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R&D Tax Incentive for the Software Development Industry

Particularly for information technology, software and application development industries, R&D occurs every day. You wake up in the morning, brush your teeth and think about how you can shake things up in your industry. You go to work and research it. Develop it. Make it better. Your even dream about it in programming language and binary code.

So, if you’re putting in all this hard work to deliver innovative software and information systems to the market, it makes sense to cash in on a government-funded rebate offered to companies just like yours.

If you’ve never heard of or never considered applying for the R&D Tax Incentive, we’re here to give you the run-down on what it is, what activities are eligible and how we can help you get more money back at the end of the financial year.

What is the Research & Development Tax Incentive?

In a nutshell, the R&D Tax Incentive encourages businesses to participate in research and development that benefits Australia in some way. This includes things like solving a widespread problem or improving process effectiveness or efficiency with new technology.

Eligible businesses can then use the Tax Incentive to claim back part of their eligible R&D expenditure as a tax offset or cash refund.

Companies applying to receive the incentive under the government guidelines must keep consistent and detailed records of the activities being undertaken and submit their application to AusIndustry and the ATO at the end of the financial year.

What are eligible R&D activities in Software Development?

There are two main types of development in the software development space: continual development and disruptive development.

Continual development is essentially the process of making things better with new releases or iterations. Think iPhone upgrades. It’s not a new invention but a progression of the first-ever model. It might be a lot faster and offer a whole heap of new features, but it’s still the same product – just a better version.

In general, continual development will not be eligible as part of the R&D refundable tax offset, because the technology isn’t changing things up in any significant way. Thinking back to the iPhone, you might get a new operating system and a better camera, but the technology essentially remains the same.

If, however, the continual development included a vastly new or innovative technology to dramatically alter its original systems, then we’d be in business.

On the other hand, disruptive development is just as the name implies. It seeks to change the way people approach XYZ by negating existing technologies with a better, more efficient or more effective solution.

These kinds of development are bang on point when it comes to tax incentive eligibility, so long as the research and development activities meet the criteria of either Core or Supporting R&D activities.

Check out our guide to R&D eligibility for Software Development for more info on Core & Supporting R&D activities or click here to find out if you’re eligible.

What activities are not eligible under the R&D Tax Incentive?

When considering an application for the tax incentive, it’s just as important to understand what activities are not eligible to avoid wasted time on an incorrect claim.

Some of the most common excluded activities can include:

  • Developing, modifying or customising computer software for the dominant purpose of use by any of the following entities for their internal administration (including the internal administration of their business functions)
    • The entity (the developer) for which the software is developed, modified or customised;
    • An entity connected with the developer;
  • An a‑liate of the developer, or an entity of which the developer is an a‑liate
  • Bug testing, beta testing, system testing & data mapping
  • Testing and modification of existing software lines



Streamlining your R&D Tax Incentive Application with Synnch

With so much work going into the physical research and development of your products and services, the last thing you need is extra work. And thanks to Synnch, you never will.

Synnch is dedicated to empowering you to manage your R&D expenditure, improve productivity and maximise your cash refund.

By utilising our innovative reporting and project management platform, backed by a team of R&D experts, we can help you record activities and monitor budgets, track your weekly progress with reminders and check-ins and ensure you’re always meeting compliance standards along the way.

If your business already conducts R&D eligible activities, why wouldn’t you make a claim?

Click here to get started on your R&D Tax Incentive application for next financial year.

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