For Australia’s most innovative businesses, the period leading up to EOFY (End of Financial Year) provides a window to capture and evidence eligible R&D activities and associated costs to secure valuable government support under the R&D Tax Incentive (R&DTI).
Like all tax regimes, the R&DTI carries stringent eligibility requirements and detailed substantiation obligations. In recent years, the program has continued to evolve with increased compliance reviews, transparency measures, as it continues to support an expanding range of industries including AI, Agtech, Biotech and Clean Energy/Renewables. Whether you’ve claimed in the past or are planning to do so, now’s the time to revisit your tax position and to ensure that all R&D activities and associated expenditure are contemporaneously documented.
EOFY (30 June 2025) Checklist
- Associate Payments
- Overseas Activities
- Expenditure Not at Risk
- Contemporaneous Record Keeping
Claiming Payments to Associates Expenditure
Following a recent Australian Tax Office (ATO) review of over 200 R&D registrations, payments to associates have emerged as a key review focus. Under Australian tax law, an “associate” can be any related party subsidiaries, parent companies, trusts, shareholders, directors or even family members where majority voting control or sufficient influence exists.
For R&D expenditure incurred to an associate (an entity or individual with a ‘majority voting interest’ or ‘sufficient influence’ over your company), expenses must be both incurred and paid (by way of cash transaction) before 30 June 2025. Merely accruing the expense or having an outstanding liability on your books is insufficient, and the ATO requires evidence of actual payment to validate the R&D expenditure claim.
If you have incurred expenditure to associates during the financial year but have not made the payments (and extinguished liability) by 30 June 2025, you can still carry forward and claim the benefit in subsequent years following payment.
Now is the time to assess your associate relationships and ensure the payment of any outstanding amounts incurred to associates (on eligible R&D activities) are made before 30 June 2025, if you wish to include them in the FY25 R&DTI claim.
Overseas R&D Activities
Typically, expenditure on overseas activities is ineligible for a deduction under the R&DTI. However, you can secure an Advance Overseas Finding from the Department of Industry, Science and Resources (DISR) that determines whether your R&D activities are eligible for the R&DTI.
To claim eligible overseas R&D expenditure on activities conducted during FY25, companies must ensure they submit an Advance Overseas Finding by 30 June 2025. The conditions for an Advance Overseas Finding include:
- Overseas R&D activities have a scientific link to Australian based core R&D activities
- The R&D activities cannot be solely conducted in Australia
- Overseas costs are less than the cost of R&D activities conducted in Australia
Companies must provide a detailed justification and supporting evidence as to why the activities had to be carried out abroad, which could include:
- Access to facilities or expertise not available in Australia
- Access to a population not available in Australia
- Activities that would breach the Biosecurity Act 2015
- Access to a geological characteristic not available in Australia
Once your Advance Overseas Finding has been approved, you should:
- Secure formal confirmation from DISR that your overseas activities qualify for R&DTI registration.
- Retain full documentation including contracts, experimental logs, travel records and invoices to demonstrate that the work was performed abroad and that all associated costs directly support eligible R&D activities.
- Register the approved overseas activities in your annual R&DTI application (due no later than 10 months after the company year end).
Expenditure Not at Risk
Understanding the “expenditure not at risk” provisions and the ATO’s Tax Ruling TR 2021/5 is essential for claimants, under the R&DTI program. Only expenditure that is ‘at risk’ is eligible for the R&D Tax Offset. This means the company must bear the financial risk associated with the R&D activities without any guaranteed recoupment or protection from loss.
Expenditure not at risk refers to costs where the company is not fully exposed to the financial risk of the R&D activities due to certain agreements or arrangements, such as:
- Guaranteed returns: Arrangements where the company is assured of receiving a payment or benefit regardless of the success of the R&D activities.
- Indemnities and insurance: Situations where a third party agrees to compensate the company for any losses incurred in conducting the R&D.
- Non-commercial terms with associates: Transactions with related parties that are not conducted on an arm’s length basis, potentially mitigating the company’s financial risk e.g. non-commercial loan arrangements.
To confirm that your R&D expenditure is at risk and eligible for the R&DTI, consider the following steps:
- Review contracts and agreements: Examine all R&D-related contracts to identify clauses that may limit your financial risk, such as indemnities, warranties, or guaranteed payments.
- Conduct arm’s length transactions: Ensure all dealings, especially with associates, are on commercial terms comparable to those with independent third parties.
- Understand the impact of other funding and grants: Review any government grants, incentives, or third-party funding arrangements to determine if they affect the at-risk nature of your expenditure.
- Consult your accountant or R&D advisor: Engage now with your accountant or an R&D specialist to review your funding arrangements and ensure compliance with the integrity provisions outlined in the ATO’s guidance and relevant legislation.
Contemporaneous Record Keeping to Substantiate your R&D claim
Maintaining comprehensive throughout your R&D program is non-negotiable, both DISR and the ATO place heavy emphasis on documentation when reviewing claims. Real-time evidence not only demonstrates your self-assessment process but also directly aligns with the program requirements.
Key Documentation You Must Have:
- Claimant evidence: Engagement letters, project briefs or board minutes showing that your company has the rights and responsibilities for each R&D activity.
- Systematic experimental logs: Hypotheses, test plans, procedural write-ups and iteration notes that map the scientific method from design through to evaluation.
- Technical uncertainty records: Risk registers or technical-uncertainty memos explaining why outcomes couldn’t be determined in advance.
- New-knowledge narratives: Reports, state of the art research reports, meeting minutes or lab notebooks illustrating the pursuit of novel insights or solutions.
- Expenditure delineation and apportionment: Detailed timesheets, supplier invoices and cost-allocation tables tying expense back to a specific R&D activity, with clear explanations of your chosen apportionment approach.
Best practices in substantiating your R&DTI claim:
- Capture as you go: Create or update documents at the moment work is performed, retrospective notes are less reliable under audit.
- Centralise storage: Use a shared, organised repository so all stakeholders can quickly locate required records.
- Regular self-reviews: Schedule regular checks with technical teams to confirm all R&D documentation is complete, consistent and compliant.
- Beware an over-reliance on AI generated reports: Whilst AI technology offers companies a valuable support and research tool, it does not replace the need to document the results of genuine experimentation, generate real-time reports and record source data when you are carrying out your R&D activities. AI as a technology is still evolving and remains prone to hallucinations; and while always providing a response, it’s accuracy and contextual awareness still requires technical validation. Experience coupled with the careful review of AI-generated content remains critical.
Book Your EOFY R&D Check In
The R&DTI isn’t just a year‑end formality; it’s a strategic engine to fuel growth, accelerate innovation, and unlock valuable cash flow. It rewards businesses that plan proactively, document comprehensively, and adhere to the rules.
If your business has invested in developing new products, processes, building software, or tackling technical uncertainties through an experimental framework, there’s a strong chance you qualify.
Get expert support from our R&D Incentives & Grants Team to:
- Conduct a comprehensive review of your FY25 and future initiatives to validate core and supporting R&D activity eligibility;
- Map and classify all qualifying expenditures ahead of the 30 June 2025 cutoff;
- Develop a bespoke documentation framework tailored to your sector and technical activities;
- Produce an initial forecast of your R&D tax offset and expected tax benefit; and
- Provide clear, step-by-step guidance and support throughout the DISR registration and ATO lodgement processes.
