Highlights

  • Treasury released exposure draft legislation in September 2026 proposing changes to the R&D Tax Incentive.
  • The draft would alter refundability rules, spending thresholds and the treatment of supporting R&D activities.
  • The proposed changes are not yet law and would apply from 1 July 2028 if legislated.
  • The reform debate centres on how the incentive should support smaller innovators while maintaining program sustainability.

The Australian Taxation Office administers key elements of the R&D Tax Incentive, which is designed to support eligible Business expenditure on research and development. In 2026, attention shifted toward a Treasury exposure draft proposing a significant redesign of the program, with changes that could affect the timing and availability of tax offsets for technology companies and other R&D-intensive businesses.

Draft Reform Proposes New Eligibility Settings

Treasury released the exposure draft in September 2026 with the stated aim of simplifying the incentive, encouraging additional business Investment in R&D and improving the program’s long-term sustainability. The draft proposes lifting the minimum eligible R&D spend to $50,000 and the maximum expenditure threshold to $200 million. It would also lower the R&D intensity threshold for the non-refundable offset to 1.5%.

Another proposed change is the removal of eligibility for supporting R&D activities, while increasing the focus on core R&D. This would narrow the types of expenditure that qualify and may require businesses to reassess how projects and associated costs are documented.

Refundability Would Become More Targeted

One of the most closely watched proposals concerns refundable R&D offsets. Under the draft, refundability would generally be available to companies up to 10 years old, with a longer 15-year period for certain businesses undertaking R&D related to therapeutic goods. The proposal would also raise the turnover threshold applying to smaller claimants to $50 million.

For early-stage companies, refundability is particularly important because a refundable offset can provide cash even when a business is not yet profitable. A non-refundable offset, by contrast, generally reduces tax payable and may need to be carried forward when there is no current tax liability.

Technology Businesses May Need to Reassess Project Structure

The draft may have particular relevance for technology, software, advanced Manufacturing and life-sciences businesses that conduct multi-year development programs. Changes to supporting activity eligibility could affect expenditure linked to testing, project preparation, engineering support and other activities surrounding core experimental work.

Businesses may also need to pay closer attention to company age, group structure and turnover when assessing whether a refundable or non-refundable offset would apply. The exposure draft remains subject to change, so the final legislative design may differ from the current proposal.

Timing and Legislative Status

Consultation on the exposure draft closed in September 2026. The proposed start date is 1 July 2028, but the changes will not take effect unless legislation is introduced and passed. Until then, existing R&D Tax Incentive rules continue to apply.

The next key step is whether the government introduces a bill reflecting the draft and how it responds to feedback from businesses and advisers. The final wording will determine the practical impact on eligibility, refundability and the treatment of different categories of R&D expenditure.

Key Insights

The 2026 reform proposal would reshape several core features of the R&D Tax Incentive rather than simply adjust one rate or threshold. For technology-focused businesses, the most important areas are likely to be refundability, qualifying expenditure and the distinction between core and supporting R&D. Because the changes remain in draft form, the policy direction is clear but the final compliance and cash-flow implications cannot yet be treated as settled.