Plenty of Australian businesses test new ideas without realising the work may count as research and development. The government runs a program that can offset part of that cost. It is called the Research and Development Tax Incentive, often shortened to R&DTI. This guide explains how it works in plain terms.
Two government agencies are involved. Companies register their activities with the Department of Industry, Science and Resources. They then claim the offset on their company tax return with the Australian Taxation Office. Knowing who does what saves a lot of confusion later.
What the R&D Tax Incentive is for
According to business.gov.au, the program helps companies innovate and grow by offsetting some of the costs of eligible research and development. It works through the tax system as an R&D tax offset. That means the benefit arrives when the company lodges its return. For a young business with tight cash flow, this timing matters when planning a project.
Who can claim
Only certain companies can use the program. The business.gov.au eligibility guidance says an eligible R&D entity is a corporation incorporated under an Australian law. A company incorporated under a foreign law can also qualify if it is an Australian resident for income tax purposes. Some foreign companies may qualify under double tax agreement conditions. The ATO makes the decisions about whether an entity is eligible.
Because the rules refer to corporations, a sole trader or partnership would need to look at its structure before planning a claim. That is a conversation for an accountant or tax adviser. Changing structure has other tax and legal effects too. If the business has partners, a new company also raises the questions covered in our piece on a buy sell agreement for business partners.
What counts as core R&D
Core R&D activities are experimental activities conducted to generate new knowledge. The outcome must not be knowable in advance. business.gov.au explains that a competent professional should be unable to work out the result from existing knowledge without running an experiment. The work also has to follow a systematic progression.
That progression has five parts. They come from the principles of established science. Each one should be visible in the records the company keeps.
- Hypothesis: the proposed explanation of the result you aim for, how you will get there and why it may or may not work.
- Experiment: a scientific procedure that tests the hypothesis.
- Observation: measuring and recording data, which can be numbers or descriptions.
- Evaluation: analysing the results and assessing what they mean.
- Logical conclusions: deciding whether the data supports the hypothesis, which may lead to a new one.
For a digital business, this might apply to software that tackles a technical problem with no known answer. It would not usually cover building a standard website with tools that already exist. A new site on WordPress using known themes and plugins applies existing knowledge. The government notes that scale up activities applying existing knowledge generally do not qualify as core R&D.
Supporting activities
Supporting R&D activities are directly related to a core activity. Some of them must be carried out for the dominant purpose of supporting the core work. That applies where the activity is itself excluded as core R&D, or where it produces goods or services. The dominant purpose test is worth reading closely before listing any activity as supporting.
The spending threshold
The R&D expenditure for an income year generally must be at least $20,000. That minimum does not apply if the company uses a research service provider or contributes to the Cooperative Research Centres Program. There is also an upper limit. The most that can be claimed for eligible activities in one income year is $150 million. Spending above that receives an offset equal to the company tax rate.
Registering before you claim
Registration comes first. The ATO states that a company must register its R&D activities with the department before making a claim on its tax return. The deadline is 10 months after the end of the company’s income year. Applications go through the R&DTI customer portal run by the department.
People who log in to the portal must be authorised. business.gov.au lists four routes for this. They are the company’s principal authority, company staff, an individual tax agent or R&D consultant and a tax agency or consultancy. Each route has its own setup steps.
The department aims to process 95% of applications within set timeframes. For first time applicants the target is 40 business days. Applications lodged within six months after the income period ends have a 20 business day target. Those lodged between six and ten months after have an 80 business day target.
Self assessment and records
Like the rest of the tax system, the program is based on self assessment. The company is responsible for confirming its activities are eligible before applying. business.gov.au is clear that confirmation of registration does not mean the activities are eligible. That point catches people out, because a registration can feel like approval.
When applying, the company signs a declaration that it kept records while the activities were conducted. It also declares that those records can be produced when asked. Records made at the time are far more convincing than notes rebuilt months later. Experiment logs, test results and version histories can all show the systematic progression the rules describe.
For legally binding certainty, a company can ask the department for an advance finding. This can help when a project is large or the eligibility question is unclear. A tax adviser can explain whether one makes sense for a given project.
Changes announced for 2028
On 12 May 2026, as part of the Federal Budget, the government announced reforms to the program. The ATO page on the announced changes says they will come into effect from 1 July 2028 and apply to all R&D entities. It also notes that the measure is not yet law. Until then, business.gov.au says the program runs under the current rules.
The announced changes include removing the offset for supporting activities and raising the offset rate on core activities by 4.5 percentage points. Access to the refundable offset would be limited to a company’s first 10 years of operation. The minimum spend to be eligible in a given year would rise from $20,000 to $50,000. The turnover threshold for the refundable offset would rise from $20 million to $50 million.
Anyone planning a multi year project should keep these dates in mind. A project started now could run across both sets of rules. Checking the ATO page before each claim is a sensible habit.
Fitting R&D into the wider business plan
A tax offset will not rescue a weak idea. The research still has to lead to something a customer will pay for. Our guide to building a profitable online business venture covers the commercial side of turning an idea into income. It sits well alongside any R&D planning.
Once a new product works, people still need to find it. A clear SEO strategy helps a new offering show up when people search for the problem it solves. Good marketing will not make up for a product that fails, and the reverse is also true. Both matter if the research is going to pay off.
Frequently asked questions
Can a sole trader claim the R&D Tax Incentive?
The eligibility rules refer to corporations, so a sole trader is not an eligible R&D entity under the current wording. Anyone in that position should speak with an accountant about structure. Changing structure has wider effects than this one program.
Is registration the same as approval?
No. The business.gov.au guidance states that confirmation of registration does not mean the activities are eligible. The program is self assessed, so the company carries that responsibility.
What is the deadline to register?
The deadline is 10 months after the end of the company’s income year. A late application may need an extension of time. Lodging earlier also comes with a shorter processing target.
Are the 2028 changes law yet?
Not at the time of writing. The ATO notes that the measure is not yet law. Check the ATO page for the latest status before planning a claim.
This article is general information only and is not tax, financial or legal advice. Tax rules change and individual circumstances differ. Speak with a registered tax agent or qualified adviser before registering or claiming.
