A quick guide to R&D tax incentive regulatory reviews

28 May 2025

As we approach the end of the financial year, companies accessing the research and development (R&D) tax incentive may be contemplating what happens after their claims are lodged. Claimants should keep in mind that receipt of the Notice of Registration from the Department of Industry, Science and Resources (DISR) and even receipt of a cash refund do not mean that DISR has approved their claims, or that their claims are ‘successful’. The R&D tax incentive is a self-assessment program, and most reviews and audits are conducted ‘post-benefit’ — potentially up to four years after benefit receipt.

This article provides simple guidance about what happens when an R&D tax incentive claim is reviewed. Both DISR and the Australian Taxation Office (ATO) also publish guidance about their review and audit processes.

Review steps

Although the ATO and DISR have recently undertaken a trial joint review program, their reviews can and do take place completely separately. The legislation contains provisions allowing the ATO to ask DISR to make a finding about activity eligibility and DISR can also refer claimants to the ATO. However, it is not common practice for the two agencies to review the same claimant at the same time.

R&D tax incentive claimants are responsible for ensuring the records needed to respond to a review are created during the financial year, while the R&D activities are taking place. This means that while some claimants may have just lodged 30 June 2024 claims, they should currently be preparing and storing the documents that will substantiate 30 June 2025 claims. The R&D tax incentive application form contains questions about the types of records the R&D claimant has kept.

The DISR and ATO processes described below can and do vary, depending on the specific details of a case. The description below is quite broad and there is considerably more detail in each of the steps, some of which can be found on DISR’s and the ATO’s websites.

For each step, time limits apply to the regulators and to R&D tax incentive claimants. The key time limit affecting commencement of reviews is that the ATO may amend an assessment up to four years after the date of that Notice of Assessment for which the claim has been made.

If the ATO is of the opinion that there has been fraud or evasion, there will be no time limit for amending the assessment. 

Department of Industry, Science and Resources

DISR is responsible for reviewing the eligibility of R&D activities. DISR reviews can take place even if the claimant has not claimed or received the tax benefit from its R&D claim. Setting aside Advance Findings, DISR divides its compliance processes into pre-registration and post-registration.

Reviews may either commence with a request for documentary records or a meeting (usually virtual) with DISR officers. If DISR requests documentary records, the time limit for those to be provided is usually 30 days, though claimants can request extensions. The documentary records requested will generally be those that were kept during the undertaking of the R&D activities and on which the claimant’s self-assessment of eligibility was based.

Depending on the review, DISR may or may not issue a finding about the eligibility of the R&D activities — the review may end with no further action. However, DISR is empowered to issue a finding in relation to a claimant’s R&D application. A post-registration finding about an R&D application binds the Tax Commissioner if it is made within four years after the end of the relevant income year. The four-year time limit is relevant if DISR seeks to include prior year R&D applications in its review, but DISR reviews typically commence within 12 months after issuance of the registration number (if not before).

Once DISR issues its initial finding, the taxpayer has up to 28 days to apply for an “Internal Review” (undertaken by a different DISR officer). Following the outcome of the Internal Review, the claimant has up to 90 days to appeal to the Administrative Review Tribunal (ART). ART time limits are set during the proceedings.

The Australian Taxation Office

Broadly, the ATO reviews the eligibility of expenditure. Setting aside the importance of the deductibility of each R&D expense in the hands of the claimant, the key determinant of expenditure eligibility is that expenses must be incurred on registered R&D activities. There are also certain types of expense that are expressly excluded.

While DISR generally audits R&D claims without considering any other aspect of a claimant’s business, ATO audits of R&D claims independent of any other ATO concerns are less common. ATO audits of R&D claims often take place as part of a broader audit, which may or may not be part of an ATO campaign (such as a Streamlined Assurance Review or Combined Assurance Review).

ATO audits usually commence with a written request for information. The information requested may be an explanation of methods or rationales for expense calculations, description of processes, documentary records, or all three. The ATO allows 28 days for provision of information but can provide extensions of time. After reviewing a taxpayer’s response to the initial request for information, further rounds of questions are common. The ATO may hold virtual or in-person meetings with a claimant.

The end results of an ATO review or audit of an R&D claim vary, depending on the nature of the review and the level of compliance assurance the ATO obtains. However, broadly, the result will be either a discontinuation or conclusion of the process, with no immediate further action, or issuance of a notice of amended assessment, which adjusts the taxpayer’s tax liability. A taxpayer may object to an amended assessment and the ATO provides a form for doing so. If the ATO disallows a taxpayer’s objection, the decision can be appealed to the ART.

The takeaway

Compliance reviews and audits are a vital part of a self-assessment taxation system and ensure the continued integrity of a program that offers a significant benefit to Australian innovators. Since it offers such benefits, beneficiaries of the R&D tax incentive could expect more frequent scrutiny than other taxpayers and be prepared accordingly. The best ways to prepare are:

• Carefully assess the eligibility of the activities and expenditure at, or close to, the time of undertaking the activities, then again before making the R&D tax incentive claim
• Ensure claims are compliant and clearly defensible
• Implement robust record-keeping procedures and ensure records are maintained for all aspects of R&D tax incentive claims.