Software R&D Tax Incentive Case Study

Case Study – InsightIQ

Software related R&D activities

Software projects with eligible R&D activities can include:

  • Development of new or improved software that forms part of a product or device or a platform that enables service delivery, for example, new 3D visualisation tool.
  • Development of new or improved software that controls a process or operates a product itself, for example, a core software system integrated with mining equipment to control and automate its operations.

Companies claiming software related R&D activities can range from start-ups to established companies seeking to improve their existing offerings.


InsightIQ was founded in 2015 and develops analytics-as-a-service products to enable retailers to optimise various operations including inventory and procurement, marketing and pricing.

Their core offering, IntelliVision, is a cloud-based product that leverages machine learning (ML) and artificial intelligence (AI) to parse big data and provide retailers with a variety of retail intelligence metrics. IntelliVision was first released in 2016 and, whilst it has performed strongly, both the competitive and technological environment has changed significantly. InsightIQ realised that to retain its competitive position, it must invest in a significant upgrade of the product.

Through research and investigative activities, InsightIQ concluded that much of the development would be within its existing skills and experience, but that other aspects would require hypothesis driven experimentation. It was able to form this view given the qualifications, knowledge and experience of its software engineers and data scientists, consulting with subject matter experts and reviewing publicly available information.

The company sought to access the R&D Tax Incentive program to de-risk the experimental aspects of the project due to uncertain return and accelerate development.

Eligibility must be assessed on an activity level, rather than project level. Within a software project, there is likely to be some activities that qualify as a core R&D activity, some that qualify as a supporting R&D activity, and some activities that are not eligible.

InsightIQ considered its activities against the definitions of core and supporting R&D activities.

It self-assessed that the development of a new data model and machine learning algorithms underlying new demand forecast functionality to optimise pricing and other retail functions met the requirements to be a core R&D activity because:

  • There was no current knowledge that could be found in the literature, open-source code repositories, ML/AI libraries and other publicly available sources that could be leveraged to achieve the desired outcome.
  • It could only determine the outcome through a systematic progression of work that is based on the principles of an established science, in this case the fields of software engineering and data science.
  • It plans to generate new knowledge about the design of the data models to record data from several proprietary and publicly available sources and then process, store and access it within specific time and performance metrics. Further, new learnings will be gained in design of the ML algorithms and weightings assigned to the key variables to forecast demand over a set period of time to a high degree of accuracy.

InsightIQ assessed that other aspects of the development including project management, obtaining data to use in the experiment, and the development of a working front-end to evaluate results could be registered as supporting R&D activities. These tasks were all within the skills and experience of the company, however, they were directly related to the core R&D activity and the experiments could not be carried out without them.

Additional activities carried out during the project such as marketing activities, commercial discussions with major customers and more routine development tasks such as the development of the graphical user interface did not meet the definitions of core or supporting R&D activities and were thus not included.

InsightIQ incurred expenditure on R&D salaries, third party contractor costs and overheads. 

InsightIQ is a Pty Ltd company incorporated in Australia that is not a tax-exempt entity. It is therefore an eligible entity.

On the technical side, InsightIQ kept documentation usually generated as part of its agile software development process including a product roadmap, project overview, requirements documentation and testing documentation.

To differentiate the R&D project from a routine software project, it also kept records that evidenced the experimental nature of the work, including:

  • Presentations to the board setting out the need to conduct R&D and the results/new knowledge expected to be generated.
  • White papers, journal articles, technology reviews and searches of GitHub/tech blogs that were used to establish that the knowledge gap.
  • Confluence pages that summarised the technical problems, proposed a hypothesis or design solution to resolve them, described the testing method and the success metrics that were used to evaluate the results.

To demonstrate that its software engineers spent time on R&D, InsightIQ required its software engineers and data scientists to log time using time tracking software. Reports were exported to determine how many hours the development team spent on individual tasks that formed part of the core and supporting R&D activities vs routine development. Other employees involved in supporting R&D activities such as project management provided conservative estimates of time based on other records such as meeting minutes and diary entries. Contractors were asked to provide sufficiently detailed invoices to ensure the work they were engaged to perform could be easily linked to the core and/or supporting R&D activities.

  • Conducted education sessions with key technical and financial personnel to help InsightIQ assess activities against the legislation. The definitions of R&D under the program are not necessarily the same as the common understanding of R&D or experimentation.
  • Ensured that none of the core R&D activities fell within the exclusion around developing, modifying or customising software for internal administration.
  • Drafted the technical descriptions of the core and supporting activities conducted in the project with sufficient detail to allow AusIndustry to understand how those activities meet the eligibility requirements.
  • Prepared the R&D expenditure calculations and information needed to submit the claim as part of the company tax return, ensuring no ineligible expenditure was claimed such as the cost of core technology or expenditure not “at risk”.
  • Worked with InsightIQ to improve their record keeping systems and processes to contemporaneously identify, evaluate and record eligible software R&D activities.
  • Kept InsightIQ informed of the latest case law, guidance and expectations from the regulators (AusIndustry and ATO) expressed through taxpayer alerts and industry reference group meetings.

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