any activity related to the reproduction of a commercial product or process by physical examination of an existing system, or from plans, blueprints, or publicly available information
- Developing, modifying or customising computer software where the dominant purpose is use by the developer (or a connected entity) for internal administration
Source: business.gov.au — Assess if your R&D activities are eligible
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