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Energy sector guide for the R&D Tax Incentive
Disclaimer
The information provided in this guidance is general in nature and is intended to help you to self-assess the eligibility of your R&D activities. If the Department of Industry, Science and Resources undertakes a formal review, we will assess your activities against the legislative criteria set out in sections 355-25 and 355-30 of the Income Tax Assessment Act 1997.
Common risk areas for energy-related R&DTI applications
When self-assessing your eligibility for the R&DTI, there are some common risk areas to be aware of if you are conducting energy-related activities.
In the energy sector, companies often test off-the-shelf products before deployment to confirm they perform as expected, meet specifications, or operate effectively in Australian conditions.
This type of testing is unlikely to qualify as a core R&D activity because it does not aim to resolve a technical problem that can only be resolved through experimentation. Often, the product’s performance is already known or can be determined in advance from the manufacturer’s specifications or technical documentation.
Energy-related activities, such as renewable power generation or smart grid integration, often require site-specific adaptation or optimisation.
Activities which involve making incremental adjustments to determine the appropriate operating settings are unlikely to qualify as core R&D activities. This is because the relationship between the parameters being adjusted and the outcome has been established by the manufacturer. While the site-specific optimal settings cannot be predicted in advance, existing knowledge provides a known range of expected outcomes.
Routine testing in the energy sector involves:
- activities conducted to support ongoing operation
- maintenance and management of energy systems
- verifying performance or compliance with standards.
Routine testing often does not meet the requirements of a core R&D activity because it:
- generally applies existing knowledge and information
- does not aim to resolve a technical problem, where the solution is not known (even by experts)
- does not involve hypothesis-led experimentation.
For example, performance testing on a solar power system to verify that it achieves the target electricity output does not qualify as a core R&D activity. This is because it is undertaken to confirm performance against a known requirement, rather than to resolve a technical problem through experimentation.
Other examples of routine testing in the energy sector include:
- efficiency and output testing of wind turbines during commissioning to verify power curves and availability
- emission testing to demonstrate compliance with regulatory limits or reporting requirements
- standard capacity, cycle‑life and round‑trip efficiency testing of battery systems.
Routine testing may be eligible for the R&DTI if it is part of a broader core R&D activity or meets the requirements of a supporting R&D activity.
Energy sector exclusions
Certain activities are not eligible to be registered as core R&D activities under the R&DTI program. Find a list and detailed explanation of excluded activities on the Excluded R&D activities under the R&DTI page.
The exclusions that commonly apply to the energy sector are:
- market research/testing/development, or sales promotion (including consumer surveys)
- management studies or efficiency surveys
- activities associated with complying with statutory requirements or standards
- activities related to the reproduction of a commercial product or process.
Activities excluded from being core R&D activities may still qualify as supporting R&D activities.
Record keeping for energy-related activities
You must keep records to demonstrate the eligibility of your activities and expenditure for the R&DTI. The Record keeping for the R&DTI page provides more information and recommended practices.
The following table provides examples of records that may demonstrate the eligibility of energy-specific R&D activities. Remember, it is the content of the records, rather than the format in which they are kept, that is important when demonstrating eligibility.
| Eligibility requirement | Example of records |
|---|---|
|
Outcome that could not have been known or determined in advance |
An unknown outcome generally occurs when a technical problem exists that could not be solved using known processes, methods or technologies. The records you keep should show:
You may record this information in the form of feasibility studies, engineering assessment reports, meeting notes, expert reports, technical reports, grid modelling studies, simulation and failure analysis reports, incident reports, emission reports, supervisory control and data acquisition records, and project approval papers. |
|
Systematic progression of work (hypothesis, experiment, observation, evaluation and conclusion) |
Your records should show how the hypothesis-led experiment was undertaken to solve the technical problem. For example, your records may show:
You may record this information in the form of:
|
|
Conducted for the purpose of generating new knowledge |
Your records should show the purpose of undertaking the activity. You may record this information in the form of meeting notes, reviews undertaken that identify the need to conduct experiments, project documents, meeting notes, correspondence, expenditure approval requests or funding justifications. |
| Supporting R&D activities directly related to a core R&D activity |
Your records should show how the activity supports refining the hypothesis, conducting the experiments, gathering and evaluating the results, and/or formulating conclusions. You may record this information in the form of agreements, contracts and other documents describing what was done. |
Examples
The following hypothetical examples are designed to help you better understand the eligibility requirements of the R&DTI and identify which of your activities may qualify for the program. These examples provide general guidance only and do not replace the legislative definitions.
Example 1: developing a new interlayer material for solid-state lithium batteries
This example shows when performance testing of a newly developed material meets the requirements of a core R&D activity. It outlines why the activity has an outcome that cannot be known or determined in advance and can only be determined by applying a systematic progression of work.
Scenario
A company plans to improve the performance of its all-solid-state lithium battery (ASSLB) by developing a new interlayer material designed to suppress lithium dendrite formation, a factor that compromises battery performance and safety.
The company identifies several potential interlayer materials, but they are not suitable for its ASSLB design and performance requirements. Through further research, it proposes a new, flexible interlayer consisting of a lithium-ion conducting polymer and ceramic nanoparticles. At the time the activity was conducted, the company was unable to find publicly available information about its proposed interlayer and its use in AASLB.
The activity
In discussions with the experts in the field, the company confirms that changes in material composition can unpredictably influence battery characteristics and performance. Therefore, it is not possible to predict whether the proposed interlayer will suppress lithium dendrite formation and maintain the company’s target battery performance.
The company concludes that the only way to determine whether the new interlayer will achieve the desired outcome is through experimentation. It then develops the new interlayer, incorporates it into its ASSLB, and conducts experiments to assess its effect on interfacial resistance, critical current density and lithium deposition morphology.
Core R&D activity
This activity can qualify as a core R&D activity because the outcome:
- cannot be determined in advance from current knowledge, information or experience, and
- can only be resolved by applying a systematic progression of work.
Through its research and consultation with experts, the company has demonstrated that the effect of the new interlayer material on dendrite formation and performance in ASSLB cannot be determined in advance (technical uncertainty). The company then proceeds to develop and undertake hypothesis-led experimentation to resolve the technical uncertainty.
Example 2: developing an enclosure for a solid-state lithium battery
This example shows when developing a component for a product does not meet the requirements for a core or supporting R&D activity. It outlines why the activity does not involve an outcome that cannot be determined in advance based on existing knowledge. The activity also does not directly relate to a core R&D activity.
Scenario
A company has completed its core R&D activity to determine the performance of a new interlayer material for its all-solid-state lithium batteries. The company has progressed to designing a new enclosure for the battery when it goes on sale. The enclosure must safely contain the battery, provide protection in its operating environment, and comply with regulatory and manufacturing requirements.
The activity
The company designs the battery enclosure using established standards and known materials to meet the required strength, safety, and size requirements. This includes selecting suitable structural and insulating materials, adding mounting features, designing pathways to manage heat, and keeping dust and moisture out. The company applies established engineering principles and methods to comply with all relevant commercial and safety standards.
Outcome can be determined in advance
This activity is not a core R&D activity because the outcome can be determined in advance based on current knowledge, information or experience. The company designed the battery enclosure by applying established design standards and engineering principles, using materials with known performance values.
Not directly related to a core R&D activity
This does not qualify as a supporting R&D activity under the R&DTI.
The design of the battery enclosure is not directly related to the core R&D activity of determining the performance of the new interlayer material in the company’s batteries. The activity does not support any element of the systematic progression of work. Rather, the activity focuses on designing a fit‑for‑purpose enclosure for the batteries when they are sold.
Example 3: verifying hydrogen purity outcomes from a new‑to‑market commercial electrolyser under Australian conditions
This example shows when testing a new product in a different location fails to meet the requirements of a core R&D activity. It does not address a technical problem that could only be resolved through experimentation. It also shows that the testing cannot be considered a supporting activity because it does not directly relate to a core activity.
Scenario
A company installs a commercially available hydrogen electrolyser to produce green hydrogen. The electrolyser is designed to produce hydrogen at a specified purity level when operated using demineralised water that meets defined quality standards. Because the product is relatively new to the market, there is limited publicly available information on its operation in different jurisdictions, including Australia. However, the manufacturer provides detailed technical specifications, operating parameters and guidance on water quality requirements.
Activity description
The company aims to determine whether the electrolyser can produce hydrogen at the manufacturer-specified purity levels when operated using locally sourced demineralised water.
The locally sourced water supply has a different chemistry and mineral content from water used in overseas deployments. To address these differences, the water is treated in accordance with the manufacturer’s specifications before being supplied to the electrolyser.
The company then operates the electrolyser under the specified operating conditions and analyses the hydrogen output to assess purity. The results confirm that the electrolyser produces hydrogen that meets the required purity specifications.
Outcome can be determined in advance
This does not qualify as a core R&D activity because the outcome can be determined in advance based on current knowledge, information or experience.
The activity confirms that the electrolyser can achieve the hydrogen purity specified by the manufacturer when operated with water that meets the manufacturer’s required input standards. The company verified known performance characteristics rather than resolving a technical problem which required hypothesis-led experimentation.
Not directly related to a core R&D activity
The activity also fails to qualify as a supporting R&D activity because it is not directly related to a core R&D activity. The company does not need to conduct a core R&D activity because relevant information about achieving the required hydrogen purity is already available from the manufacturer.
Windwake
Watch how a renewable energy company may apply for the R&DTI. The company in this video develops software to model wind noise and work out where windfarms should be located.
While this video refers to AusIndustry, the R&D Tax Incentive is co-administered by the Department of Industry, Science and Resources (on behalf of Industry Innovation and Science Australia) and the Australian Taxation Office.