Do I need timesheets?

The requirement to substantiate how much effort is spent by staff on eligible R&D activities, compared to ineligible activities needs to be satisfied in a manner that shows the ATO that you understand the difference between eligible and ineligible activities.

‘Business As Usual’ is the phrase used in much of the guidance, which is intended to describe activities in the business that may be technical development but do not meet the R&D eligibility requirements. It is also intended to cover activities that the business undertakes to remain a commercial entity (bookkeeping, customer sales, marketing etc.).

The easiest justifications are 100% eligible R&D, and 0% ‘not involved in R&D’, the former of which can be resolved by a role description or employment contract that shows those are the only responsibilities of that individual.

If a project takes up 100% of someone’s time for a defined period, then a project plan that shows resource allocations would help to show that for example – a 6 week activity for a person on a full time contract with standard leave arrangements is (6/46) = 13%.

If staff have multiple activities happening concurrently, some of which are eligible and some of which are not, then those splits need to be recorded for the duration that the splits occur. That could be daily/weekly/monthly totals of hours/days spent. Consider capturing it at a weekly team meeting, or within regular reporting requirements.

It is not necessary to ‘clock in’ and ‘clock out’ or record to a 15-minute accuracy but treat it like a receipt for any other expense in the business so be as informative and accurate as you can reasonably be. The ATO also accept that for ongoing repeatable situations, a ‘sample period’ can be documented at a higher level of accuracy as representative of the full year.

Recording should show 4 categories:

  • Time off (all leave)
  • Administration activities (timesheets, meetings etc.)
  • Ineligible activities (jobs, projects, or other work that isn’t eligible for R&DTI)
  • Eligible activities (that correspond with activities to be included in the application form)

It is recommended that when recording is necessary, it is done at the ‘activity’ level, as per the breakdown of the activities in the application form. These may or may not align with internal ‘project’ or ‘job’ definitions (especially in the case of supporting activities), so it is worthwhile identifying the breakdowns up front.

The effort ratio per person is then eligible activities / eligible + ineligible activities (as opposed to eligible/total). Paid Leave and Paid Admin is allowed to be proportioned at the same rate. This effort ratio (per person) is then used to calculate eligible salary costs, and also to calculate the overhead rate. We do these calculations for you, we just need to know the effort ratios.