“Core” R&D Activities
Under AusIndustry’s definition, R&D must include a “core activity”, which is:
- An experimental activity,
- Where the outcome cannot be known in advance,
- Following the scientific method,
- For the purpose of generating “new knowledge”
Much of the experimental design and testing conducted by scientific companies will quite naturally fall into AusIndustry’s definition. And the conventional practices of planning and documenting the work – would typically be done anyway as part of maximising the value of R&D conducted.
Taking the experimentation and the scientific method as ‘given’ for a typical scientific company, the key to defining core R&D activity then falls to the other two components.
Put simply, there has to be an element of ‘risk’ in the R&D for it to qualify as “core activity”. Can the outcome be predicted in advance by a competent professional? Most likely, you are either testing whether an idea can be done at all, or if this is known, then you are experimenting to determine how the idea can be achieved.
A clear imperative in describing your R&D to AusIndustry is to also note the setbacks, deadends and hurdles in your work. By demonstrating the systematic progression of your R&D through the scientific method, you demonstrate that your work adheres to three of the four criteria for “core activity”.
Another good question on risk is “who owns the resulting intellectual property”. It can be important to have clear documentation to show who is taking the risk, and who the reward. If you are using a contractor for your R&D, then the contact should specify that you own the resulting IP.
A key task for all applicants is clearly defining their R&D testwork is establishing that they are developing “new knowledge” – for new or improved materials, products, devices, processes or services. Importantly, this means “new” on a worldwide basis, not just in Australia.
The R&D needs to be more than “a simple progression from what is already known” or “applying existing knowledge in a different context or location”.
Best practice recommends that you thoroughly identify the “knowledge gap” before embarking on the expense of R&D. However, while this may have been performed and/or documented somewhat informally, the onus is on the company to be able to supply evidence in relation to the R&D’s “new knowledge”.
Clearly also, the issue of “new knowledge” is also inextricably linked to the concept that “the out-come cannot be predicted in advance”. Together, these include both technical and commercial risk.
So a key task here, and possibly the single most important step, is complying with AusIndustry’s requirements for identifying and documenting the “knowledge gap”. While this would be done as part of good R&D practice, for many, it might not be done as thoroughly as AusIndustry would prefer.
There are a range of activities that might be conducted by a company as part of its R&D programme that are “directly related to” or “for the dominant purpose of” the R&D work. The expense associated with these activities may also be claimed as part of the overall R&D expense, albeit under the different category of “supporting activities”.
There are no fixed definitions, but as a guide an activity might be a “supporting activity” if:
- it is in addition to routine activities;
- it would not have occurred in the absence of the core activity;
- normal production practices are extensive disrupted; or
- there is a risk that production outcomes will be compromised.