Two recent cases involving Administrative Appeals Tribunal (ATT) have demonstrated the importance of establishing sound record keeping procedures and maintaining them. In Ozone Manufacturing Pty Ltd v Commissioner of Taxation, the AAT found that companies must have records that:

1.    Substantiate the occurrence of the R & D activities as well as how the activities related to the incurring of the R & D expenditure.

2.    Demonstrate the apportionment of the company's expenditure between R & D activities and the other business activities of the company should they exist.  Such records, which may include time sheets, should be able to demonstrate the apportionment method use in a straightforward manner.

In this case the AAT denied the company a R & D offset of over $380,000   

In another case Hadrian Fraval Nominees Pty Ltd v Commissioner of Taxation, the AAT found that the company did not take reasonable steps to account for its R & D Expenditure.

The AAT found that:

1.    Journal entries in the company's books were not substantiated with the appropriate records.

2.    Some entries in the accounts had no apparent source documentation, were questionable and had to be examined very closely.

In this case the AAT denied the company R & D offsets over two years of $225,564 and $174,118.

For information concerning R & D record keeping refer -  http://mcnamaraandco.com/news/2013/04/what-are-the-compliance-obligations-of-companies-for-the-research-and-development-r-d-tax-incentive/