Conducting core R&D activities for the R&D Tax Incentive

To be eligible for the R&DTI core R&D activities must be conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes or services).

Additionally, the outcome of your activity cannot be known or determined in advance and can only be determined by applying a systematic progression of work.

You must ensure that the outcome of your core R&D activity cannot be known or determined in advance. To do this, you need to assess that a competent professional cannot know or determine the outcome of the core R&D:

• based on knowledge, information or experience that is publicly available or reasonably accessible, anywhere in the world
• without an experiment as part of a systematic progression of work.

Information that is not reasonably accessible is not available. This may include information that is commercially sensitive and held by a competitor, for example a trade secret.

You need to check that knowledge of how to achieve your outcome does not exist worldwide. To do this, you may:

• review scientific, technical or professional literature
• carry out internet searches
• conduct patent searches
• seek advice from an expert.

Be sure to determine that your R&D has an unknown outcome before applying for the R&DTI and keep records of how you determined this. You will need these records if your application is examined.

Under the R&DTI your core R&D activities must follow a systematic progression of work. Based on the principles of established science, a systematic progression of work includes all of the following elements:

• hypothesis
• experiment
• observation
• evaluation
• logical conclusions.

You are expected to keep records of each step of the systematic progression of work.

You may conduct one or more steps over several years.

Be aware that your R&D activities may still be eligible for the R&DTI even if you do not reach a positive outcome.

A hypothesis is your idea or proposed explanation for how you can achieve a particular result, and why that result may be or may not be achievable.

You can express your hypothesis in a single statement or in several statements that set out what you plan to do and why. Your hypothesis should explain:

• what result you aim to achieve
• how you intend to achieve the result
• why that result may or may not be achievable.

Your records should show evidence of how background research was used to develop your hypothesis.

An experiment is a scientific procedure that you undertake to test your hypothesis.

Your records should explain how you conduct or plan to conduct your experiment. For example, you might describe the parameters you vary, those you hold constant, and those you observe or measure.

The details and design of experiments may vary between industries and organisations. However, they must aim to test a hypothesis as part of a systematic progression of work.

You may group a series of related experiments in one core R&D activity if each experiment aims to test the same technical or scientific idea.

Observation is where you observe, measure and record information and results (data) that relate to your experiment.

Observations can be:

• quantitative – measuring data with numbers
• qualitative – describing the qualities or characteristics of something non-numerically.

Your observation records should include when your observations were made.

Evaluation is where you analyse the results of your experiments and assess what they mean.

Your evaluation records should show that you:

• analysed your data using established data analysis techniques
• evaluated relationships between the parameters you varied, held constant, tested or measured in your experiment.

The final part step of the systematic progression of work is to draw logical conclusions about your hypothesis based on the evaluation of your experimental data.

Your conclusion may or may not support your hypothesis. You may also conclude that you need to investigate different solutions and test a new hypothesis.

You can then test this new hypothesis through new experiments. Your new experiments may be similar enough to include as part of the same core R&D activity. Or they may be different and need to be part of a new core R&D activity.