Expenditure you incur under contract to other parties

This type of R&D expenditure covers any eligible expenditure on R&D activities incurred under a contract to another party (other than an RSP). You cannot claim this type of expenditure on R&D activities unless your total notional deduction amount is at least $20,000. Contract expenditure may include contracts for:

  • labour hire
  • provision of services
  • consultants working on R&D activities.

The contracts should show the nature of the work and its relation to your R&D activities. However, you may need to keep further records to show how work under the contract relates to your R&D activities. Although not exclusive, this may include:

  • minutes of any meetings between yourself and the contractor
  • progress reports from the contractor for the R&D activities.

To adequately establish the relationship between your R&D activities and the expenditure you have incurred under the contract, the Commissioner may need to look through the contract to establish the extent of the work done by the contractor on your behalf, particularly where you are not contracting at arm's length. You must keep sufficient records for this purpose.


If you have entered into a contract with your associate, you are only eligible to claim the amount incurred as a notional R&D deduction at the time that the amount is paid. See R&D expenditure paid to your associate in your claim year for more information.

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An R&D entity is only entitled to a notional deduction for R&D activities that are conducted 'for' itself. Consider whether or not you receive the major benefit from your expenditure under each contract. See Research and development tax incentive - for whom are the R&D activities conducted? for further information on determining who receives the major benefit from the R&D activities.

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    Last modified: 25 Oct 2016QC 25805