Key Highlights

  • Core R&D offset rates would rise by up to 50%.
  • The Treasurer could prescribe activities integral to core R&D after consulting the Industry Minister.
  • The bill would offer optional monthly PAYG instalments for most affected businesses.
  • The government expects the measures to lift young firms' R&D by $400 million annually.

The trust tax has dominated the Senate inquiry, but a second bill heading for a vote this month would reshape the Research and Development incentive. Treasury Laws Amendment (Tax Reform No. 4) proposes core R&D offset rates up to 50% higher, wider access to cash refunds and a new ministerial power over what counts as core R&D. It also contains monthly PAYG instalments and electric vehicle Fringe Benefits changes. Here is what the bill contains, and what remains unclear.

Tax Reform No. 4 was introduced on 27 October and passed the House of Representatives on Thursday 29 October, alongside the trust tax bills. It is a bill, not law.

The government is reportedly targeting Senate passage of its tax bills in the third week of November. That timing has not been confirmed. Because the Coalition opposes the trust tax, the Greens' position across the package is likely to matter, and no deal had been reported as of Thursday 12 November.

Treasurer Jim Chalmers' second reading speech presents the package as part of $3.8 billion in relief for businesses and start-ups. The government says the R&D measures are expected to lift R&D by young firms by $400 million a year.

Core R&D offset rates up to 50% higher

According to the second reading speech, core R&D offset rates would rise by up to 50%.

The speech gives no numbers for changes to the R&D intensity threshold or expenditure cap. The proposed R&D changes are due to start on 1 July 2028, subject to the final legislation.

Under current law, broadly, a company's offset is its company tax rate plus a premium. For smaller companies, the premium is 18.5 percentage points and the offset is refundable. For larger companies, the premium depends on R&D intensity and the offset is non-refundable.

The bill would also lift the turnover ceiling for the refundable offset from $20 million to $50 million. Claims under $50,000 would need a Partnership with a Research Service Provider or Cooperative Research Centre.

Hypothetical example: what "up to 50%" could mean

Hypothetical example: suppose a company receives a premium of 8.5 percentage points above its tax rate on $1 million of eligible R&D. That premium is worth $85,000.

If that premium rose by 50%, it would become 12.75 percentage points. On the same $1 million, the premium would be worth $127,500, an extra $42,500.

This is an illustration of the arithmetic only. It does not reflect how the bill applies the increase, which components rise, or by how much in each case. "Up to 50%" means some rates may rise by less.

The Treasurer's new power over core R&D

The bill would give the Treasurer power, after consulting the Industry Minister, to prescribe activities as integral to core R&D, according to the second reading speech.

Core R&D activities sit at the centre of the incentive. Under the existing framework, broadly, they are experimental activities whose outcome cannot be known in advance and that are conducted to generate new knowledge. Supporting activities can qualify only in narrower circumstances.

A power to prescribe activities as integral to core R&D could give the government a quicker way to clarify or expand eligibility, without a full act of Parliament each time. How it would be used, and what safeguards apply, will depend on the final law and any instruments made under it.

Industry is still finalising safe harbour arrangements. Gemma Heaney of Heaney Business Group criticised the $50,000 minimum threshold.

The Greens want fossil-fuel companies excluded from R&D rebates, reported at about $350 million a year. That is a proposal and not in the bill as it passed the House.

Monthly PAYG instalments: optional for most

Schedule 4 of the bill deals with PAYG instalments. It would let quarterly instalment payers elect to pay monthly.

It would also let the Commissioner of Taxation require monthly reporting and payment from taxpayers with a demonstrated history of non-compliance. The second reading speech gives no start date or costing for the change.

Hypothetical example: a business with annual PAYG instalments of $48,000 currently pays $12,000 each quarter. If it elected monthly instalments, it would pay $4,000 a month. The annual total is the same, but the cash leaves the business in smaller, more frequent amounts.

For businesses that budget monthly, the option may suit cash flow. For those required to pay monthly because of past non-compliance, it would add a reporting obligation and closer contact with the ATO.

Electric vehicles and the start-up CGT concession

The bill also sets out the next phase for electric vehicle fringe benefits tax. The 100% FBT discount would continue from 1 April 2027 to 31 March 2029 for EVs valued up to $75,000.

From 1 April 2029, EVs up to the luxury car tax fuel-efficient threshold would get a 25% discount on the 20% statutory formula rate. Existing eligible cars would keep their current treatment. The government says EVs went from 1 in 50 sales to about 1 in 8 in 2025.

A separate start-up measure, the Innovative Business CGT Concession, also cleared the House. It would give a 50% capital gains discount for eligible investments. The Holding Period was cut from five to three years before introduction, the incorporation window extended from 10 to 15 years, and the lifetime cap removed. It is due to start on 1 July 2028.

What to watch: key dates for Tax Reform No. 4

- Friday 13 November 2026: the Senate Economics Legislation Committee is due to report on the trust tax bills, which have moved through Parliament with Tax Reform No. 4.

- Third week of November: the government's reported target for Senate passage.

- Senate negotiations: watch whether the Greens' fossil-fuel exclusion or changes to the $50,000 threshold are adopted.

- December 2026: MYEFO may update costings for the $3.8 billion package.

- 1 April 2027 and 1 April 2029: the next EV FBT dates under the bill.

- 1 July 2028: the reported start date for the R&D changes and the start-up CGT concession.

Until the Senate votes, every measure here remains a proposal, and the final detail may differ.