Substantiating an R&D tax incentive claim with contemporaneous records
The Australian R&D tax incentive is substantiated by records created while the work happens, not by an allocation performed after year end, which means the split between eligible and ineligible activity has to be captured in the payroll and ledger coding throughout the year. This is an illustrative example of how Salt approaches R&D substantiation, using a 16-person Sydney SaaS company as the profile.
Scenario — an illustrative example of how Salt approaches this problem. Not a description of a specific client engagement.
The business shape it describes: Sydney SaaS, 16 staff, R&D tax incentive claimant.
- Scenario covers
- Bookkeeping and controller support for R&D claim substantiation, aligned to the quarterly BAS cycle
- Jurisdiction
- Australia
- Sector
- SaaS
- Take a Sydney SaaS company of 16 staff that claims the R&D tax incentive annually, assembling the claim retrospectively each year from memory and estimates.
- Development spend sits in a single account with no split between eligible R&D activity and ordinary software maintenance.
- No contemporaneous records tying salary cost to eligible R&D activity, which is what substantiates a claim if it is ever examined.
- Contractor spend not separated between experimental development and general engineering support, even though the two are treated differently.
- Cloud infrastructure costs claimed in full despite the same environments supporting production workloads, with no apportionment basis documented.
- The claim treated as an annual event disconnected from the quarterly BAS cycle, so the bookkeeping never carried the coding the claim would later need.
- Introduce activity-level time capture mapped to the claim categories, so eligible and ineligible effort are separated as the work happens.
- Split contractor and infrastructure spend on a documented apportionment basis, recorded at the time rather than reconstructed later.
- Code the eligible and ineligible split into the ledger as part of the ordinary quarterly BAS cycle, so the claim is a by-product of routine bookkeeping rather than a separate annual project.
- Align the record-keeping to the registration timetable, since registration with the R&D programme has to happen within ten months of the end of the income year before the claim can be made in the company return.
- Prepare the supporting analysis for the company's registered tax agent, who lodges the registration and the return.
- Substantiating an R&D claim is a records problem before it is a tax one. The split between eligible and ineligible activity has to be captured while the work happens, because after year end it is an estimate wearing a spreadsheet.
- It also takes a willingness to tell a client that the defensible claim is smaller than the one they have been making.
- The company would be able to support its claim with contemporaneous records rather than a retrospective reconstruction.
- Eligible and ineligible spend would be separated in the ledger throughout the year, so the claim is assembled from data rather than from recollection.
- The registration deadline would be a diarised date tied to the year end rather than something noticed late.
What we'd flag
Separating eligible spend properly generally reduces the claim relative to a retrospective one, because retrospective claims tend to be more generous than the records can defend. A company budgeting against the larger figure has a cash planning problem as well as a compliance one.
Substantiating an R&D tax incentive claim with contemporaneous records
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