The R&D Tax Incentive is a self-assessment program, which means you assess your own eligibility and the regulators retain full authority to check it later. AusIndustry (within DISR) can review whether your activities are eligible. The ATO can review whether your expenditure is. Either can happen, and a review is only a problem if your claim cannot stand behind itself.
This article covers what tends to trigger a review, what reviewers actually ask for, and how to be ready long before one arrives.
Reviews test evidence, not intentions
A reviewer is rarely asking "is this kind of work eligible in principle." They are asking "can you show that you did this specific experimental work, in this year, the way you described." That is a question only contemporaneous evidence can answer. Everything below comes back to that.
What triggers an R&D Tax Incentive review?
There is no published formula, and selection includes random elements, but five patterns reliably raise risk: claim size and growth, high-risk framing, sector focus, expenditure that looks off, and inconsistencies between what you registered and what you claimed.
- Claim size and growth. Large claims, and sudden jumps relative to your history or your sector, attract attention.
- High-risk framing. Vague activity descriptions, software built with apparently routine methods, or claims that read like ordinary product development.
- Sector focus. The regulators periodically focus on areas, software and AI among them, where the line between R&D and routine development is easy to blur. See the notes on AI claims and scrutiny.
- Expenditure that looks off. A high proportion of contractor or overhead costs, related-party arrangements, or an R&D salary apportionment that is not clearly substantiated.
- Inconsistencies. Mismatches between the AusIndustry registration and the ATO schedule, or between the narrative and the financials.
What does a reviewer ask for?
Two things: proof of the experimental chain behind each activity, and proof of the link between your dollars and those activities. For activities, AusIndustry will look for the experimental chain behind each core activity:
- the technical uncertainty you faced
- the hypothesis you formed
- the systematic experiment you ran
- your observations and evaluation, including failures
- the new knowledge produced
For expenditure, the ATO will look for the link between dollars and eligible activities, in particular how staff R&D time was measured and apportioned, since salaries are usually the largest component.
The fastest way to lose a claim
An unsubstantiated time apportionment. If you claimed that engineers spent a given share of their time on R&D but cannot show records tying hours to specific activities, the expenditure is exposed even when the activities themselves were eligible.
How do you make a claim review-ready?
Keep contemporaneous records, tie every R&D hour to a specific activity and person, and write activity descriptions that name the uncertainty and the experiment. Being ready is not a year-end scramble, it is a habit maintained through the year.
- Keep contemporaneous records. Capture the experimental story as the work happens: pull requests, issues, experiment logs, design notes, test results, dated. Records made at the time are the foundation, retrospective write-ups are not. See documenting a defensible claim.
- Tie hours to activities. Every R&D hour should be attributable to a specific activity and person, linked to payroll. This is what converts eligible work into substantiated expenditure.
- Write specific activity descriptions. "We improved performance and scalability" tells a reviewer nothing. Name the uncertainty and the experiment.
- Keep your failures. Dead ends are among your strongest evidence that the outcome was genuinely unknown.
- Reconcile registration and schedule. Make sure the AusIndustry registration and the ATO claim describe the same activities and numbers.
What should you do if a review happens?
Respond promptly, point to your contemporaneous records rather than constructing new narratives, and be straight about what was and was not experimental. A well-documented claim defended honestly is a manageable process. The companies that struggle are the ones assembling evidence after the fact, which is exactly the position good habits avoid.
Note that the program is changing: from 1 July 2028 it narrows toward core experimental activity, which raises the bar on how cleanly you describe and evidence the core. Read the 2026-27 Budget changes.
The R&D Tax Incentive is a self-assessment scheme. AusIndustry and the ATO may review, audit, or amend any claim. Rand helps you prepare and document a defensible claim, but your company and its directors remain responsible for its accuracy, and you should seek independent advice for your circumstances.