Top Mistakes That Trigger R&D Claim Reviews – And How to Avoid Them

The R&D Tax Incentive (RDTI) is one of Australia’s most valuable programs for innovative businesses. But with that value comes scrutiny – and the Australian Taxation Office (ATO) and the Department of Industry, Science and Resources (DISR) are increasing their oversight to make sure only eligible R&D activities are claimed.

Many businesses inadvertently trigger reviews because of common mistakes. The good news? With awareness and preparation, they can all be avoided.

Misclassifying Activities as R&D

Not every project that feels “innovative” will qualify. The biggest red flag for regulators is when businesses:

• Claim routine business improvements as R&D.
• Count commercial product development without genuine technical uncertainty.
• Include “off-the-shelf” software integration or system upgrades.

How to avoid it: Focus claims on activities that involve systematic experimentation and the pursuit of new knowledge. Document what was unknown, how you tested it, and why it matters.

Weak or Non-Existent Documentation

Another common reason for reviews is poor record keeping. Regulators expect contemporaneous evidence – not retrospective justifications written at tax time.

How to avoid it: Keep technical notes, experiment logs, prototypes, and test results throughout the year. The more detailed and dated your records, the stronger your position.

Issues with Software Development Claims

Software R&D is under the microscope. Too often, businesses claim:

• Routine coding tasks.
• Bug fixes or cosmetic updates.
• Projects without a clear hypothesis or experimental design.

How to avoid it: Demonstrate where technical uncertainty existed, how you explored it, and the experimental steps taken. Show your “build–test–iterate” process with evidence.

Problems with Associate Payments

Payments to associates (like related entities or directors) are heavily scrutinised. The key requirement: they must be actually paid before year-end to be eligible. Promises or accruals aren’t enough.

How to avoid it: Make sure all intercompany or director-related payments are processed before the deadline. Keep clear financial records to prove it.

Overlooking the Minimum Spend Threshold

The RDTI generally requires at least $20,000 in eligible R&D expenditure (unless using a registered Research Service Provider). Some businesses miscalculate and fall short, triggering a review.

How to avoid it: Track eligible costs during the year. If your spend is close to the threshold, check early and consider a Research Service Provider if you’re falling short.

Final Thought

Reviews don’t happen because you applied – they happen because claims don’t align with the program’s intent or lack proper support. By avoiding these common mistakes and keeping your records airtight, you’ll not only reduce the risk of a review but also strengthen the value of your claim.

When in doubt, working with an experienced R&D advisor such as GrantAid can save time, stress, and costly errors.