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What is research and development (R&D)?

R&D, as it relates to the loss tax credit, is a study to gain new knowledge of a scientific or technical nature. This can result in new or substantially improved materials, products, devices, processes or services.


Research is defined as being original and a planned investigation, carried out with a view to gain new scientific or technical knowledge and understanding.


Original is defined as being new and something that is not already publicly or commercially available. This also applies when you carry out research and development in order to create something new to your company.


Planned is defined as a proposed strategy for a future goal, with a stated end result and a structured approach for achieving this.


Investigation is defined as a series of processes and defined steps required to gain new knowledge.

New knowledge

New knowledge refers to a new theoretical or practical understanding of a subject, ie, knowledge that was previously unknown or could not be readily predicted. 


Development for R&D loss tax credit purposes takes place when a project uses research findings to produce new, innovative or substantially improved materials, devices, products, processes, systems or services. 

Substantial improvement

Substantial improvement has a reasonably high threshold. It is more than just an improvement and should be able to be recognised. There should be an identifiable amount of originality and innovation.

Development activities

Certain activities are excluded for the purposes of the R&D loss tax credit.  These will include development activities that:

  • happen before commercial production. These can be referred to as pre-production activities, eg, tooling-up, trial runs, production planning, and start-up procedures
  • have moved into commercial production
  • seek to duplicate work already developed by others. These are not R&D unless it can be shown that the knowledge required is not available to the company, eg, protected by trade secret, and
  • reproduce existing product or process, eg, reverse engineering. 


Innovation is important in establishing whether your project is R&D.  The identification of innovation is important to separate a project from business-as-usual activities.    

Examples of areas considered R&D

The following are examples of what may be considered R&D and must meet the definition for the R&D loss tax credit: 

  • A deliberate search for new knowledge, intellectual property and know-how.
  • A clearly defined project with separate and identifiable costs.
  • Results written up as part of a knowledge capture during or at the end of an R&D project.
  • Freedom to Operate (FTO) search and analysis as part of planning and scoping the R&D project. FTO is required when determining whether valid intellectual property rights exist, or will be infringed.


  • Application programme interfacing where unknown programme interactions require new technical solutions.
  • Complex data capture and analysis requiring new technical solutions.
Examples of areas not considered R&D

The following are examples of some areas that aren't considered R&D for the purposes of the R&D loss tax credit: 

  • Exploring if something is already known compared to gaining new knowledge.
  • Reverse engineering or copying compared to substantially improving something.
  • Routine design of tools, jigs, moulds and dies, seasonal or other periodic design changes to existing products.
  • Adapting an existing product or process to a particular customer's need or site.
  • Drafting documents to publish or communicate research results.
  • Work to implement or comply with international quality management systems, eg, ISO 9001.
  • Clinical trials beyond Phase II.


  • Supporting, de-bugging or making minor improvements to existing computer software.
  • Business support systems or infrastructure development, eg, a database build to manage the company's research projects. 
  • Business-as-usual software development without noticeable innovation.
  • Database creation.
  • Improvements to existing software and systems.
  • Cross-platform development and programming.
  • User interface design, dashboard creation, front-end functionality design and development.
  • Automated data capture and analysis.
  • Adding modules to existing software unless it can be shown that something is significantly different to what is already available.
  • Development of industry standard products not noticeably different from what is currently available.