The reviews and audits page sets out the law: who can review, the penalties and the review rights. This page is about practice: how the department and the ATO run their programs today, what their letters ask, and how a company prepares. The short version is that the department asks whether each registered activity was an experiment and the ATO asks whether the money was spent on it, and both expect the people who did the work to answer.
What it is
| Department examination | ATO review | |
|---|---|---|
| Question | Were the registered activities core or supporting R&D activities, conducted as registered? | Was the expenditure incurred on those activities, correctly adjusted and correctly converted into the offset? |
| Trigger | Risk review of registrations; referral from the ATO; random selection | Risk review of returns and schedules; refund integrity checks; referral from the department |
| Starts with | A letter naming the activities under examination and requesting evidence within the period the letter sets | A letter or phone call requesting the expenditure workpapers and records, often while a refund is held |
| Who they want to talk to | The technical staff who conducted the activities | The finance staff and the technical staff on apportionments |
| Ends with | A finding, positive or negative, in whole or part, which binds the ATO | An amended assessment, or confirmation of the claim |
| Review | Internal review within 28 days, then the Administrative Review Tribunal | Objection, then the Administrative Review Tribunal or Federal Court |
Who it applies to
Any registrant. Both agencies publish the areas they focus on. The department's compliance material and the ATO's taxpayer alerts have named: software registrations describing whole development programs; activities that are ordinary business operations dressed as experiments; claims where expenditure is not at risk because a customer pays regardless of outcome; overseas activities without findings, including offshore development teams; expenditure to associates claimed before payment; and arrangements where an R&D entity is interposed to access the refundable offset for work done for others. Consultants matter too: both agencies pay attention to the registrations and claims prepared by particular advisers.
How it works
Department examination. The letter asks, for each named activity, for evidence of the knowledge gap, the hypothesis, the experiments, the observations and the conclusions, and for the supporting activities, their relationship to a core activity and the dominant purpose where relevant. Examiners read the registration against the evidence and against the definition; where the registration describes a project rather than an experiment, they ask the company to identify the experiment within it. A site visit or video meeting with the technical staff is common. The department then issues a proposed finding and invites comment before finalising.
ATO review. The ATO asks for the schedule workpapers: the ledger extract of expenditure by activity, the salary apportionment with timesheets, contractor invoices and contracts, associate payment evidence, asset registers, the overhead method, the feedstock and clawback calculations, aggregated turnover workings and the intensity calculation. It tests whether each amount was incurred on a registered activity and at risk. Where the eligibility of an activity is doubtful the ATO refers it to the department rather than deciding itself. A refund is usually held until the review ends.
Joint programs. The agencies run joint compliance campaigns in particular sectors and share data; a company can hear from both in the same year about the same claim.
Timescales. Response periods are set in the letter, with extensions available on request. Examinations take months; disputed ones can take more than a year, and the amendment period is extended where a finding is pending.
Worked example
Illustrative example. Kimberley Software Pty Ltd, a hypothetical company, registered one core activity for 2024-25 described as "development of the next generation platform" with A$900,000 of expenditure and claimed a refundable offset of A$391,500. The ATO holds the refund and refers the registration to the department. The department's examiner asks for the hypothesis and experiments; Kimberley's chief technology officer identifies two genuine experiments within the program, a new synchronisation protocol and a query engine, with benchmark records, and concedes that the rest was feature development. Kimberley asks to vary the registration to two core activities with A$350,000 of expenditure. The department issues a positive finding on the two; the ATO processes an offset of A$152,250 and, because the company corrected the claim when asked and had records for the experiments, applies no penalty. The following year Kimberley registers at the activity level from the start.
Common questions
Will the refund be paid during a review? Usually not. The ATO holds refunds under review and pays with interest if the claim is confirmed.
Can our consultant handle the examination? They can manage it, but the department wants to hear from the people who did the work.
What if the department's finding is wrong on the science? Respond to the proposed finding with the technical staff's evidence; then internal review; then the Tribunal, which hears expert evidence.
Does a positive finding protect later years? Only an Advance Finding binds for future years. An examination finding covers the years examined.
Related pages
Official sources
Educational content only, not tax advice. See the disclaimer.