What is the R&D Tax incentive
What is the R&D Tax Incentive?
The Research and Development Tax Incentive (R&DTI) is the Australian Government’s flagship program to stimulate innovation. It provides a generous tax offset for companies conducting eligible R&D activities in Australia.
However, in today’s regulatory environment, simply “doing innovation” is not enough. To successfully claim the incentive, your activities must meet the strict definition of Core and Supporting R&D as defined by the Income Tax Assessment Act 1997.
How the Benefit Works
The R&D Tax Incentive is a self-assessment program jointly administered by the Department of Industry Science and Resources (DISR) for technical eligibility and the ATO which focuses on financial eligibility. The benefit you receive depends on your company’s turnover:
Refundable Offset
For companies with an aggregated turnover of less than $20 million. This provides a cash refund if the company is in a loss position.
Non-Refundable Offset
For larger entities with a turnover of $20 million or more. This offset reduces the tax payable and can be carried forward to future years.
$100K in eligible expenditure
$43.5K Refundable benefit
$25k as a standard deduction
Navigating the Benefit Tiers
The R&D Tax Incentive (R&DTI) provides a significant tax offset for Australian companies, but the actual return depends on Aggregated Turnover and R&D Intensity. It is essential to correctly identify whether your entity triggers the SME refundable tax offset or the large entity intensity premium to ensure audit-ready compliance and maximise the available innovation funding.
| Company Category | Aggregated Turnover | Benefit Type | R&D Offset Rate | Example: $100k R&D Spend |
|---|---|---|---|---|
| SME / Startup | Under $20 Million | Refundable (Cash) | Tax Rate + 18.5% | $43,500 Potential Cash Refund |
| Large Entity | $20 Million & Over | Non-Refundable |
Intensity 0% - 2%
Tax Rate + 8.5%
|
$38,500 Tax reduction |
|
Intensity > 2%
Tax Rate + 16.5%
|
$46,500 Tax reduction | |||
| Expenditure Cap | N/A | Above $150M Spend | Corporate Tax Rate | $0 Offset at tax rate only |
*Calculations are based on a 25% corporate tax rate (Base Rate Entity). Aggregated Turnover includes all global connected and affiliated entities as per Section 328-115 of the ITAA 1997. For companies with an aggregated turnover of $20 million or more, the Tier 2 (16.5% + Tax Rate) benefit is only applied to the portion of R&D expenditure that exceeds the 2% intensity threshold.
The Pillars of Eligibility: A Regulatory Perspective
It is a common misconception that all costs associated with an R&D project are automatically claimable under the R&D tax incentive; in reality, the ATO requires a nexus between the registered activity and the specific dollar spent. To be included in the calculation, expenditure must be directly incurred on the R&D activities and must not fall under excluded expenditure categories, such as interest, building depreciation, or core business overheads. Under current regulatory scrutiny, simply having a valid project is insufficient if the financial records cannot demonstrate a clear, contemporaneous link between the technical work and the general ledger.
The R&D Tax Incentive is a self-assessment program, which means the onus is entirely on the company to prove that their activities meet the strict criteria of Section 355.25 and 355.30 of the Income Tax Assessment Act 1997. In the current compliance landscape, Incentur is Australia’s only R&D Tax advisory providing free audit defence services to guarantee its work.
- Technical Gap Analysis: You must document a comprehensive search to prove that a competent professional in the field could not have determined the outcome based on existing, publicly available knowledge or standard practice.
- Systematic Progression (The Scientific Method): Eligibility is defined by a scientific process involving a hypothesis, experiment, observation, and evaluation. Your records must show a logical progression aimed at resolving the core technical uncertainty.
- Generation of New Knowledge: The activity must be conducted for the primary purpose of creating new or improved materials, products, or processes, distinguishes it from routine customisation or standard engineering
Common 'Ineligible' Activities
- Routine Software Development: Bug fixing, minor updates, or using existing tools as intended.
- Market Research: Testing commercial viability rather than technical feasibility.
- Prospecting and Drilling: Standard exploration for minerals or petroleum
- Management Studies: Activities related to internal business processes rather than technical science.
Eligible Industries
The R&D Tax Incentive is industry-agnostic, but the documentation requirements are not. We specialise in translating complex innovation into regulator-ready claims across:
Manufacturing
Life Sciences
Agriculture
Software
Energy & Renewables
Mining
Deadlines & Extensions
The R&D Tax Incentive is a retrospective benefit, meaning you claim for activities already conducted during your previous financial year. However, the window to secure your registration is strictly enforced. Missing a deadline typically results in a permanent loss of the benefit for that period, as extensions are rarely granted without exceptional circumstances. If you have missed a deadline, reach out to us so that we can maximise your chances for an extension. The deadlines to keep an eye out for are:
30 April
For Companies with a financial year ending 30 June the previous year
31 October
For Companies with a substituted accounting period of 31 December the previous year
30 June
To lodge Advance Overseas Finding (AOF) applications for June balancers
31 December
To lodge Advance Overseas Finding (AOF) application for December balancers
FAQs
Have questions about the R&DTI process or how we can help your business?
What is the purpose of the R&D Tax Incentive?
The purpose of the R&D tax incentive, as outlined in the legislation, is twofold. Firstly, it aims to encourage industry to undertake research and development activities that they might otherwise not pursue due to uncertainty about the returns, with the understanding that the knowledge gained will benefit the broader Australian economy.
Secondly, the incentive seeks to achieve this by providing tax benefits to incentivise scientific experimentation aimed at generating new knowledge or information, whether in a general or applied context. This includes advancements such as new materials, products, devices, processes, or services.
Which Industries qualify for the R&D Tax Incentive?
Companies in any industry can claim the R&D incentive if they meet the eligibility criteria. If your business is engaged in R&D activities, you may qualify for an R&D tax offset through the R&D tax incentive program. The R&D Tax Incentive provides broad support across most industries, with little exceptions. Industries commonly benefiting from the R&D incentive include but are not limited to:
• Agrifood Sector
• Biotechnology Sector
• Built environment Sector
• Energy Sector
• Lifesciences
• Manufacturing Sector
• Mining
• Software development Sector
How much do I get back if I apply for the incentive?
The amount you receive back through the R&D tax offset depends on your business’s aggregated turnover:
Aggregated turnover of less than $20 million:
For R&D entities in this category, the refundable R&D tax offset equals your corporate tax rate plus an 18.5% premium.
Aggregated turnover of $20 million or more:
For R&D entities with an aggregated turnover of $20 million or more, the R&D tax offset is non-refundable. It is calculated as your corporate tax rate plus an incremental premium based on your R&D Intensity. The premium increment depends on your R&D Intensity, which is a calculated percentage based on your eligible R&D expenditure relative to your total P&L expenditure plus any accounting capital R&D expenditure for the year. Eligible R&D expenditures up to 2% R&D Intensity receive a non-refundable R&D tax offset equal to your corporate tax rate plus an 8.5% premium. Additional eligible R&D expenditure above 2% R&D Intensity will receive a non-refundable R&D tax offset of your corporate tax rate plus a 16.5% premium.
Are all types of R&D eligible for the Incentive?
When determining eligibility under the R&DTI program, we adhere strictly to tax legislation, particularly Division 355 of the ITAA97. It’s crucial to differentiate between “R&D activities” as defined by tax law and the broader concept of “R&D” found in dictionaries. The tax definition of an “R&D Activity” for R&DTI purposes is narrower than the general dictionary definition of “R&D”. This means that not all development activities may qualify for the program. If you’re uncertain about whether your activities meet the criteria, please reach out to us for clarification.
When can I register?
To be eligible for a tax offset under the R&D Tax Incentive program, it is necessary to register your R&D activities with AusIndustry within 10 months from the conclusion of the income year in which they were conducted.
Can I claim expenditure on R&D activities conducted overseas?
To include expenditure on activities conducted overseas in your claim, you must first secure an Advance Finding confirming it qualifies as eligible R&D. Additionally; you need an Overseas Finding permitting inclusion of such expenditure. This application must be submitted during the first income year when the overseas activities occur.
In additio In addition to needing to qualify as eligible core or supporting R&D activities, overseas activities must also satisfy additional eligibility criteria outlined in section 28D of the IR&D Act, summarised here:
a. the overseas activity must be an R&D activity
b. the overseas activity must be conducted in order to complete at least one Australian core R&D activity (an Activity conducted ‘solely’in Australia or its territories
c. the overseas activity cannot be conducted ‘solely’in Australia because:
I. it requires access to a facility, expertise or equipment not available in Australia
II. its conduct in Australia would contravene a law relating to quarantine
III. it requires access to a population (of living things) not available in Australia
IV. it requires access to a geographical or geological feature not available in Australia.
d. The total expenditure (in any income year by the claimant entity) on the overseas activities is less than the total expenditure on the Australian Activity (Each core and its supporting activity) to which it is directly related.
Applying for an overseas advance can be a complicated process. Our expert team is here to assist you every step of the way. Contact us today for support
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