Software development sector guide for the R&D Tax Incentive

Software development is critical to our modern economy and is undertaken across all sectors that access the R&D Tax Incentive.

Read our guidance materials to help you self-assess the eligibility of your software-related activities under the R&D Tax Incentive.

The R&D Tax Incentive is administered by us and the Australian Taxation Office (ATO). We share information about registrations and claims to ensure program compliance.

We prepare taxpayer alerts to provide a summary of the concerns about new or emerging higher risk tax arrangements or issues. The following taxpayer alert is specific to the R&D Tax Incentive.

Following the Full Federal Court decision in Moreton Resources Limited v Innovation and Science Australia [2019] FCAFC 120, we have updated how we assess whether an activity was conducted for the purpose of generating new knowledge.

Therefore, the taxpayer alert should be read with the following information in mind:

• Activities involving the application of existing technology in a different context or location are capable of meeting the definition of ‘core R&D activities’. This will depend on the circumstances of the individual case, and whether all of the legislative requirements for ‘core R&D activities’ are met.
• Activities where the outcome could be known or determined in advance may still have been conducted for the purpose of generating new knowledge. However, activities need to meet both of these legislative requirements to be ‘core R&D activities’.

We have also updated our guidance on software-related activities. Software-related activities excluded from being core R&D activities because they have the dominant purpose of use for internal administration (including administration of business functions) may be able to be claimed as supporting R&D activities provided they meet the necessary requirements including a dominant purpose of supporting a core R&D activity.