Eligible activities for the R&D loss tax credit

This page sets out what activities are eligible for a research and development (R&D) loss tax credit. It also shows those activities that are not eligible for the tax credit.

Your research and development (R&D) should be a study to gain new knowledge of a scientific or technical nature. This can result in new or large improvements to materials, products, devices, processes or services.

Research activities

Your research must:

be original
involve a planned investigation.

Planned investigations should be about gaining new scientific or technical knowledge and understanding.

Original

Original is defined as being new. That is, not already available publicly or commercially. This also covers research and development to create something new for your company.

Planned

Planned is defined as a proposed strategy for a future goal. There should be a stated end result and a structured approach for achieving this.

Investigation

Investigation is defined as a series of processes with clear steps to gain new knowledge.

New knowledge

New knowledge refers to a new theoretical or practical understanding of a subject. For example, knowledge that was unknown before and not expected.

Development

Development uses research findings to produce new, innovative or substantially improved:

materials
devices
products
processes
systems
services.

Substantial improvement

Substantial improvement has a high threshold. It is more than just an improvement and should be easily recognised. There should be an identifiable amount of originality and innovation.

Innovation

This is the way to tell if your project is R&D. It separates your project from business-as-usual activities.

Development activities excluded for the R&D loss tax credit

There are development activities excluded for the purposes of the R&D loss tax credit.

Activities that happen before commercial production. These also known as pre-production activities. For example, tooling-up, trial runs, production planning, and start-up procedures.
Activities that have moved into commercial production.
Activities that seek to duplicate work already developed by others. These are not R&D unless you can show that the knowledge is not available to the company, for example, a trade secret.
Activities that reproduce existing product or process, for example, reverse engineering.

The following are examples of what may be considered R&D and must meet the definition for the R&D loss tax credit:

A deliberate search for new knowledge, intellectual property and know-how.
A clearly defined project with separate and identifiable costs.
Results written up as part of a knowledge capture during or at the end of an R&D project.
Freedom to Operate (FTO) search and analysis as part of planning and scoping the R&D project. FTO is required when determining whether valid intellectual property rights exist, or will be infringed.

Software

Application programme interfacing where unknown programme interactions require new technical solutions.
Complex data capture and analysis requiring new technical solutions.

The following are examples of some areas that aren't considered R&D for the purposes of the R&D loss tax credit:

Exploring if something is already known compared to gaining new knowledge.
Reverse engineering or copying compared to substantially improving something.
Routine design of tools, jigs, moulds and dies, seasonal or other periodic design changes to existing products.
Adapting an existing product or process to a particular customer's need or site.
Drafting documents to publish or communicate research results.
Work to implement or comply with international quality management systems, for example, ISO 9001.
Clinical trials beyond Phase II.