R&D Tax Incentive Core Activities: What's In & What's Out?
The R&D Tax Incentive program is broad based and covers a diverse range of industries and experimental work. But there is a selection of activities that are excluded from being registered as core R&D activities under the program.
What is excluded from being a core R&D activity?
In brief, activities that are excluded from being registered as core R&D activities include activities involving:
Market research, market testing, market development, or sales promotion - this includes consumer surveys
Prospecting, exploring or drilling for minerals or petroleum for the purpose of discovering deposits or determining a more precise location, the size or the quality of deposits
Management studies or efficiency surveys
Research in social sciences, arts or humanities
Commercial, legal and administrative aspects of patenting, licencing or other IP activities
Compliance with statutory requirements or standards
Reproduction of a commercial product or process
Developing, modifying or customising software used for the dominant purpose of the claimant’s internal administration.
For further examples for each type of excluded core activity, AusIndustry’s ‘Guide to Interpretation’ on the R&D Tax incentive is a good point of reference.
Does this mean I can’t claim these activities at all?
Even though these activities can’t be registered as core R&D activities, it is possible that they can still be registered for the R&D Tax Incentive as supporting activities. This is only possible where they are undertaken for the dominant purpose of supporting a registered core activity.
To assess this, an applicant will need to consider how and when the activity was conducted in relation to the registered core activity, and how it was established that the activity was required. You need to determine whether there were any other purposes for conducting the activity, and if any of the established purposes were more influential than the support of the core activity.
Aspects to consider include why the activity needed to be completed as part of the systematic progression of work to address the core hypothesis, as well as whether the activity could be considered beyond the scope of normal work if the core activity did not occur. Once it is established that the activity was conducted for the dominant purpose of supporting the core R&D activity, it may be registered as a supporting activity.
Examples
A program developed for learning linguistic patterns, where the purpose is to seek knowledge to improve teaching methods would be an excluded activity as it constitutes research in social sciences. However, if this knowledge surrounding teaching methods was used to develop a sensor capable of detecting brain waves to tailor an individual’s learning experience, it could be said that the dominant purpose of the study was to support the development of the sensor rather than to understand how people learn. Thus, it may then be claimed as a supporting activity.
If a patent search was conducted with the intent of gathering information to define a hypothesis, determine a scope of knowledge, and inform the design of a set of experiments and trials to test a defined hypothesis, then the dominant purpose of the patent search may be to allow for the experimentation to occur. Thus, it may be eligible to be registered as a supporting activity.
These examples are not exhaustive, and applicants need to assess their own individual circumstances. In all cases, regardless of the type of core activity exclusion, the activity must be able to meet all requirements of a supporting R&D activity to be registered as part of the R&D Tax Incentive.