Within the context of an R&D project the activities that directly contribute to the achievement of an advance in science or technology through the resolution of scientific or technological uncertainty are considered to be R&D activities. R&D activities commence when work on resolving technological uncertainty begins, and end when the uncertainty is resolved or work to resolve it ceases.

The term research and development (R&D) is defined in the Income and Corporation Taxes Act. The definition is based on the accounting definition of R&D that is contained in Statement of Standard Accounting Practice (SSAP) 13, with some modifications. The accountancy definition is then modified for tax purposes by the R&D Guidelines issued by the Department of Trade and Industry (“DTI”), which are given legal force by Parliamentary Regulations. The definition recognizes three categories of R&D; pure (basic) research, applied research and experimental development.

In order to determine whether a specific project meets the definition of R&D the project must exhibit certain characteristics. In general, R&D projects attempt to achieve an advance in science and technology through the resolution of technological uncertainty.

A project that seeks to extend overall knowledge or capability in a field of science or technology would be an R&D project. A project that involves the creation or appreciable improvement to an existing process, material, device, product or service would also be considered R&D as long as, where something new is being created, the new thing incorporates or represents an improvement in science or technology, or where an appreciable improvement occurs, that improvement is made through scientific or technological changes.

Success or failure in achieving the technological advance is not considered a relevant factor in determining whether R&D has taken place.

Advance in Science or Technology

R&D is said to occur when a project seeks to achieve an advance in science or technology. The activities which directly contribute to achieving the advance through the resolution of scientific or technological uncertainty are R&D. An advance in science or technology means an advance in overall knowledge or capability in a field of science or technology. R&D includes the adaptation of knowledge or capability from another field of science or technology in order to make such an advance provided this adaptation was not readily deducible by a competent professional.

An advance in a company’s own state of knowledge or capability would not be considered an advance unless it represents an advance in the overall knowledge or capability in the field of science or technology. In determining whether a company has achieved an advance in the field, the existence of proprietary or otherwise not readily available technology is ignored.

The use of science or technology is not in itself considered an advance in technology.

R&D can be directed towards turning something that has proven to be feasible to something that can work at a commercial scale, where scaling up involves an advance in science or technology through the resolution of technological uncertainty.

Scientific or Technological Uncertainty

R&D projects attempt to achieve an advance in science and technology through the resolution of technological uncertainty. The existence of technological uncertainty implies that there is an unknown factor that is not readily determinable by a competent professional working in the field. It is a concept of either not knowing whether something can be done, or not knowing how it can be done.

Research and Development is a systematic investigation or search carried out in a field of science or technology by means of experiment or analysis. A systematic search would normally encompass a process by which a hypothesis is formulated or a technological objective is set, a methodology is devised for testing whether the technological objective is met, the tests are performed, the results are observed, and conclusions are drawn. Systematic searches are often performed by skilled individuals who wear the white coats, but also can be performed by individuals in overalls on a shop floor. The qualification of the individuals to do the work and the systematic search itself is often referred to as the technological content of a project.

R&D includes pure (basic) research, applied research and experimental development. Experimental development is defined to be work undertaken for the purpose of achieving technological advancement for the purpose of creating new, or improving existing, materials, devices, products or processes. Work need not be revolutionary. Eligible work includes incremental improvements to existing technology.

Paragraph 6 of SSAP 13, the starting point for R&D definition, lists various activities which would normally be included in R&D: experimental, theoretical or other work aimed at the discovery of new knowledge, or the advancement of existing knowledge; searching for applications of that knowledge; formulation and design of possible applications for such work; testing in search for, or evaluation of, product, service or process alternatives; design, construction and testing of pre-production prototypes and models and development batches; design of products, processes, services or systems involving new technology or substantially improving those already produced or installed; construction and operation of prototypes and pilot plants.

Activities that directly contribute to the resolution of Technological Uncertainty in an attempted advance in science or technology are eligible for relief under the R&D Tax Credit Program. Examples of these sorts of activities are included in Paragraph 27 of the Department of Trade and Industry Guidelines. They are:

1. activities to create or adapt software, materials or equipment needed to resolve the scientific or technological uncertainty, provided that the software, material or equipment is created or adapted solely for use in R&D;
2. scientific or technological planning activities; and
3. scientific or technological design, testing and analysis undertaken to resolve the scientific or technological uncertainty.

A key part of assessing whether a project is an R&D project is whether it was undertaken for the purpose of achieving a technological advance. A technological advance is generally understood to be the discovery by the taxpayer of technical knowledge that advances their understanding of scientific relations or technologies. The requirement for a discovery implies that there is an unknown or uncertainty of a technological nature at the beginning of a project which will be resolved through the systematic investigation process.

A list of some projects that have received tax incentives are:

• developing a new line of fibreglass windows and improving window hardware and locking mechanisms
• developing processes for the recycling of a wide range of solid waste materials
• designing and developing a machine that assembles hanging file folders from paperboard blanks and runners
• developing an automatic guidance system for underground mining vehicles
• developing software relating to interfaces for weigh scales, bar coding and digitizers
• developing new software for an on-line, fully functional general ledger system
• developing an on-line system to validate credit information
• developing a comprehensive payroll system for personal-type computers
• designing and developing computer controlled multimedia products using graphics, video, sound and text, and three dimensional images
• developing an integrated material handling/optics/computer system to inspect fruit after mechanical halving and pitting
• developing a single component polyurethane foam system that is ozone-friendly
• designing, developing and testing a landing gear control unit
• developing unreinforced and fibre-reinforced polymer modified cementitious material systems for products that provide coatings for rust protection and waterproofing of cement surfaces
• researching and developing human diagnosis and therapeutic health care products
• developing new drugs based on their effects on leukotriene-mediated diseases such as asthma
• developing medical diagnostic instruments for heart valve problems
• developing devices to rapidly detect cardiovascular risk
• developing more environmentally acceptable muds for drilling to replace oil-based muds without compromising drilling performance developing a process to bleach kraft pulp to a specific brightness without using chlorine.
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