When it comes to anything tax-related, your records are everything. The same rule applies for Research & Development grants. Establishing smart record keeping systems can be the difference between winning a grant and missing out – in all seriousness.
The incentive operates on a self-assessment basis. This means it’s your job to determine whether your activities and expenses meet the Government’s criteria.
Every business that registers for the R&D Tax Incentive will need to present records to showcase or support registrations and claims. The better you plan, the greater your chance to leverage R&D funding.
Your R&D records: a double-edged sword
There are two parts to recording everything you need for R&D purposes. The first is activity-based and the second is expenditure-based.
Let’s go through both now.
1. Activities
For any activities you’ve completed, you need to show how they’re linked to your R&D project.
They could be core or supporting activities, such as:
- Notes from meetings with project and technical staff
- Business plans and approvals
- Results of background research and scoping
- Technical project documents, including the results of testing on the product, idea or service
- File notations and updated records to track the progress of an R&D activity.
2. Expenditures
You’ve spent funds and now it’s time to validate your expenditure for eligible R&D activities.
Here are the types of expenditure-based records you should keep:
- Timesheets to verify all time spent on R&D activities
- General ledger entries & invoices to verify amounts incurred on R&D activities – that must include sufficient detail to validate R&D activities
- Spreadsheet or template that consolidates eligible R&D costs into a format for direct input into the ATO R&D Tax Incentive Schedule
- Financial documents & records of expenditure with sufficient detail to comply as R&D activity costs.
A word on record keeping for tax
Your records must also illustrate; the amount of expenditure incurred on activities, the nature of the activities, and the relationship between the expenditure and activities.
The method used to submit your claims (calculate the amount of expenditure R&D activities) must be accepted by the ATO.
You’ll need all your contract documents, project reports, invoices, activity dates, and descriptions of activities performed by the contractor. This way, you can match the fee with a specific R&D activity.
Make sure you keep your records for a minimum of five years.
Plan for R&D. Think ahead.
Successful R&D planning requires you to think strategically about your activities. It becomes part of your business that requires ongoing involvement.
Without proper records, your application simply won’t be considered. The Government wants to help support businesses. So, do what you can to leverage this and keep your records up to date.
If you’re not already recording your business activities, get into the habit of doing it now. This will not only benefit you with your grant process, but in your business practices, too.
Book in your free consult with Ray to learn more about record keeping in your business. We can help you dot your i’s and cross your t’s, so you can put your best financial foot forward.
