A recent tribunal decision has delivered an important reminder for businesses claiming the R&D Tax Incentive: to be eligible, your activities must address an unknown outcome — and that outcome must be clearly identified and tested using scientific methodology.
At Boa & Co. Chartered Accountants, we regularly assist clients — especially small and medium-sized businesses — to structure and document their R&D projects properly, helping avoid common pitfalls that lead to disputes or disqualifications like the one described below.
Case Overview: Body by Michael Pty Ltd
On 24 January 2025, the Administrative Review Tribunal (ART) ruled against the taxpayer in Body by Michael Pty Ltd v Industry Innovation and Science Australia [2025] ARTA 44. The company had registered activities under the R&D Tax Incentive program, claiming that the integration of six health pillars (movement, sleep, breathing, etc.) into a mental health mobile app involved research with an unknown outcome.
However, the tribunal disagreed. It found that the activity was not truly experimental — it merely combined existing, well-known techniques using standard technology. There was no scientific uncertainty or innovation that justified the claim.
What Went Wrong?
The taxpayer’s R&D claim failed for several key reasons:
- No clear hypothesis was formed at the start of the project.
- The process did not follow a scientific method (i.e., hypothesis → experiment → evaluation → conclusion).
- There was no demonstration of a knowledge gap that the research intended to address.
- Contemporaneous documentation (especially technical metadata and algorithm development records) was not provided.
Although hundreds of tests were performed, they were not structured as part of a systematic R&D process, and the tribunal ruled that these did not qualify as “core R&D activities.”
Key Lessons for Small Business Owners
The tribunal also criticised the regulator’s harsh treatment of small businesses, stating that excessive documentation requirements and academic-style reviews may discourage innovation and unfairly disadvantage smaller entities.
This is a valuable insight for SMEs: while detailed records are ideal, the law does not mandate academic-level documentation. What matters is whether the activities meet the legal definition of R&D — and whether you can clearly describe the problem, hypothesis, method, and outcome.
At Boa & Co., we help clients:
- Identify activities that qualify as R&D.
- Establish clear unknown outcomes before starting the project.
- Design experiments that follow the correct scientific or technical methodology.
- Prepare and retain appropriate records — without unnecessary complexity.
We also support you during ATO or ISA reviews, ensuring your claims are well-documented, defensible, and compliant.
Don’t Let Your Claim Be Denied for Simple Mistakes
As this case shows, even well-intentioned claims can be rejected if the right structure and documentation aren’t in place. It’s also a reminder to be cautious when using unverified AI-generated content in your submissions, as tribunals are warning against relying on such tools for legal or technical material.
Need help with your R&D tax claims or planning future R&D projects? Contact Boa & Co. Chartered Accountants today. Our expert team is here to help you build compliant, high-quality claims that stand up to scrutiny — while maximising your tax benefits. Call us on 1300 952 286, email us at [email protected] or visit www.boanco.com.au to book a consultation.