A percentage in an R&D calculation is only useful if the business can explain how it was reached. Where employees or resources support both R&D and ordinary operations, the allocation needs a defensible connection to the eligible work. A convenient estimate or a percentage carried forward from last year may conceal changes in responsibilities, activity boundaries or the way costs were incurred.
Begin with the work performed
Identify the eligible activities and the people or resources involved before selecting an allocation method. The ATO's guidance requires a reasonable basis that reflects expenditure on R&D and recognises that one method may not suit every cost category. [R8] A technical conclusion about an activity does not automatically establish the amount of wages or overheads attributable to it.
For staff costs, ask what each person actually did during the relevant period. A job title such as engineer or research manager does not explain the split between experiments, customer work, administration and other responsibilities. Gather the records available and assess whether they provide a reliable basis for the proposed allocation. Explain limitations rather than conceal them behind a precise-looking figure.
Test the basis against a sample
Select a few employees and periods and trace the calculation back to the underlying evidence. Can finance explain the payroll amount? Can the technical team explain the activity? Does the allocation period match the work described? This practical check can reveal duplicated amounts, inconsistent assumptions or a mismatch between project labels and the registered activities.
Consider a hypothetical employee who worked on several projects while also supporting customers. A blanket allocation to R&D based on their department may not describe that pattern. A better assessment begins with the actual work and available records. The appropriate method requires advice on the facts; there is no universal percentage that makes the allocation correct.
Treat overheads separately
Review each category rather than automatically applying the staff percentage to every expense. Ask what causes the cost and how the eligible work uses the relevant resource. An allocation basis may look plausible while failing to reflect the way a particular expense is incurred. Keep the rationale with the calculation so another person can follow the reasoning later.
Check that costs included elsewhere have not been counted twice. Reconcile the claim to the general ledger and identify adjustments clearly. Where a cost is not eligible or cannot be sufficiently linked to eligible activities, address that issue before considering allocation. Apportionment cannot turn an otherwise ineligible expense into an eligible one merely by reducing the amount claimed.
Make the file explain itself
Keep the inputs, method, assumptions and reconciliation together. Record who reviewed the calculation and what evidence was used. If the method changes between years, explain why. This helps preserve continuity when staff leave and allows the business to respond more coherently if an adviser or reviewer asks how an amount was determined.
Ardian Law works with businesses and accountants on R&D expenditure questions and contested allocations. Call 02 8111 7700 if you need a review of the legal basis and evidence supporting your wages or overhead calculation.