Highlights

  • Treasury proposes lifting the R&D minimum expenditure threshold from $20,000 to $50,000.
  • Supporting R&D activities would no longer qualify under the exposure draft.
  • Small in-house programs could fall below the new threshold even when total research spending exceeds $50,000.
  • Registered Research Service Providers could remain an important pathway for smaller projects.

A research budget can exceed $50,000 and still fail a proposed $50,000 R&D threshold. That apparent contradiction is one of the sharpest effects of Treasury’s draft reforms. The reason is that supporting activities would stop qualifying, leaving only eligible core experimental work in the calculation. For start-ups and small manufacturers, the change could turn a familiar tax incentive into a much higher hurdle from July 2028.

The Minimum Would More Than Double

Current rules generally require at least $20,000 of notional R&D deductions, subject to exceptions for eligible work undertaken through registered Research Service Providers or Cooperative Research Centres. The exposure draft lifts the minimum to $50,000. Small projects performed entirely in-house below that level could therefore lose access to the incentive.

Supporting Work Would Drop Out

Treasury also proposes removing eligibility for supporting R&D activities. Core R&D - experimental work whose outcome cannot be known in advance - would remain central to the regime. The change means businesses must distinguish more carefully between the experiment itself and activities that merely support it.

Why the Two Changes Compound Each Other

Consider a company spending $70,000 across a project, with $45,000 attributable to core experiments and $25,000 to supporting work. Under the draft, the supporting amount would fall away, leaving only $45,000 of potentially eligible core expenditure. That would sit below the proposed minimum, despite total project spending comfortably exceeding $50,000.

Higher Rates Will Not Help Every Small Claimant

The package also proposes a 4.5 percentage-point increase in core R&D offset rates, a $50 million turnover threshold for the refundable regime and a lower intensity threshold for larger companies. Those benefits favour businesses that remain eligible. A higher rate has no value where a smaller claimant fails the expenditure test altogether.

Planning Should Focus on Substance, Not Spending for the Threshold

Businesses should not inflate or accelerate research merely to clear a tax threshold. Instead, they should identify genuine core activities, improve contemporaneous documentation and consider whether a registered provider is commercially appropriate. The reforms remain draft legislation, so multi-year budgets should include both current-law and proposed-law scenarios.

Documentation Becomes More Important

The proposed split between core and supporting work also raises the stakes for project records. Companies should be able to show the hypothesis being tested, why the outcome was not known in advance, what experiments were conducted and how results were evaluated. Timesheets and cost ledgers then need to connect spending to those activities. Weak documentation could make a project look smaller once supporting work is removed. Better records will not turn ordinary commercial activity into core R&D, but they can make legitimate experimental expenditure easier to identify and defend.