What accountants should ask clients before an R&D claim

Prerequisites: What you need before you begin

Before you sit down with a client to discuss their potential claim under the R&D Tax Incentive, make sure you have the right foundations in place. A productive conversation depends on access to real data, a clear understanding of the client’s operations, and a solid grasp of the legislative framework.

First, connect to the client’s accounting software. The R&D Tax Incentive draws heavily on financial records, so having read‑only access to Xero, MYOB, or QuickBooks is invaluable. Tools like GrantsMAX for SMBs on cloud accounting can pull the relevant data securely, giving you a head start on identifying potential expenditure and matching costs to activities. If your firm is managing multiple clients, GrantsMAX for accounting and bookkeeping firms offers a white‑label way to manage R&D pack preparation across your client base.

Next, ensure you understand the basics of the R&D Tax Incentive. If you or your client are new to the scheme, start with What is the R&D Tax Incentive? A plain‑English guide for Australian businesses. That guide explains who may be eligible, how to register, and what evidence is needed.

Get a clear picture of the client’s entity structure and aggregated turnover. These will directly determine eligibility and whether the offset is refundable or non‑refundable. Also, make sure the client understands that this is tax information, not advice, and that you will be asking detailed questions to build an honest, evidence‑backed claim.

Warning: This article provides general information only and is not tax, financial, or legal advice. Always confirm the specific rules with the Australian Taxation Office (ATO) and AusIndustry for the current income year, and ensure a registered tax agent reviews any claim before lodgment.

Step 1: Confirm entity structure, turnover, and basic eligibility

Start with the fundamentals. The R&D Tax Incentive is only available to companies, not to trusts, partnerships, or sole traders. The first question to ask is: “What is your business entity type?” If the client operates as a trust or partnership, they may need to restructure before they can claim. While restructuring is possible, it needs careful advice because of capital gains and other tax implications.

Next, determine their aggregated turnover. Since the 2024‑25 income year, companies with an aggregated turnover of less than $10 million may be eligible for a refundable R&D tax offset if they are in a tax loss position (the threshold was previously $20 million). This change was enacted in 2023, but thresholds can shift over time. Ask: “What is your aggregated turnover for the current year, including connected entities and affiliates?” Always check the latest figure with the ATO’s R&D tax incentive guidance.

Also confirm the client is an R&D entity, essentially a company incorporated in Australia or a foreign resident with a permanent establishment in Australia and subject to Australian tax.

Pro tip: Use GrantsMAX’s Eligibility Assessment & Risk Flags to automatically test these basic thresholds against your client’s own data. It highlights areas where reviewers may scrutinise the claim, so you can address them early.

Step 2: Identify and document the core R&D activities

The heart of any R&D claim is the activities themselves. Under Division 355 of the Income Tax Assessment Act 1997, activities fall into two categories: core R&D activities and supporting R&D activities. Core activities are experimental activities whose outcome cannot be known or determined in advance by a competent professional in the field and that are conducted for the purpose of generating new knowledge. Supporting activities are those directly related to the core activities.

Your client must be able to describe their activities with enough detail to satisfy AusIndustry and the ATO. Ask questions like:

• “What hypothesis were you testing, and why was the outcome uncertain at the time?”
• “Can you outline the systematic progression of your work, from hypothesis through experiment, observation, and evaluation?”
• “Would a competent professional in your field have known the outcome in advance based on publicly available knowledge?”

Encourage clients to avoid generic statements like “we were developing our platform.” Instead, they need to pinpoint the technical unknowns, the experiments they ran, and what they learned.

In many other jurisdictions, similar tests apply. For instance, the UK’s R&D relief scheme, administered by HMRC, requires the work to seek an advance in science or technology by overcoming genuine uncertainty. Canada’s SR&ED program similarly looks for systematic investigation or search carried out in a field of science or technology by experiment or analysis. The OECD offers a useful overview of these definitions and their international alignment on its R&D Tax Incentives page. These comparisons can help clients understand that R&D isn’t just about building products, it’s about resolving technical challenges through a structured process.

Step 3: Test the “dominant purpose” of the activities

The law requires that core R&D activities be conducted for a dominant purpose of generating new knowledge. That doesn’t mean a commercial product can’t be an outcome, but the primary driver must be the pursuit of new knowledge, not just routine development or problem‑solving.

Ask your client:

• “Was the main reason for undertaking this work to resolve a technical uncertainty, or to meet a customer’s existing specification using known techniques?”
• “Are you adapting an existing solution, or creating something fundamentally new?”

A common grey area is software development. Adding a new feature to a SaaS product that uses off‑the‑shelf libraries and well‑understood technologies doesn’t typically qualify. But developing a novel algorithm to solve a unique data processing challenge might. Carefully probe the distinction.

In the United States, the IRS requires taxpayers to complete Form 6765, Credit for Increasing Research Activities, which also demands detailed descriptions of the experiments performed and the uncertainties faced. Though the US rules differ, the underlying focus on experimentation and uncertainty is similar, and it can help to illustrate to clients what kind of detail is expected.

Warning: A client who describes their work as “hard” or “complex” hasn’t demonstrated eligibility. The activity must involve a genuine experimental process, not just a high level of technical difficulty.

Step 4: Scrutinise the expenditure with a detailed lens

Even if the activities qualify, not all expenses can be included in the R&D claim. Allowable expenditure categories are set out in the legislation: primarily salary and wages for employees performing R&D, the cost of materials consumed in experiments, depreciation of assets used for R&D, and certain other expenditures. All must be directly attributable to the R&D activities.

Client questions to work through:

• “Do your timesheets differentiate between R&D and non‑R&D work for each relevant employee?”
• “Can you produce invoices for consumables, and tie them directly to specific experiments or development iterations?”
• “Have any of these expenses been funded by a government grant or recoupment arrangement? If so, that portion may need to be excluded.”

Pay close attention to overseas expenditure. The R&D Tax Incentive generally restricts the inclusion of expenditure on activities performed overseas. It’s only allowable in limited circumstances, for example, when the necessary facilities or expertise are not available in Australia, and the client has obtained a finding from the Department of Industry, Science and Resources. Ask: “Was any R&D carried out outside Australia? If yes, why was it necessary, and do you have an advance opinion or supporting evidence that the overseas work met the legislative conditions?”

On the GrantsMAX platform, the Audit‑Ready Evidence Trail feature helps accountants by indexing source documents, emails, invoices, timesheets, so every expenditure line in the pack can be mapped back to its evidence. That can make this step significantly more efficient.

Pro tip: Watch for double‑dipping. If a cost has already been claimed under another government incentive or grant, claiming it again through the R&D offset could trigger a compliance review. Always cross‑check against other programs the client has accessed. The Grant & R&D Discovery and Matching feature inside GrantsMAX continuously scans for overlapping programs and flags potential interactions.

Step 5: Check contemporaneous records and substantiation

The ATO places heavy emphasis on contemporaneous records, documents created at the time the R&D activities were carried out, not later summaries produced solely for a claim. Without these, a claim can be disallowed in a review or audit.

Walk through these questions with your client:

• “What records did you keep during the project? Can you produce laboratory notebooks, design documents, meeting minutes, code commit histories, or test reports?”
• “Do those records demonstrate the link between the technical uncertainty, the experiments you undertook, and the results?”
• “Are they dated and attributable to the individuals who did the work?”

Emails and project management tools can be excellent sources if they contain contemporaneous discussions of experiments, failures, and iterations. Encourage clients to keep a record‑keeping system as they work, not when they’re preparing a claim months later.

Academic research confirms the importance of contemporaneous documentation. The NBER hosts a collection of data and tools that researchers use to study firm behavior and tax policy. Anecdotally, firms that maintain robust internal logs are more likely to sustain their claims through audit. Though that resource isn’t a compliance tool itself, it reinforces the lesson that good practice in record‑keeping is a winning strategy.

Warning: Records created after the fact, even if they accurately describe the work, are less persuasive than contemporaneous ones. The ATO’s substantiation rules require that records exist at or shortly after the time the expenditure is incurred or the activity occurs.

For accountants using GrantsMAX, the Audit‑Ready Evidence Trail automatically indexes emails, timesheets, and invoices linked to R&D activities, building an index that can make this diligence step straightforward.

Step 6: Verify AusIndustry registration status

Every R&D claim must be registered with AusIndustry no later than 10 months after the end of the company’s income year. Late registration is possible in very limited circumstances, but it’s not something you should ever rely on. Ask your client:

• “Have you registered with AusIndustry for the income year in question? If so, provide the registration number and the date of registration.”
• “Are you aware that you need a separate registration for each income year, even if the R&D project is ongoing?”

If the client isn’t registered, make it the very first action item. The registration process asks for a description of the core activities and the supporting activities, so your conversations about Step 2 will feed directly into it.

The ATO’s R&D tax incentive page includes a clear section on registration requirements, and you should bookmark it for quick reference.

GrantsMAX’s Annual Refresh & Accountant Channel reminds both you and your client of upcoming deadlines and carries forward prior‑year data, so registration doesn’t fall through the cracks for returning claimants.

Step 7: Assess the refundable vs non‑refundable offset

The distinction between a refundable and non‑refundable R&D tax offset depends on the company’s aggregated turnover. Since the 2024‑25 income year, companies with aggregated turnover of less than $10 million are eligible for a refundable offset (if in a tax loss position). Those with turnover above that threshold receive a non‑refundable offset. However, these thresholds can and do change, so always confirm with the ATO for the relevant year.

Your client may not automatically know their aggregated turnover, especially if they’re part of a group. Ask:

• “What is your best estimate of total group turnover, including connected entities?”
• “Are you likely to be in a tax loss or tax profit position for the year?”

The refundable offset effectively allows companies to receive a cash refund from the ATO of their unused R&D offset, which can be a meaningful source of non‑dilutive capital for early‑stage R&D companies. But the offset is not a grant, it’s a tax offset, and its value depends on the company’s tax position and the eligible R&D expenditure.

Pro tip: Because the offset can be substantial, clients may be disappointed if they don’t receive the refundable amount they expected. Manage expectations from the start: the exact benefit depends on many factors, and the ATO will verify every element before issuing a refund.

Step 8: Identify any clawback or government funding interactions

Many R&D‑active companies also apply for government grants. But a grant from a Commonwealth, state, or territory agency that relates to the R&D expenditure may reduce the amount you can include in your R&D tax claim. The mechanism is called a recoupment or clawback.

Ask your client:

• “Have you received any government grants for this project, or are you applying for any? Provide the grant agreement details.”
• “Does the grant agreement state that it covers any of the expenditure you’re looking to include in the R&D claim? If so, that portion may be excluded.”

This applies to a wide range of programs, state innovation grants, CSIRO funding, and even some EMDG grants in certain circumstances. If you’re unsure, the Grant & R&D Discovery and Matching feature can help you and your client understand how different programs interact. It scans for overlapping incentives and flags potential recoupment issues before the claim is prepared.

Step 9: Drill into software R&D specifics

Software development remains the single largest source of R&D Tax Incentive claims, but it’s also the area most prone to misinterpretation. Many founders assume all development work qualifies, but the legislation is clear: the work must resolve a technical uncertainty through a systematic experimental process, and the outcome must not be readily knowable.

When speaking to a software client, ask:

• “Did you encounter a technical roadblock that couldn’t be solved by researching known solutions or using existing libraries?”
• “What experiments did you run to overcome it? Can you show me the versions, test results, and failures?”
• “Are you building a genuinely new algorithm, or are you integrating off‑the‑shelf components in a standard way?”

Configuring a CRM or ERP system, no matter how complex the business rules, rarely qualifies. But developing a novel machine learning model that advances the state of the art in your domain may well qualify. The ATO and AusIndustry look for contemporaneous evidence of the experimentation, such as version control histories, test plans, and records of failed approaches.

A useful resource for benchmarking what “experimental” means is the NSF Award Search database (though US‑focused), which catalogs federally funded research projects. It can occasionally serve as a reference point to demonstrate that a particular technique or algorithm was not known at the time your client started work. While not a formal source for the Australian scheme, it can help frame the kind of inquiry that AusIndustry expects.

Step 10: Check for related‑party transactions and arm’s length pricing

If the R&D activities involve transactions with related parties, for example, a foreign parent company performing R&D on behalf of the Australian entity, or a related service entity charging for use of facilities, the expenditure must be at market value. Inflated costs can be challenged by the ATO.

Ask:

• “Are any of the R&D activities performed by a related entity, either locally or overseas? If so, how was the pricing determined?”
• “Can you provide transfer pricing documentation to support the arm’s length nature of the transaction?”

This is especially important for businesses with global operations. The ATO’s international engagement with R&D claims is increasing, and a lack of proper documentation can lead to extensive reviews.

Summary and key takeaways

Asking the right questions before an R&D claim is the most powerful step an accountant can take to protect their client from compliance risk and ensure the claim stands up to scrutiny. Here’s a quick recap of the critical areas to cover:

• Entity and eligibility: Confirm the client is a company, determine aggregated turnover, and verify they meet the basic R&D entity test.
• Activities: Probe the core and supporting activities, the technical uncertainties, and the systematic experimental process. Distinguish between development that qualifies and routine technical work.
• Dominant purpose: Ensure the work was primarily undertaken to generate new knowledge, not just to deliver a product.
• Expenditure: Tie every dollar to a qualifying activity, and check for recoupment or government funding that reduces eligible costs.
• Records: Insist on contemporaneous documentation, emails, timesheets, test logs, that evidence both the activity and the expenditure.
• Registration and deadlines: Confirm AusIndustry registration has been lodged within 10 months of year‑end.
• Refundable vs non‑refundable: Clarify the turnover threshold and manage expectations about the cash outcome.
• Software and related‑party traps: Apply extra scrutiny to software claims and transactions with affiliates.

GrantsMAX is built to make this process faster and more accurate for both accountants and their clients. The platform connects to the business’s own accounting data, prepares a complete evidence‑backed pack, and hands it to you, the registered tax agent, in a shared workspace. You review, refine, and lodge. The business owns the claim. You stay in control.

If you’re an accountant looking to serve your clients better, or a business owner ready to explore what you may be eligible for, we invite you to join the GrantsMAX waitlist and see the difference that structured, data‑driven preparation can make.

General information only. This article does not constitute tax, financial, or legal advice. Seek advice from a registered tax agent before relying on any information and confirm all rules with the ATO and AusIndustry for the relevant income year.