Key Highlights

  • The proposed reforms would lift the refundable R&D tax offset turnover threshold from AUD 20 million to AUD 50 million.
  • Eligible R&D benefit rates would increase by 4.5 percentage points under the draft legislation.
  • The minimum annual R&D expenditure threshold would rise from AUD 20,000 to AUD 50,000.
  • Supporting R&D activities would generally stop qualifying unless they independently meet the definition of core R&D.

Australia’s Research and Development Tax Incentive, commonly called the R&D Tax Incentive, is designed to encourage companies to invest in experimentation and new knowledge. The Australian Government has now proposed a major redesign of the program, with draft legislation setting out changes that could affect which businesses qualify, how much support they receive and which R&D costs can be claimed.

What Is the R&D Tax Incentive?

The R&D Tax Incentive provides eligible companies with a tax offset for qualifying research and development expenditure. In simple terms, it is intended to reduce part of the financial cost of conducting eligible R&D in Australia. R&D in this context generally involves experimental activities undertaken to generate new knowledge where the outcome cannot be known in advance and must be determined through a systematic process.

Why Is the Government Proposing Changes?

The reforms form part of the government’s response to the Ambitious Australia Strategic Examination of Research and Development. The stated objective is to better target the incentive, encourage additional business investment in R&D, simplify the program and improve its long-term sustainability. The draft rules are proposals rather than the final law and are expected to apply from the first full income year commencing after 1 July 2028 if enacted.

More Businesses Could Access the Refundable Offset

One of the headline proposals is an increase in the aggregated turnover threshold for the refundable R&D tax offset. The threshold would move from AUD 20 million to AUD 50 million. This could bring more small and medium-sized companies within the refundable part of the scheme, although new age-based conditions would also need to be satisfied.

Higher Rates Could Increase the Value of Eligible R&D

The draft legislation proposes increasing R&D benefit rates by 4.5 percentage points. For companies eligible for the refundable offset, the premium above the corporate tax rate would rise from 18.5% to 23%. For many eligible SME claimants, this would lift the effective benefit rate from 43.5% to 48%. For non-refundable claimants, the base premium would rise from 8.5% to 13%, while the higher premium would move from 16.5% to 21% above the company tax rate.

The R&D Intensity Threshold Could Fall

Larger businesses using the non-refundable offset are subject to an R&D intensity test, which broadly compares R&D spending with total business expenditure. The proposal would reduce the threshold for the higher premium from 2% to 1.5%. This means qualifying companies could reach the higher incentive tier at a lower level of R&D intensity.

Both the Minimum and Maximum Spending Thresholds Would Rise

The minimum annual expenditure requirement would increase from AUD 20,000 to AUD 50,000. This could make the incentive harder to access for businesses running smaller R&D programs. Exceptions are proposed to continue for certain eligible expenditure through Cooperative Research Centres and Registered Research Service Providers. At the other end of the scale, the maximum annual eligible R&D expenditure cap would increase from AUD 150 million to AUD 200 million.

A Major Change: Supporting R&D Activities Could Be Removed

A particularly important proposal concerns supporting R&D activities. Under the current framework, certain activities directly related to core experimental work may qualify. The draft legislation proposes removing this category. An activity would instead need to qualify as a core R&D activity in its own right. For businesses, this could make the distinction between experimental work and related operational or supporting tasks much more important.

Refundable Claims Could Face an Age Limit

The proposed rules would generally restrict access to the refundable offset to firms up to 10 years of age. Recognising the longer development and regulatory timelines in biotechnology and medical technology, eligible businesses undertaking R&D related to therapeutic goods could retain access for up to 15 years.

What Could the Changes Mean for Businesses?

The proposed system combines potentially higher tax benefits with tighter eligibility rules. Some growing companies may gain from the higher turnover threshold and increased offset rates, while smaller R&D programs could be affected by the higher minimum expenditure requirement. Businesses that currently claim significant supporting activities may also need to examine how their R&D work is identified, documented and separated from other activities.

What Happens Next?

The consultation on the exposure draft closed on 28 September 2026. The proposals still need to complete the legislative process before becoming law. For general readers and businesses, the main point is that the future R&D incentive could offer larger benefits for qualifying core research while applying more specific limits to who and what can qualify.