Highlights

  • Draft reforms would generally limit R&D refundability to companies up to 10 years old.
  • Eligible therapeutic-goods researchers could retain refundable access for up to 15 years.
  • The broader package would raise core R&D offset rates and the turnover threshold.
  • The changes are proposed for July 2028 and are not yet law.

For a loss-making biotech, a tax offset on paper is not the same as cash in the bank. That distinction sits at the centre of Treasury’s proposed R&D Tax Incentive overhaul. Most companies would lose refundability after their tenth year, but eligible businesses researching therapeutic goods could receive an extra five-year runway. For medical start-ups facing long clinical and regulatory timelines, that carve-out could materially change funding plans.

The 10-Year Rule and the Medical Exception

Treasury’s exposure draft proposes limiting refundable R&D offsets to firms up to 10 years old from 1 July 2028. Eligible biotechnology and medical-technology businesses conducting R&D related to therapeutic goods would instead have access for up to 15 years. The exception recognises that medicines, medical devices and biological products can spend years in trials and approvals before producing meaningful revenue.

Why Refundability Matters to Loss-Making Firms

A refundable offset can generate cash even when a company has no income-tax liability. A non-refundable offset may still have value, but generally only against tax payable now or in a later year. For a company funding clinical work while loss-making, five additional years of cash refunds can therefore matter more than a modest change in the headline offset rate.

The Package Also Raises Rates and Thresholds

The proposal is broader than the age limit. Treasury says core R&D offset rates would rise by 4.5 percentage points, the turnover threshold associated with the refundable regime would increase to $50 million, and the maximum expenditure threshold would rise to $200 million. The intensity threshold for the non-refundable offset would also fall to 1.5%.

Not Every Change Favours Claimants

Supporting R&D activities would cease to qualify, while the minimum expenditure threshold would rise to $50,000. Those changes could narrow eligible spending even for companies that benefit from higher rates. Treasury has also sought views on clinical manufacturing R&D, an important issue for businesses producing trial batches before commercial launch.

What Founders Should Watch Before 2028

The key question is what survives into the eventual bill. Companies approaching their tenth anniversary should model refundable and non-refundable outcomes separately and avoid assuming the 15-year exception is guaranteed. Eligibility definitions, company-age rules and the treatment of restructures could materially affect who receives the longer window.

Cash Runway Should Drive the Modelling

Medical founders should model the proposal as a financing issue as well as a tax issue. A refundable offset can help fund payroll, trials and regulatory work during years when external capital is expensive or revenue is still distant. Losing refundability does not necessarily erase the tax benefit, but it can defer the economic value until the company has tax payable. Boards should therefore forecast cash under both the 10-year general limit and the proposed 15-year therapeutic-goods exception, while keeping enough flexibility to absorb changes when the final legislation arrives.