As we approach 30 April 2026, Australian businesses with a standard 30 June year-end hit a key statutory deadline. It is the last day they can formally register their FY25 Research and Development (R&D) activities.
While the Research and Development Tax Incentive has remained structurally stable over the last year, the landscape of compliance has undergone a profound shift.
Much of this shift can be traced back fifteen months to January 2025, when the newly established Administrative Review Tribunal (ART) handed down its first major RDTI decision: Body by Michael Pty Ltd and Industry Innovation and Science Australia ARTA 44. This landmark case provides a comprehensive guide for how businesses, particularly small-to-medium enterprises, should approach their R&DTI claims in 2026.
By understanding the “BBM Trap” and the lessons learned during the first 15 months of the ART, your business can ensure its FY25 registration is both robust and compliant.
Avoiding the “BBM Trap”: Why your “Innovation” is not always R&D
The most significant takeaway from the Body by Michael (BBM) case is the distinction between a commercially innovative idea and an eligible R&D activity. BBM sought to claim activities related to developing an integrated ‘six pillars’ health and wellbeing program (covering movement, nutrition, breathing, hydration, sleep, and mindfulness) delivered through a mobile app.
As the program was arguably a new service offering, it fell into what we now call the “BBM Trap.”
The Predictability Pitfall
The BBM company argued that because no prior research specifically combined all 6 elements into 1 program, the outcome of their project was “unknown”. The ART firmly rejected this, stating that a lack of existing research papers on a specific combination does not automatically make the outcome unknown.
The Tribunal found that because the positive health benefits of each pillar (like sleep or nutrition) were already well-understood and predictable based on existing knowledge, combining them did not create a “technical unknown”.
The Lesson for FY25: For your current registration, you must demonstrate that your project’s outcome could not have been known or determined in advance by a competent professional in the field. If you are simply combining known technologies or processes to achieve a logically predictable result, you risk being caught in the same trap.
The Hypothesis Requirement
A core reason BBM failed was the absence of a hypothesis at the start of the 2019 income year. The Tribunal found that while BBM had conducted hundreds of tests (which they deemed “systematic” work), there was no clear scientific method in place. A hypothesis was only formulated in later years, meaning the 2019 activities did not qualify as an “experiment”.
The Lesson for FY25: You cannot “find” a hypothesis after the work is done. To be eligible, your core activity must proceed from a hypothesis to experiment, observation, and evaluation. Your FY25 documentation must show that you had a specific technical uncertainty and a planned experiment to test it at the outset of the year.
15 Months of the ART: A New “SME-Friendly” Approach?
While BBM was unsuccessful, the first ruling of the Tribunal sent a clear message to the regulators, Industry Innovation and Science Australia (IISA), about how they should treat small businesses. This has fundamentally changed the compliance environment over the last 15 months.
A Critique of “Academic Standards”
The Tribunal expressed concern that IISA was holding small businesses to the same documentation and reporting standards as those applied to academic research laboratories. The ART noted that such onerous expectations could inadvertently stop genuine small-business innovators from accessing the R&D tax incentive.
The ART emphasised that the RDTI is intended for industry R&D, with a focus on products and processes rather than purely academic pursuits.
Documentation: Beneficial, Not Always Legislative
In a surprising turn, the Tribunal clarified that contemporaneous documentation is not a strict legislative requirement under the ITAA 1997. While IISA often argues that documentation is necessary to prove a systematic progression of work, the ART ruled that the absence of documentation alone is not a decisive reason to reject a claim.
However, there is a catch: the burden of proof still rests entirely on the taxpayer. Without records, it is incredibly difficult to prove that a hypothesis existed in 2019 or that an experiment was conducted.
The Lesson for 2026: It is not necessary to have journals of “laboratory grade”, but you must have some evidence in the form of your emails, meeting minutes, test logs, or even metadata that shows what was actually done and when.
The “Plain Language” Victory
The Tribunal also criticised the regulator’s implicit encouragement for businesses to use “scientific jargon” in their applications. They noted that scientific words often do not translate well to industrial research, such as improving a production process. The ART’s stance is that no specific “form of words” is required; what matters is the substance of the activity.
The “Win” for Health-Tech and Mental Health
One of the most positive outcomes from the BBM case for the tech sector was the clarification of the social sciences exclusion. Historically, there was confusion about whether mental health or psychology-based apps were excluded as “research in social sciences”.
The ART ruled that mental and physical health do not fall under the concept of social sciences. Had BBM met the other core criteria (unknown outcome and scientific method), their project would not have been barred by the social science exclusion.
This provides a clear pathway for Australian health-tech and MedTech firms in 2026 to claim R&D for apps and systems focused on medical outcomes, provided they focus on the biological or medical science rather than just social behaviour.
Compliance in the Age of AI and New Portals
As we look toward the 30 April deadline, two modern factors are critical for FY25 registrations.
The Warning Against AI Hallucinations
The BBM case served as a harsh warning against using generative AI tools like ChatGPT or Google Gemini for legal or technical R&D submissions. The Tribunal noticed that BBM’s filings contained quoted sentences from articles that did not actually exist in the cited sources, a classic sign of AI “hallucination”.
The ART warned that providing misleading or hallucinated information in a submission could lead the Tribunal to make negative assumptions about the entire claim.
The Lesson for 2026: Generative AI can help draft text, but every technical citation and factual claim in your FY25 registration must be manually verified. A single hallucinated reference can jeopardise your entire registration.
The Revamped Application Portal
Since August 2025, DISR has implemented a new R&D Application Form via the customer portal. This new R&D form includes:
- Increased character limits to allow for more detailed technical descriptions of your claims.
- Restructured questions that force a more logical flow, aligning with the “systematic progression of work” the ART expects.
- More pre-filled fields to streamline the process for multi-year projects.
This new portal is designed to prevent the “vague descriptions” that led to BBM’s failure.
Conclusion: Your 30 April Checklist
Almost 15 months have passed since the Body by Michael decision, which has shown that while the ART is sympathetic to the realities of running a small business, it will not compromise on the core legal requirements of the R&D Tax Incentive.
As you finalise your FY25 registration this month, ask yourself these four questions:
- Is the outcome truly unknown? Can you prove that a competent professional could not have predicted the result using existing knowledge?
- Where is the hypothesis? Do you have evidence that you started the year with a specific technical “if/then” statement you intended to test?
- Is the language clear? Have you focused on describing what you actually did rather than trying to dress it up in scientific jargon?
- Is it verified? If you leaned on Generative AI to write your technical content, did you verify each reference and fact to steer clear of the “AI trap”?
The 30 April 2026 deadline is firm. By applying the lessons from the ART’s first 15 months, you can claim with confidence, knowing you have built a foundation that respects both the spirit of innovation and the letter of the law.
How Pattens Group Can Help
To reach a successful R&D claim, especially with the deadline of 30 April 2026, you need to have a combination of technical precision and regulatory insight. At Pattens Group, we help businesses in Australia determine whether their activities meet the legislative requirements to access the R&D tax incentive. Our expert team also has significant experience in preparing responses to regulator reviews, ensuring your documentation and scientific methodology stand up to scrutiny. Contact us for advice in relation to your R&D tax incentive claim today.
