Claiming the R&D Tax Incentive in the Energy Sector

In 2021, Australia produced almost 19,000 petajoules (PJ) of energy, with coal being the most widely used energy source, accounting for 63% of the country’s energy production. Natural gas followed at 30%. The country is also one of the top exporters of energy, which is about two-thirds of production. The sector that handles this chain is also eligible for the R&D tax incentive.

R&D Tax Incentive in the Energy Sector

The sector, however, faces a major transition, due to several factors. The most pressing of which is the global demand to shift from fossil-fueled power stations to renewable power sources. Coal-fired power stations are ageing, and with the emergence of newer and cleaner technologies, these power stations are becoming more unreliable and inefficient. High electricity and gas prices are prompting a change in consumer preference, with households seeking more efficient and economical solutions. Costs for cleaner alternatives such as solar and wind power are also dropping.

With these changes in the atmosphere, it is not surprising that a lot of research and development is being done in the industry to keep up with global, environmental, and consumer demand. Power storage, electricity generation and distribution, fuel for vehicles, and usage of renewables are all part of the country’s diversified energy supply chain, and companies handling any parts of this chain can claim the R&D tax incentives for R&D activities they undertake.

When claiming R&D, it is important to note that companies can claim their activities as either core or supporting activities. Core activities follow the systematic progression of work, are experimental in nature, and are hypothesis-driven. One determining factor that can help identify whether an activity is a core is if the outcome cannot be determined in advance by experts in the field. These activities are also undertaken primarily to generate new knowledge. On the other hand, supporting activities are any type of activity that can be correlated to a core activity.

Below are some examples of a core activity in the energy sector:

1. Improving existing techniques to efficiently utilise batteries
2. Developing a new algorithm for power flow optimisation
3. Creating a platform that will predict future congestions in a distributed energy system
4. Improving the design of solar cells to increase their efficiency while reducing the cost

The above sample core activities may have the following supporting activities:

1. Developing prototypes and creating test cases for them
2. Conducting a literature review before conducting experiments to find out whether the knowledge to solve the technical problem exists
3. Automating processes for testing the core activities
4. UI/UX development

It is also important to note the difference between the R&D process and “business as usual” operations as the activities conducted for the latter are not eligible under the program. 

Companies should document and record the development of each core and supporting activity. Documenting eligible R&D activities as they are conducted improves the possibility of capturing associated costs in real time. 

We at Innercode are confident that we can help you determine your eligible projects and activities, as well as the maximum amount of eligible expenditure that you can claim for your projects. With our years of experience delivering R&D tax incentive to several tech companies, we have developed a streamlined methodology to make claiming simpler.

References:

1. Software Development Sector Guide for the R&D Tax Incentive | Business.Gov.Au. 13 June 2022, https://business.gov.au/grants-and-programs/research-and-development-tax-incentive/sector-guides-for-r-and-d-tax-incentive-applicants/software-development.

Further reading:

1. ‘Claiming IoT Project Activities’. Innercode, 31 Mar. 2021, https://innercode.com.au/innercode/claiming-iot-project-activities/.
2. ‘Claiming R&D for Hardware and Manufacturing’. Innercode, 12 Apr. 2021, https://innercode.com.au/innercode/claiming-rd-for-hardware-and-manufacturing/.