Importance of Supporting Documentation in Your R&D Tax Incentive Claim

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When you are running a business, there are a lot of things that you need to keep in mind – things like accounting, financial statements, cash flows and the documentation of everything that accounts for your business. This is apart from taking care of the timely, efficient and quality-bound business deliverables to your end customers.

This is common for any business. These things start to play an even more vital role, if your business is research and development oriented, you have the right to claim tax credits and apply for R&D tax loans. Before you read on to find the importance of supporting documentation for claiming your R & D tax incentive, first learn some important facts!

Importance of Supporting Documentation in Your R&D Tax Incentive Claim1.  What is R & D Tax incentive claim?

As the name indicates, it is a claim that you can get from the government of Australia – when your company is working on projects that are research and developmental in nature. It is given to mainly encourage research and development of sciences which is required for the development of a strong economy. This program is a joint venture between ATO and the AusIndustry (who act on behalf of Innovation Australia).

2.  Which business qualifies for the R &D Tax Incentive claim?

These are some of the key points you need to keep in mind:

a.  The research should be on the development of technology – whose outcome is not already known and is difficult to be determined by general analysis.

b.  The project/research should be governed by principles of sciences.

c.  The research moves from experiments, leading to observation, analysis, evaluation and some logical conclusion- which will be of help to the larger masses of population.

d.  Your research should be registered with the “AusIndustry”.

e.  Your company must be a regular payee of the corporate taxes with the government.

f.  This facility can be availed by both SME (Small and Medium Enterprises) and the large industries.

3.  Supporting documentation and its importance

Book keeping and maintaining the required documents to substantiate that your company is working on R & D activities is as important as delivering the right quality product to your customer. Meaning- it is very important to maintain the relevant documents – about the expenses incurred, staff cost, contractor costs etc. It is important to keep the financial affairs of the business in place and readily available for any kind of audit.

Before you file for the R & D tax credit incentive from the government, make sure that you have the following in place:-

1.  Staff cost – This includes details on who conducted the research activities and the number of hours spent on the same.

2.  Cost incurred by your core R & D activities and the supporting activities. You also need documentation to verify who funds were allocated for the same.

3.  Contractor and sub-contractor charges- bills related to the same.

4.  Software costs that are involved only for your R & D related activities.

5.  Records of any purchase, sale, receipts and payments made to third party.

6.  Financial transactions of the day to day basis (related to R & D activities).

7.  All material costs that are used for R & D activities only.

8.  Total expenditure incurred for all your R&D activities.

9.  All invoices, payments and records related to the same mentioned above is a must to have.

Generally, the AusIndustry expects that relevant records are maintained for a minimum period of five consecutive years. You can be penalized if all relevant documents are not in place.