The ATO's 2023-24 transparency report shows 13,490 claimant companies claiming A$16.7 billion in R&D expenditure. About half were small companies. This guide covers eligibility, qualifying costs, benefit calculations, registration and claiming.
Key Takeaways
- Eligibility turns on the nature of your activities and your entity type, not on having an R&D department.
- Register activities with the Department of Industry, Science and Resources (AusIndustry) first, then claim through the ATO.
- Your offset depends on eligible spend, aggregated turnover, tax rate and R&D intensity.
- Keep contemporaneous records of hypotheses, tests, time and costs all year.
What Is Australia's R&D Tax Incentive?
The R&D Tax Incentive encourages companies to carry out R&D they might not otherwise do. Official materials use "R&D Tax Incentive" and "R&D tax offset". There is no separate Australian "tax credit".
Offset vs deduction: A deduction reduces taxable income. An offset reduces tax payable, and the refundable version can produce a cash refund when you meet the conditions.
Who Does What
- AusIndustry (Department of Industry, Science and Resources) registers your R&D activities and makes activity findings.
- The ATO administers the offset claim and checks your expenditure.
- Registration is not approval. It does not mean the ATO has accepted your costs.
Not the U.S. Credit
Ignore IRS Form 6765, Section 41 calculations and U.S. payroll-tax elections. None of them apply in Australia.
Core and Supporting Activities
- Core activities are experimental work whose outcome can't be known in advance.
- Supporting activities must be directly related to core R&D. Where they produce goods or services, their dominant purpose must be to support the core work.
Who Is Eligible for Australia's R&D Tax Incentive?
Entity Requirements
According to the ATO's eligibility rules, you may qualify as:
- An Australian-incorporated company
- A foreign corporation that is an Australian tax resident
- A treaty-country foreign corporation carrying on business through an Australian permanent establishment
Individuals, partnerships that are not companies, and exempt entities cannot claim. Trusts generally can't either, apart from a narrow public trading trust exception.
The claimant must also control the R&D, carry the financial risk, and hold the rights to exploit the results. Work done mainly for another party generally doesn't count.
Two Different Turnover Tests
Don't conflate these thresholds:
- The general small business entity definition applies to aggregated turnover under A$10 million.
- The refundable R&D offset requires aggregated turnover under A$20 million, and the claimant must not be controlled by exempt entities.
Aggregated turnover includes connected entities and affiliates, including relevant foreign ones. Check group structures and foreign ownership early.
Minimum Spend
Notional R&D deductions generally need to reach A$20,000 for the income year. Exceptions exist for spend through registered research service providers or Cooperative Research Centres.
Common Misconceptions
A small revenue base, startup status, a patent, or a dedicated team does not establish eligibility on its own. Excluded work includes:
- Market research, market testing and sales promotion
- Management or efficiency studies
- Statutory-compliance activities
- Reproducing existing commercial products or processes
- Internal-administration software
- Routine product updates and ordinary quality control
What Activities and Expenses Qualify?
Core R&D Requirements
A competent professional must be unable to know or determine the outcome in advance. You then resolve that uncertainty through a systematic progression of work:
- Form a hypothesis
- Run experiments
- Observe and measure results
- Evaluate the findings
- Draw logical conclusions
You don't need a world-first. But "new to the company" isn't enough: the knowledge must not have been publicly available or reasonably accessible when you started. A failed experiment can still qualify, because success isn't the test.
Examples that may qualify, if the tests above are met:
- Software performance experiments with unknown outcomes
- Engineering design iterations and manufacturing prototypes
- Food formulation trials, such as Chobani's yogurt work using Australian milk profiles
- Agricultural process development and technical automation
Ordinary shelf-life or nutritional testing, by contrast, usually falls short.
Supporting Activities, Exclusions and Overseas Work
Supporting work must be directly related to core R&D. These activities do not qualify just because they sit alongside an experiment:
- Routine maintenance
- Marketing
- Administration
- Post-commercialisation work
Overseas activities need an Overseas Finding before you claim them. You must show:
- A scientific link to Australian core R&D
- An inability to do the work in Australia
- A cost lower than the equivalent Australian work
Apply before the income year ends.
Eligible Expenditure
Potentially eligible costs include:
- Salaries and related employment costs
- Eligible contractor and labour-hire fees
- Materials or feedstock used or transformed in R&D
- Decline in value of depreciating assets used for R&D
- Overheads directly related to R&D
These costs are not claimable as R&D expenditure:
- Capital asset acquisition or construction (including buildings)
- Interest and financing costs
Costs paid to associates face payment rules. Government grants and recoupments can trigger a clawback adjustment.
Mixed-purpose costs must be apportioned. Use timesheets, project codes, payroll records, invoices and technical logs.
For example, a small food manufacturer trials a new shelf-stable formulation with unknown stability outcomes. Its qualifying pool might include:
- Food technologist and production staff time spent on the trials
- Trial ingredients consumed in testing
- The lab's share of equipment depreciation
It would exclude sales staff time, bookkeeping, routine batch maintenance on existing products, and the commercial launch campaign.
What Benefits Can a Small Business Claim?
Refundable and Non-Refundable Offsets
For 2025-26, the offset is your company tax rate plus an R&D premium, based on the ATO's offset rates. The 25% rate applies to base rate entities, and 30% otherwise.
| Offset class | Premium | At 25% tax rate | At 30% tax rate |
|---|---|---|---|
| Refundable (turnover under A$20m, not exempt-entity controlled) | +18.5 points | 43.5% | 48.5% |
| Non-refundable, up to 2% R&D intensity | +8.5 points | 33.5% | 38.5% |
| Non-refundable, above 2% intensity | +16.5 points | 41.5% | 46.5% |
The benefit isn't a percentage of revenue. It comes from eligible expenditure multiplied by your applicable rate. The premium applies to the first A$150 million of eligible expenditure. Check current rates before relying on any figure here.
Estimating Your Benefit
Formula: eligible R&D expenditure × applicable offset rate.
Illustrative example (hypothetical figures only): A refundable-offset company at a 25% tax rate records:
- Staff time on R&D: A$220,000
- Contractor fees: A$60,000
- Materials consumed: A$30,000
- Apportioned shared costs: A$40,000
That totals A$350,000. After removing A$30,000 that is excluded or recouped, eligible expenditure is A$320,000. At 43.5%, the estimated offset is A$139,200.
Exclusions, grants, private use and tax adjustments can all change the final number. Don't treat an estimate as guaranteed cash flow until eligibility, registration and tax-return treatment are reviewed.
Broader Benefits and Interactions
- A refund or reduced tax bill improves cash flow and lowers the effective cost of innovation.
- Freed-up cash can fund hiring, testing and technical improvements.
- You can't claim the same expenditure twice under the anti-overlap rules.
- Grants and recoupments may trigger clawback adjustments.
- Loss-making companies must still meet the refundable conditions.
- Review unclaimed amounts under current rules rather than assuming they're recoverable.
How to Claim the R&D Tax Incentive and Plan Next Steps
Register With AusIndustry
Apply for each income year within 10 months after the company's income year ends, through the R&D Tax Incentive customer portal.
Registration is activity-based, so describe discrete experimental activities, not a broad project label. Extensions are discretionary, capped at 92 days, and unavailable for Advance or Overseas Findings.
Prepare Your Evidence
Keep records for five years, covering:
- Project descriptions, hypotheses and the technical uncertainty
- Experiment plans, test results and failed approaches
- Employee time records and payroll data
- Contractor agreements and invoices
- Cost allocations
- Evidence of when and where the work happened
Claim Through the ATO
Lodge the R&D Tax Incentive Schedule with your company tax return and include your registration number. Using an agent isn't compulsory, but you remain responsible for the claim.
Watch for these common risks:
- Late registration
- Claiming routine work as R&D
- Broad project descriptions and weak evidence
- Unsupported overhead allocations
- Related-entity or overseas related-party costs
- Claims that don't reconcile to financial records
Next Steps
Before year-end:
- Review likely projects and eligible costs
- Speak with a qualified adviser about registration timing
VJM Global provides accounting, tax compliance, advisory and outsourcing support to Australian businesses, including year-end reporting, bookkeeping, GST and BAS management. That groundwork keeps your cost records claim-ready.
This article is general guidance only. The R&D Tax Incentive is fact-specific, and rules change. Check current AusIndustry and ATO guidance before registering or claiming.
Frequently Asked Questions
Who is eligible for the R&D tax credit?
Eligibility depends on the applicant entity, where and how the R&D is conducted, and eligible expenditure. The refundable offset also requires aggregated turnover under A$20 million and no exempt-entity control.
How much R&D tax credit can I claim?
There's no fixed amount. It depends on eligible R&D expenditure, aggregated turnover, R&D intensity and the offset rate for the year. An adviser can calculate your claim.
What are the R&D tax incentives in Australia?
The R&D Tax Incentive is a refundable or non-refundable tax offset, not a grant. You register activities with AusIndustry, then claim the offset through the ATO.
What counts as a small business enterprise?
The general definition uses aggregated turnover under A$10 million, including related entities. The refundable R&D offset uses a separate A$20 million test, so check both.
What expenses qualify for the R&D Tax Incentive in Australia?
Apportioned wages, contractor costs, materials, depreciation and directly related overheads can qualify. Capital asset costs, financing costs and other statutory exclusions don't.
How do I claim the R&D Tax Incentive in Australia?
Document your activities, register with AusIndustry within 10 months of year-end, then lodge the R&D Schedule with your company tax return, including the registration number.
