Record keeping for Australia’s R&D Tax Incentive

What horticulture SMEs need to know

By Tania Harman and Daniel Knox

Small and medium growers in Australia’s horticulture industry often invest in innovation. The R&D Tax Incentive (R&DTI) can refund a significant portion of these R&D costs (a 43.5 per cent refundable tax offset for eligible small companies), but to benefit, you must maintain strong records. Without proper documentation, even genuine R&D work can be disallowed by the Australian Taxation Office (ATO) or the Department of Industry, Science and Resources (DISR). This article outlines the current record keeping rules and examples of acceptable records, along with pitfalls to avoid.

The R&DTI continues to be a focus area for the ATO. The ATO have reported that it continues to see incorrect or overclaimed R&D Tax offsets to which the claimant company was not entitled. This includes situations where the legislative requirements for the entitlement are not met (ineligible R&D expenditure or activities) and/or where there is insufficient evidence (record keeping) to substantiate claims.

Key record keeping requirements

• Show what you did and spent: The ATO requires that your records clearly verify what R&D activities were undertaken, who carried them out, when, and how much was spent on them. In practice, your documentation must link the nature of each R&D activity to the expenditure incurred, proving that money claimed under the incentive was directly related to eligible R&D efforts. For example, if you claim staff wages for a new greenhouse experiment, you need evidence of the experiment details and the portion of wages tied to that R&D project by documentation such as timesheets. You are required to create a paper trail that covers both the technical side of R&D (what was done and discovered) and the financial side (what it cost and who worked on it).
• Keep records for 5 years: As with general tax records, R&D documents must be kept for at least five years after the claim. The ATO can review your claim within that period, and inadequate records may attract penalties. Ensure your records are in English (or easily translated) and stored securely (paper or digital). You are not required to submit them with your tax return, but they must be available if requested.
• Contemporaneous and accurate: It is important to prepare records as you go, not at financial year end or when preparing your R&D claim. The ATO and DISR (which jointly administer the R&DTI) expect contemporaneous records created during the R&D work, rather than backdated notes created in hindsight. Records with vague descriptions or missing dates are not sufficient. In short, good record keeping should be detailed and accurate to evidence your R&D journey from hypothesis to results.

Examples of acceptable R&D records

• Project plans and notebooks: Maintain project notebooks or research diaries logging your experiments (e.g. soil trials, breeding logs). Note the project objectives, hypotheses, methods, observations and conclusions. These provide evidence of a ‘systematic progression of work’ in line with scientific method, which is central to eligible R&D. For instance, if you are testing a new fertiliser on tomato yield, record each test plot’s setup, observations, and outcomes in a dedicated R&D log.
• Timesheets and staff records: Track the time staff spend on R&D versus ordinary (sometimes called ‘business as usual’) work. The ATO advises that maintaining detailed timesheets or job cards is the most reliable way to substantiate R&D labour costs. Each timesheet entry should identify the R&D task (e.g. ‘monitoring trial greenhouse temperatures’) and hours spent. If traditional timesheets are not practical (say, for a small field team), use alternative methods like daily work diaries or digital time tracking but ensure they are as accurate as formal timesheets. Clear time records help prove that, for example, 30 per cent of your farm manager’s time was devoted to an R&D trial, and so 30 per cent of their salary was claimed correctly.
• Financial and cost records: Keep cost ledgers or accounting codes that isolate R&D expenditures. For a horticulture project, you might have specific ledger entries for R&D materials (seeds, prototype equipment) or contractors (a soil scientist consulting on your trial) or trial plots. Your records should detail each expense and tie it to the R&D activity it supported. Supporting documents like invoices, receipts and grant contracts should be kept to prove those costs were incurred on the R&D project and on what dates.
• Emails and meeting notes: Preserve relevant correspondence that shows the R&D process and decisions. Emails discussing experiment plans, progress updates, or technical advice can demonstrate how the project evolved and that outcomes weren’t known in advance. Meeting minutes or reports where R&D results are analysed are also valuable. For example, an email exchange with an agronomist about unexpected pest resistance in your crop trial helps substantiate the experimental nature of your work. Such communications, alongside formal reports, strengthen the evidence that you conducted genuine R&D and not just routine business.
• Photos, prototypes, and test results: Visual and tangible evidence can support your written records. Take dated photographs of trial plots and prototypes. Save test result reports (e.g. lab analysis of soil improvements or crop yield data spreadsheets). These items can confirm that the R&D activities took place and had measurable outcomes. If you built a new irrigation device as part of R&D, keeping the prototype and design drawings is prudent. Likewise, a summary report of your field trial’s results (with data tables and analysis) is excellent proof of the R&D’s conclusion.

Pitfalls to avoid

• Don’t procrastinate: One common mistake is trying to reconstruct records after the fact. Avoid rushing to write lab notes or time summaries months later as these tend to be incomplete or inconsistent. The ATO explicitly warns that records written well after the events or with non-specific details (for example, a single line ‘R&D work done’ without context) are not acceptable. Instead, update logs and timesheets regularly during the project. This habit ensures accuracy and will make compliance far less stressful.
• Avoid blurred lines: Ensure you separate R&D from business as usual. If a cost or activity would have happened anyway in your normal operations, be cautious about claiming it. For instance, repairing a greenhouse is likely a regular business expense, not R&D, unless it was part of an experimental setup. Clearly distinguish R&D trial plots or experimental batches from standard production. Mislabelling ordinary expenses as R&D can lead to clawbacks or penalties later if audited. Document why each claimed expense was necessary for the experiment or prototype, not just for general use.
• Be specific and detailed: Vague records are a red flag. When recording R&D staff time, do not just write ‘research work – 8 hours’. Specify the task, like ‘gathered data on new irrigation system efficiency (8 hours)’. Similarly, project notes should detail the problem, method, and result not merely ‘trial conducted on orchids’. Specificity helps reviewers understand the R&D merit of your work and how the expenditures tie in. If you only maintain high level summaries (or none at all), you risk the ATO deciding you have not substantiated the exact R&D activities you claimed.
• No record, no claim: A golden rule is if you cannot document it, you should not claim it. Keep this in mind throughout your R&D project. Before claiming an expense or activity in your tax incentive schedule, ask: ‘Do we have evidence to back this up?’

Good record keeping might feel like extra ‘paperwork’, but it can be woven naturally into your R&D workflow. Also, many businesses will keep a record of much of this data (i.e. growth rates for a new genetic line) in practice anyway. Think of it as keeping a research diary and budget book for your innovation. Not only will this discipline go a long way to satisfy the ATO, but it can also help you manage your project more effectively as you will track progress and costs in real time. As the ATO and DISR emphasise, maintaining contemporaneous records maximises your benefit and may minimise hassle if your claim is reviewed.

To apply for the R&DTI, eligible companies must register their R&D activities with the DISR within 10 months after the end of their income year, before claiming the tax offset through their tax return with the ATO.

If you would like to discuss this further, please reach out to Tania or Daniel (details below).

Tania Harman

Director – R&D Tax and Government Incentives

PwC Australia

M: 0421 051 740

E: tania.harman@au.pwc.com

Daniel Knox

Partner – R&D Tax and Government Incentives

PwC Australia

M: 0438 335 794

E: daniel.knox@au.pwc.com

This content is for general information purposes only and therefore does not constitute financial product advice and should not be relied upon as financial product advice. For financial product advice that takes account of your particular objectives, financial situation or needs, you should consider consultation with professional advisors.