Australia’s Research and Development Tax Incentive can reduce the cost of genuine experimental work. Yet spending money on something innovative does not automatically make it eligible. The program applies to specific activities, not an entire project, product, or business.
That distinction matters long before the registration deadline arrives. A strong claim begins while the work is underway, when your company can still record the technical uncertainty, experiments, results, and costs that support it.
What Is the Research and Development Tax Incentive?
The Research and Development Tax Incentive, commonly called the R&D Tax Incentive or R&DTI, provides eligible companies with a tax offset for qualifying R&D expenditure. The Department of Industry, Science and Resources registers eligible activities, while the Australian Taxation Office assesses the expenditure and processes the offset through the company tax return.
It is a self-assessment program. Your company must determine whether it is an eligible entity, whether its activities meet the legislative tests, and whether the expenditure included in its claim qualifies.
What R&D Tax Incentives Are Available in Australia?
The incentive takes one of two forms. The applicable offset depends mainly on the company’s aggregated turnover and, for larger companies, its R&D intensity.
| Aggregated turnover | Current R&D tax offset |
| Less than $20 million | A refundable offset equal to the company’s tax rate plus an 18.5 percentage-point premium, provided the company is not controlled by an income tax-exempt entity |
| $20 million or more | A non-refundable offset equal to the company’s tax rate plus an 8.5 percentage-point premium for R&D expenditure up to 2% of total expenditure, and a 16.5-point premium for expenditure above that threshold |
For example, an eligible company taxed at 25% that incurs $200,000 of qualifying R&D expenditure may calculate a gross refundable offset of 43.5%, or $87,000.
The amount ultimately refunded depends on the company’s tax position, other liabilities, and any adjustments that apply. The full $87,000 should not be treated as an automatic net saving over the ordinary tax treatment of the expenditure.
A company below the $20 million threshold that is taxed at 30% may have an effective refundable offset rate of 48.5%. Describing the incentive as a universal “43.5% rebate” can therefore be misleading.
Two expenditure thresholds also matter:
- Minimum expenditure: A company generally needs at least $20,000 in eligible R&D expenditure. An exception may apply where a registered Research Service Provider conducts the R&D, or the company makes an eligible contribution to the Cooperative Research Centres Program.
- Annual expenditure threshold: The additional R&D premium applies to eligible expenditure up to $150 million. Expenditure above that amount receives an offset equal to the company tax rate under the current rules.
Is Your Company Eligible to Claim?
An entity may qualify if it is a corporation that is:
- incorporated under Australian law;
- incorporated overseas but treated as an Australian resident for income tax purposes; or
- incorporated overseas and conducting business through an Australian permanent establishment under an applicable double tax agreement.
Individuals, exempt entities, and corporate limited partnerships are not eligible R&D entities. Trusts are generally ineligible, apart from the limited exception for a body corporate acting as trustee of a public trading trust. Sole traders, ordinary partnerships, and most trusts therefore cannot claim the incentive in their own right.
Entity status is only the starting point. The activities must generally be conducted for the claimant company, rather than to a significant extent for another entity. Contract terms, ownership of results, financial risk, and control over the work may become important when customers, related entities, or external developers are involved.
What Activities Qualify as R&D?
Eligibility is assessed activity by activity. A broader project may contain qualifying experiments, supporting work, routine development, commercial production, and administration. Only activities that satisfy the relevant tests can be registered.
Core R&D Activities
A core R&D activity is experimental work conducted to generate new knowledge. It must have four key features:
- An uncertain outcome: Existing knowledge, information, or experience cannot determine the result in advance.
- A hypothesis: The company develops a reasoned idea about how it might achieve a particular result.
- A systematic experiment: The work progresses through experiment, observation, evaluation, and logical conclusions.
- A new-knowledge purpose: The activity seeks new knowledge, which may take the form of a new or improved material, product, device, process, or service.
A new product, a difficult assignment, or an unsuccessful first attempt is not enough by itself. The company must use a systematic progression of work, based on established scientific principles, to resolve the uncertain outcome.
An unsuccessful experiment may still qualify. The test concerns how the company approached the uncertainty and what it sought to learn, not whether the work produced a commercially successful result.
Supporting R&D Activities
Supporting activities must be directly related to a core R&D activity. Examples may include a literature review used to refine a hypothesis, or maintaining equipment used in an experiment.
An additional dominant-purpose test applies when an activity is excluded from being core R&D, produces goods or services, or directly relates to their production. In those cases, the activity must be undertaken mainly to support the core experiment. Work that would have occurred without the R&D project is less likely to satisfy that test.
What This Looks Like in Practice
The line between eligible experimentation and ordinary development becomes clearer when the activity is considered on its own:
| Business activity | What may qualify | What ordinarily does not qualify by itself |
| Manufacturing | Controlled testing of a new material blend where existing knowledge cannot establish whether it will achieve the required performance | Routine production after the formula has been settled |
| Software | Testing a hypothesis about whether an unproven architecture can meet a defined technical requirement | Standard coding, configuration, deployment, user-interface changes, or ordinary bug fixing |
| Artificial intelligence | Experiments addressing a technical hurdle that cannot be resolved without testing | Using an existing AI tool or adding AI to a product without an eligible experimental work |
The technology or industry does not decide eligibility. The nature, purpose, and evidence of the activity do.
What R&D Expenditure Can Be Claimed?
Eligible expenditure must connect to registered R&D activities and satisfy the tax rules. Depending on the circumstances, it may include:
- the R&D portion of employee costs;
- payments to contractors performing eligible work;
- materials consumed during experiments;
- directly related overheads; and
- the decline in value of depreciating assets used for R&D.
Shared costs must be apportioned on a reasonable basis. A company should be able to show how it calculated the R&D percentage for salaries, rent, software, equipment, and other expenses that also support ordinary business activities.
Certain costs require different treatment or cannot be included under the R&D expenditure provisions:
- Depreciating assets: The purchase price of a tangible depreciating asset is not claimable, although its decline in value may qualify to the extent it is used for eligible R&D.
- Excluded expenditure: Interest, expenditure on acquiring or constructing buildings, and the cost of acquiring core technology are excluded.
- Payments to associates: An amount incurred to an associate generally must also be paid before the company can claim it as a notional R&D deduction.
Grants, recoupments, and goods produced through R&D may create further tax adjustments, including feedstock or recoupment amounts. These issues should be reviewed before the final calculation is lodged.
How Do You Claim the R&D Tax Incentive?
The claim moves through the Department of Industry and the ATO:
- Assess the company and its activities. Confirm that the entity, core activities, supporting activities, and expenditure meet the applicable requirements.
- Register the activities. Submit the eligible core and supporting activities through the R&DTI customer portal.
- Receive the registration number. The Department provides this number after registering the activities.
- Claim through the ATO. Include the number and eligible expenditure in an R&D Tax Incentive Schedule lodged with the company’s company tax return.
When preparing the registration, core and supporting activities should be described separately. Different core activities may be grouped only when they address the same technical uncertainty, and the application can clearly show the complete systematic progression of work.
Registration is generally due within 10 months after the end of the income year in which the activities occurred. For a company with a 30 June year-end, the ordinary registration deadline is 30 April of the following year. An extension may be available in limited circumstances, but a company should not plan its claim on the assumption that extra time will be granted.
Receiving a registration number does not confirm that the activities are eligible. The program remains self-assessed, and the Department or the ATO may review the activities, expenditure, or both. Companies concerned about an existing claim can seek professional ATO audit and review support before responding to a regulator.
Will Information About Your R&D Claim Be Published?
The ATO publishes an annual R&D Tax Incentive transparency report. It identifies each included claimant, its ABN or ACN, and the total R&D expenditure reported for the relevant income year.
The report does not publish the company’s complete registration, technical records, or detailed expenditure calculations. However, businesses should understand that their participation in the program and total claimed expenditure may become public.
Why Contemporary Records Matter
The registration form describes work that has already occurred. If the supporting material was created only at year-end, it may be difficult to show what the company knew before testing began, why experimentation was necessary, or how each conclusion followed from the results.
Useful records include:
- Evidence of uncertainty: Background research, expert advice, and technical reports can show why the outcome could not be determined in advance.
- Evidence of experimentation: Hypotheses, experimental plans, test results, source-control records, and design iterations can show how the work progressed.
- Evidence of responsibility and timing: Meeting notes, technical correspondence, staff records, and project timelines can identify who performed the work and when.
- Evidence of expenditure: Timesheets, contractor agreements, invoices, and allocation calculations can connect costs to registered activities.
The format is less important than the information. The records must show what happened, when it happened, who performed the work, and how the expenditure connects to the activities.
The Department advises companies to create records as the activities occur and retain R&D records for five years after claiming the expenditure. Applicants must also declare that they maintained appropriate records while conducting the activities and can produce those records if requested.
A practical system established at the beginning of the work is usually more reliable than reconstructing evidence before the deadline.
What If Some R&D Is Conducted Overseas?
Overseas work is not automatically eligible because it supports an Australian project. Before claiming expenditure on activities conducted outside Australia, the company must obtain a positive overseas finding from the Department.
The overseas activity must satisfy four conditions:
- It qualifies as a core or supporting R&D activity;
- It is necessary for an Australian core R&D activity;
- It cannot be conducted solely in Australia for an approved reason, such as unavailable facilities, expertise, equipment, populations, or geographical features; and
- The related overseas expenditure is less than the expenditure on the Australian activities.
Most importantly, the overseas finding application must be lodged before the end of the income year in which the overseas activity is conducted or planned. The Department cannot accept a late application or extend this deadline.
R&D Tax Incentive Updates for 2026 and Beyond
Two sets of developments need to be distinguished. The tobacco and gambling exclusion is now law, while the broader reforms announced for 2028 have not yet been enacted.
New Exclusion for Tobacco, Gambling, Vaping, and Nicotine-Related R&D
The Treasury Laws Amendment (Delivering an Efficient and Trusted Tax System) Act 2026 received Royal Assent on 30 June 2026. Its R&D amendments apply to income years starting on or after 1 July 2025.
Activities relating to gambling services, gambling, gambling-like practices, tobacco, tobacco products, vaping goods, and certain nicotine goods generally cannot qualify as core or supporting R&D activities. Limited exceptions apply where an activity is conducted solely for a harm-minimisation purpose specified in the legislation.
Companies in an affected sector should review relevant registrations and findings carefully, including those obtained before the legislation commenced.
Announced Changes From 1 July 2028
The Australian Government announced further changes in the 2026–27 Federal Budget. These measures are intended to apply from 1 July 2028, but they are not yet law. The current rates, eligibility rules, and expenditure thresholds continue to apply until legislation takes effect.
| Area | Announced change from 1 July 2028 |
| Core R&D offsets | Increase rates by 4.5 percentage points |
| Supporting expenditure | Remove eligibility for expenditure that only supports R&D |
| R&D intensity threshold | Reduce the threshold from 2% to 1.5% |
| Refundable turnover threshold | Increase it from $20 million to $50 million |
| Refundability | Limit refundable offsets to eligible companies operating for less than 10 years; older eligible companies would receive an equivalent non-refundable offset |
| Minimum expenditure | Increase it from $20,000 to $50,000 |
| Annual expenditure cap | Increase it from $150 million to $200 million |
Companies planning work that will continue beyond 1 July 2028 should monitor the legislation. The final enacted rules may differ from the Budget announcement.
Get Your R&D Position Clear Before the Deadline
The most valuable question is not whether your business is innovative. It is whether particular activities, the expenditure, and records satisfy the program’s requirements. Reviewing that position early gives your team time to separate experimental work from ordinary development and correct gaps in its record-keeping process.
Mizael Partners can help assess your company’s eligibility, identify core and supporting activities, review expenditure, prepare the registration, and coordinate the claim with your tax return. Our team also supports startups and established companies that need broader CFO advisory services around cash flow, investment, and growth.
Contact Mizael Partners to arrange a free 30-minute consultation and discuss your company’s R&D activities.
This article provides general information only and does not constitute tax, legal, or financial advice. Eligibility and the value of an R&D Tax Incentive claim depend on the company’s circumstances and the law applying to the relevant income year.