What you need to know (in a nutshell)
The RDTI program has not adequately addressed the challenges of software development, making it difficult for businesses to claim the RDTI for software-based R&D activities.
The definition of a "core activity" provided by AusIndustry is open to interpretation, creating a large grey area when it comes to defining what constitutes software-based R&D.
To successfully claim the RDTI for software-based R&D, businesses should seek expert advice and provide a detailed and accurate description of their activities.
When the ATO conducted a review of the RDTI program in May 2021, many people expected that they would recommend a separate approach for dealing with software-based R&D claims. However, the ATO stated that "refreshed guidance" would enable the existing program to adequately address these claims.
Finally, in April 2022, the Department of Industry, Science, Energy and Resources (AusIndustry) released new guidance on the RDTI program. Many business owners expected this guidance to provide much-needed clarity on what activities could be claimed under the program. However, the guidance has been criticized for providing only one inadequate case study, leaving many businesses unsure of how to properly claim the RDTI for their software-based R&D activities.
One of the biggest challenges for businesses trying to claim the RDTI for software-based R&D activities is AusIndustry's definition of a "core activity." According to AusIndustry, a core activity is an experimental activity that is performed for the purpose of generating new knowledge, and whose outcome cannot be known in advance. This definition has proven to be confusing for many businesses, making it difficult for them to know whether their activities qualify for the RDTI.
One of the main challenges of applying AusIndustry's definition of a "core activity" to software development is that it can be interpreted in different ways. For example, is rewriting source code to another language considered the generation of new knowledge? This question does not have a clear-cut answer, and the guidance provided by AusIndustry is open to interpretation. As a result, businesses seeking to claim the RDTI for their software-based R&D activities should consult with experts who are familiar with the program and can help them align their activities with the relevant definitions. Ultimately, however, the interpretation of these definitions is up to AusIndustry, and there is no guarantee that they will agree with the way a business has interpreted the guidance.
AusIndustry has merely provided guidance on the RDTI program. As a result, it is important for businesses seeking to claim the RDTI for their software-based R&D activities to consult with experts who can help them align their activities with the relevant definitions. However, even with the right guidance, there is no guarantee that AusIndustry will interpret a business's activities in the same way.
One of the challenges of applying AusIndustry's definition of a "core activity" to software development is that it works well for "physical" research, where there are clear limits on what is possible, but it is less effective for "digital" research, where the possibilities are almost limitless. This creates a large grey area when it comes to defining what constitutes software-based R&D, making it essential for businesses to accurately describe their R&D activities in order to have a successful claim.
If you are a business owner and you are looking for tips on how to write a robust description of your R&D activities for an RDTI application, here are five quick tips specifically for software-based R&D:
Form measurable hypotheses using metrics.
Accurately describe how these metrics were tested, in detail.
Record key bugs and issues encountered during development.
Thoroughly understand the current state of knowledge in your field.
Justify why any supporting activities were necessary for conducting a "core activity."
Remember that every R&D project is different, so these tips may not apply to every situation. However, following these guidelines can help you provide the information that AusIndustry needs in order to evaluate your RDTI claim.