How to respond to an AusIndustry or ATO R&D review

Receiving a letter that the Australian Taxation Office (ATO) or AusIndustry is reviewing your Research and Development (R&D) Tax Incentive registration or claim is unsettling for any business. You have put serious effort into your R&D activities, and a review can feel like a challenge to your integrity. The good news is that a review is a standard part of the program’s integrity framework. Thousands of registrations and claims are examined each year, and many are resolved with no change when the business can explain its activities and provide supporting evidence.

This guide walks through a practical, step-by-step process for responding to an AusIndustry or ATO R&D review. It is general information only and does not constitute tax, financial, or legal advice. You must confirm any detail with a registered tax agent who understands your circumstances and the current rules. For a plain-English primer on the incentive itself, read our guide What is the R&D Tax Incentive?.

Prerequisites: what you need before you respond

Before you draft a single sentence, make sure you have the following at hand. A calm, orderly start prevents mistakes and gaps that can drag out the review.

• The review letter or email: Read it several times. Note the income year, the specific questions asked, the deadline for reply, and whether the review comes from AusIndustry (registration and activity eligibility) or the ATO (expenditure substantiation and offset calculation). Sometimes both agencies coordinate, and the letter will indicate that.
• Your original registration and claim lodgements: The AusIndustry registration number, the registered activities, the R&D project narrative you submitted, and the ATO company tax return or R&D schedule that claimed the offset.
• Supporting evidence: Contemporaneous records, not just a summary prepared afterward. This includes technical notes, design documents, test results, timesheets, emails that show project progress, invoices from suppliers, and any contracts with researchers. The ATO emphasises that records created at the time the R&D activity was carried out carry far more weight, as outlined in the ATO’s guide on the R&D tax incentive audit and review process.
• Your registered tax agent: A review is not a simple tax query; you need an agent who understands the R&D Tax Incentive, can interpret the legislation, and is authorised to communicate with the ATO or AusIndustry on your behalf. Do not try to go it alone. Your agent should be engaged from day one.
• Access to your accounting system: If your books live in Xero, MYOB, or QuickBooks, you can pull cost centre reports, general ledger transactions, and payroll records quickly. For many businesses, GrantsMAX for SMBs on cloud accounting can read that data, read-only, and map it against the registered activities, but the final review and lodgement rest with your agent.

Warning: Missing a deadline can result in the ATO making an unfavourable decision without further input. Mark the due date prominently and give your agent at least two weeks before it to finalise the response.

Step 1: Understand the scope and authority of the review

The first step is to clarify what is being tested and by whom. That determines the type of evidence and reasoning you will need.

AusIndustry registration reviews

AusIndustry, part of the Department of Industry, Science and Resources, assesses whether your activities meet the statutory definition of eligible R&D. They check whether there was a hypothesis, a systematic progression of work, and whether the outcome could not have been known or determined in advance. They may ask you to explain how an activity fits as a core R&D activity or a supporting activity directly related to your core R&D. The official program page describes the registration framework and the decisions AusIndustry may make, including finding an activity ineligible and revoking the registration. When a review is underway, you can find an outline of possible outcomes and your rights on the decisions we make about R&D Tax Incentive applications page.

ATO expenditure and substantiation reviews

The ATO examines whether the costs you claimed relate to the eligible R&D activities and whether you have adequate records. They will look at the nexus between the expenditure and the activities, the calculation of the offset, and whether the expenditure is on the “notional” list of eligible items (for example, salary and on-costs for staff directly engaged in R&D, consumables, and contract expenditure). The ATO may also test whether you have correctly apportioned costs between R&D and other business activities. The ATO’s own audit and review process page explains the documentation you might be asked to provide and how the process unfolds.

Coordinated reviews

Sometimes an ATO case officer will undertake a review that touches on both the activity eligibility and the expenditure, often after consultation with AusIndustry. You may be asked to provide the same evidence to both agencies. A common request is a “mapping” of costs to registered activities, along with descriptions of how those activities met the R&D definition. Being able to present this in a clear, indexed format can satisfy the reviewer more quickly.

Step 2: Revisit your registration and supporting evidence

With the scope clear, go back to the fundamentals: your registered activities and the records you hold.

Map your activities to the statutory definition

The definition of eligible R&D is set out in the Income Tax Assessment Act 1997 and elaborated in the Industry Research and Development Regulations 2011. For each activity you registered, write a plain statement that answers:

• What technical uncertainty were you trying to resolve?
• What was the hypothesis you were testing?
• What experiments or systematic progression of work did you carry out?
• What was the outcome, and why could it not have been achieved through routine work or known techniques?

If you nominated supporting activities, show how they were directly related to the core experiments. The AI Application Pack Drafting feature of GrantsMAX can help you generate these narratives from your business data, but you must still check them for accuracy and completeness with your accountant.

Reconstruct cost and evidence trails

Pull every cost line from your accounting records and tie it to an activity, a date, and a piece of evidence. For salary costs, this means timesheets or project logs that show the person worked on R&D tasks. For consumables, invoices with a record of what they were used for. For third-party contracts, the agreement and deliverables.

GrantsMAX’s Audit-Ready Evidence Trail indexes your emails, invoices, and timesheets, and then ties each cost line in the pack to its source. That way, your agent can see the chain of evidence at a glance. The platform also runs an Eligibility Assessment & Risk Flags scan that highlights the areas a reviewer would scrutinise, so you can prioritise filling those gaps before you submit. This is particularly useful for first-time claimants who may not have a structured records system yet.

Focus on contemporaneous documents

The best protection in a review is the evidence you created at the time, not a narrative written later. An email thread where the team discussed an unexpected failure, a lab notebook entry, a screen recording of a prototype, or a Jira ticket with test results can be far more persuasive than a polished summary because it shows the uncertainty and systematic work in real time. Collect these and index them. If you are a technology company or a manufacturer, you likely have plenty of digital fingerprints in your project management tools; learn to curate them.

Check for gaps in eligibility or records

Be honest. If after this exercise you find that an activity you registered is hard to substantiate, flag it for your agent. They may recommend withdrawing or amending that part of the claim before the review progresses, which can protect the rest of your claim. A rushed response that overstates the R&D can damage your credibility with the reviewer and lead to a deeper investigation.

Step 3: Draft a clear, evidence-backed response

With your facts organised, draft a response that addresses every question in the review letter. Do not submit this draft yourself; your registered tax agent will review and finalise it. But a well-prepared draft saves time and costs.

Structure your reply

Your response should include:

• A cover letter from your authorised person (usually a director or the tax agent) acknowledging the review and summarising the key points.
• A detailed attachment for activity eligibility: for each reviewed activity, restate the hypothesis, the technical uncertainty, the systematic progression, and the contemporaneous evidence.
• A cost schedule: reconciled to your tax return, broken down by activity and expenditure type, with a clear nexus statement for each line.
• An evidence index: a list of all documents you are providing, with a brief description of what each proves and where it can be found in the attachments.
• Signed declarations if required.

The Australian Government’s R&D Tax Incentive guide provides practical information on the evidence expected and how to present it.

Addressing AusIndustry concerns

If the review is about whether your activities qualify, your narrative must leave no doubt that you were trying to overcome a specific technical uncertainty through a systematic process. Use language from the Act and the guide. Avoid marketing speak and grand innovation claims; stick to what the scientists, engineers, or developers did, what they observed, and what they concluded. If AusIndustry has indicated that an activity may be routine development or that the outcome was predictable, present evidence that shows otherwise, like failed experiments, dead ends, or extensive testing that surprised the team.

Addressing ATO concerns

If the ATO is reviewing expenditure, your focus is on the numbers. The schedule should reconcile to your company tax return and show the derivation clearly. For salary costs, demonstrate that the person’s R&D time was recorded (not estimated retrospectively) and that you used a reasonable apportionment method. For other costs, prove that the item was consumed or transformed during the R&D activity on the dates you claimed. In every case, the link between the cost and the activity must be explicit.

Collaborate with your accountant

Share your draft with your agent in a shared workspace. GrantsMAX’s Accountant Review & Lodge Workflow lets you track the claim from Draft to Review to Lodged, with your agent in control at every step. The agent will check the response for consistency with your lodged tax details, the registration, and their professional obligations under the Tax Practitioners Board (TPB). They may refine the language, regroup activities, or ask for additional evidence before they are prepared to lodge on your behalf.

Step 4: Work with your registered tax agent to lodge

Once your agent is satisfied, they will submit the response through the appropriate channel. The method depends on the review: an ATO review response is often lodged via the Online Services for Agents or by secure mail; an AusIndustry review may be submitted through the business.gov.au portal or email.

The agent’s review checklist

Your agent will typically check:

• That all activities described align with the registration and that the registration is current.
• That the financial figures match the original lodged tax return and relevant schedules.
• That the evidence is contemporaneous, sufficient, and on point.
• That the response does not contain any material that could be considered misleading or that might inadvertently widen the scope of the review.
• That the lodgement is made before the deadline, with proof of submission kept for your records.

Your agent is the authorised contact, so all communication about the review should go through them. This preserves privilege and ensures a professional dialogue.

From a governance perspective, the model is clear: you own the claim, your accountant reviews and lodges, and GrantsMAX provides the data and documentation tooling. You can read how we handle data in our Governance and trust and Security pages. For accounting firms that want to run the R&D and grant process across their client base, the GrantsMAX for accounting and bookkeeping firms page explains the white-label channel.

Step 5: Monitor the review and respond to further queries

After lodgement, the review officer may take weeks or months to assess the response. They might come back with additional questions, request an interview, or schedule a site visit.

Timelines and your rights

There is no fixed statutory deadline for a review conclusion, but the ATO will generally keep you informed of progress. If the outcome is adverse, you have rights. For an AusIndustry decision, you can apply for an internal review under the Industry Research and Development Act 1986, as outlined on the decisions we make page. For an ATO amended assessment, you can object following the standard objection process, with strict time limits (usually two or four years depending on your entity type). Your agent can advise on the best course.

Learning from the outcome

Whatever the result, use the review to strengthen your record-keeping and claim preparation for future years. Consider using Annual Refresh & Accountant Channel to automatically rebuild your R&D pack each year from the latest data, so your agent always has a current, evidence-backed file. If the review found weaknesses, address them. If your claim was upheld, you have a model response to refer to for next time.

Pro tips and common pitfalls

Pro tip: Don’t delay your response, but don’t rush it either. A hurried, incomplete reply can lead to further questions and a longer, more stressful review. Give your agent enough time to work methodically.

Warning: Contemporaneous records are your strongest defence. If you don’t have them, your agent will find it much harder to argue your case. Start building a habit now, even if you’re not under review, of logging R&D time, experiments, and outcomes as you go.

Pro tip: Distinguish clearly between core and supporting activities. Bundling them together or describing supporting activities as if they were core can confuse the reviewer and weaken your narrative. The Industry guide has clear examples.

Warning: Never provide estimates or projections in your response. Stick to what actually happened and what you can prove. Even a well-intentioned guess can erode the reviewer’s confidence.

Pro tip: Involve your registered tax agent early. They understand the review process and can frame your evidence in the way the ATO or AusIndustry expects. It can be a false economy to prepare a response yourself and then hand it to your agent at the last moment.

Pro tip: Use technology to organise evidence. Manually collating thousands of data points is error-prone and time-consuming. Tools like GrantsMAX’s Discovery and Matching can help you see what grant or incentive opportunities are relevant, and the audit-ready evidence index means you are already prepared for a review the moment it lands.

Key takeaways

• A review is not a penalty; it’s a normal integrity procedure. Responding calmly, methodically, and with evidence is the most effective path.
• Always start by reading the review letter carefully and confirming whether it’s from AusIndustry (activity eligibility), the ATO (expenditure), or both.
• Rebuild your claim from the ground up: map each activity to the statutory definition, tie costs to activities, and collect contemporaneous documents.
• Draft a structured response that mirrors the reviewer’s questions, but have your registered tax agent review and lodge it.
• Do not ignore deadlines; mark them immediately and keep your agent informed.
• Improve your record-keeping every year so that the next review, if it comes, is even more straightforward.

If you want to be ready with an evidence-backed R&D pack before a review even arrives, consider joining the GrantsMAX waitlist. We’ll let you know as soon as the platform opens, so you can start mapping your activities, preparing narratives, and giving your accountant a clean, defensible pack, so you’re ready, no matter what the ATO or AusIndustry asks.