A business can create an excellent product without every development activity qualifying for the R&D Tax Incentive. Equally, an experiment can fail commercially and still require careful eligibility assessment. The starting point is the activity and the statutory test, rather than how exciting, expensive or difficult the overall project appears. That distinction helps teams prepare descriptions that address the relevant questions.
Identify the experimental activity
The core activity definition concerns experimental work with an outcome that cannot be known or determined in advance from current knowledge, information or experience. It requires a systematic progression based on established science, moving through hypothesis, experiment, observation and evaluation to logical conclusions, and a purpose of generating new knowledge. Exclusions also need consideration. [R4]
Use that framework to identify the particular work being assessed. A description such as developing a new platform or improving a production process may be too broad to explain the experiment. Ask the technical team what specific outcome they needed to determine, why available knowledge was insufficient and how the work was designed to answer that question.
Separate uncertainty from unfamiliarity
A team may not know how to perform a task even though a solution is available through established knowledge or experience. Before treating uncertainty as the foundation of a claim, investigate what information was available at the time. Record the enquiries made and the technical reasons an outcome could not be determined through that knowledge alone.
A practical internal question is: if another appropriately skilled professional reviewed our starting position, what would they need to see to understand why experimentation was required? This is a way of challenging the explanation, not a replacement for the legal test. The answer should refer to the actual technical problem rather than the team's confidence or enthusiasm.
Explain what was tested
Set out the proposed explanation, the experiment and how observations were evaluated. Avoid simply listing development milestones. A milestone may show progress towards a commercial deliverable without explaining the knowledge sought or the conclusion drawn. If the experimental approach changed, explain why and identify the records supporting that change.
For example, in a hypothetical engineering project, installing a new component is an event. Testing a defined proposition about its behaviour under specified conditions is a different description of work. Whether that work qualifies depends on all relevant requirements and evidence. The example is a way to sharpen the questions, not a conclusion that component testing is automatically eligible.
Assess the boundaries honestly
Identify where experimentation begins and ends within the wider project. Consider supporting activities separately and examine any applicable exclusions. A business case, development budget and R&D activity description serve different purposes. They should be consistent, but they do not need to describe every task as eligible R&D in order to explain the project accurately.
If your team is struggling to distinguish innovation from eligible activity, Ardian Law can help assess the legal and technical position. Call 02 8111 7700 with a short project description and the experiments you are considering for the claim.