Highlights

  • Treasury released draft R&D Tax Incentive changes in September 2026, with a proposed start date of 1 July 2028.
  • The draft would limit refundable offsets to younger companies, with a longer period proposed for certain therapeutic-goods R&D.
  • The proposed company-age test could materially affect how connected entities and group structures are treated.
  • The draft also proposes higher expenditure thresholds and changes to the treatment of supporting R&D activities.
  • The current rules remain in force unless and until legislation is passed.

Australia’s R&D Tax Incentive is designed to support eligible business spending on research and development, with refundable treatment playing an important role for early-stage companies that may not yet be profitable. Treasury’s September 2026 exposure draft proposes a new framework from 1 July 2028 that would reshape when refundable offsets are available and how company age is assessed.

Refundability Would Be Tied More Closely to Company Age

The draft proposes that refundable R&D offsets generally remain available only to companies up to 10 years old. A longer window of up to 15 years is proposed for eligible companies undertaking R&D related to therapeutic goods. Companies outside the refundable window could instead move to non-refundable treatment, which would generally be used against tax payable rather than paid out in cash. For loss-making businesses, that distinction can materially affect near-term funding capacity.

Connected Entities Could Influence the Age Test

One of the more important design issues is how the draft determines when an R&D entity first began carrying on an enterprise. The wording links the test not only to the company itself but also to certain connected entities and affiliates. As a result, a newly incorporated business could potentially be treated as older if its ownership or control structure connects it to an entity with a longer operating history. The final treatment will depend on the legislation ultimately introduced and any accompanying guidance.

Other Draft Changes Would Reshape Eligibility

The exposure draft also proposes lifting the turnover threshold for smaller claimants to $50 million, increasing the minimum R&D spend to $50,000 and the maximum to $200 million, and lowering the R&D intensity threshold for the non-refundable offset to 1.5%. It would also remove eligibility for supporting R&D activities while increasing support for core R&D. These changes are intended to retarget the incentive, but they could alter both the timing and form of benefits available to younger companies.

What Matters Before 1 July 2028

The proposals are not yet law. No final legislation has been enacted, and the exposure draft remains subject to change following consultation. Companies reviewing future R&D plans will therefore need to distinguish between the rules currently in force and the proposed framework. Group structures, ownership arrangements, company age and the mix of core versus supporting R&D activities could all become more important if the draft approach is retained.

Key Insights

The 2026 exposure draft would shift the R&D Tax Incentive toward a more targeted model for younger businesses while tightening how refundability is determined. For early-stage companies, the key issue is not only the proposed age limit but also how connected entities and ownership structures may affect that test. Until legislation is finalised, the existing R&D rules continue to apply.