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R&D Definitions

By In R&D Tax Benefits On July 09, 2011


The following statements aim to clarify the definition of projects and activities eligible for the R&D Tax Concession (existing conditions) and Credits (proposed changes to the program).

Core R&D Activities

1)     Object of Each project must contain one core R&D activity.  The proposed amendments to the act define this as an experimental activity that is conducted for the purpose of generating new knowledge (including the creation of new or improved materials, products, devices, processes or services).

2)     Core R&D activities are (current definition):

a)    systematic, investigative and experimental activities that involve innovation or high levels of technical risk and are carried on for the purposes of:

i)        acquiring new knowledge (whether or not that knowledge will have a specific practical application); or

ii)      creating new or improved materials, products, devices, processes or services; or

b)    other activities that are carried on for a purpose directly related to the carrying on of activities of the kind referred to in paragraph

3)     Core R&D activities are experimental activities: (new definition)

a)    whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that:

i)        is based on principles of established science; and

ii)      proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and

b)    that are conducted for the purpose of generating new knowledge (including about the creation of new or improved materials, products, devices, processes or services).

4)     activities are not taken to involve innovation unless they involve an appreciable element of novelty; and activities are not taken to involve high levels of technical risk unless the probability of obtaining the technical or scientific outcome of the activities cannot be known or determined in advance on the basis of current knowledge or experience; and the uncertainty of obtaining the outcome can be removed only through a program of systematic, investigative and experimental activities in which scientific method has been applied, in a systematic progression of work…from hypothesis to experiment, observation and evaluation, followed by logical conclusions. (new definition)

Supporting R&D Activities

5)     Supporting R&D activities are activities directly related to core R&D activities.

6)     However, if an activity:

a)    is an activity referred to in subsection 355–25(2) [ie an excluded activity]; or

b)    produces goods or services; or

c)    is directly related to producing goods or services;

the [excluded] activity is a supporting R&D activity only if it is undertaken for the dominant purpose  of supporting core R&D activities. (new definition)