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Which parts of a software build qualify for the R&D Tax Incentive?
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Overview
A software build can include eligible R&D alongside everyday development. Look for a technical question the team could only answer by running an experiment, then separate the work and costs linked to it.
Find the question an expert couldn’t answer in advance
Your engineers spent four months getting a new search feature to work. Some of that time went into testing an unfamiliar indexing method. Some went into login screens, deployment and fixing a browser bug. For Australia’s R&D Tax Incentive, it’s worth looking at each activity separately. A product roadmap is a poor guide to what qualifies.
A core R&D activity must meet several conditions. Its outcome couldn’t be known in advance by a competent professional using available knowledge. The team must undertake the work to generate new knowledge and test a hypothesis through a systematic experiment, observing and evaluating the results before drawing conclusions.
Imagine an engineering team trying to keep search response times below a target while rebuilding an index under heavy load. The developer records which established methods were investigated, why they couldn’t predict the outcome, and what the new approach is expected to achieve. Comparing two approaches under the same load produces evidence the team can evaluate, even if both miss the target.
Draw a boundary around the claim
Routine configuration, standard bug fixes and customer acceptance testing need their own assessment. A supporting activity must be directly related to a core experiment. Some supporting activities also need to be undertaken mainly to support that core work. Software developed mainly for internal administration has a specific exclusion from core activities.
