The 2026-27 Federal Budget proposed the most significant redesign of the Research and Development Tax Incentive (R&DTI) in over a decade. The headline framing from Treasury is "better targeting" the program toward genuine, core experimental work while containing its fiscal cost. For Australian software companies, one change stands above the rest: supporting R&D activities will no longer be eligible.
The measures are proposed to take effect from 1 July 2028, which sounds distant but is closer than it looks once you account for the financial years you are about to plan and document. This article walks through each confirmed change, what it means specifically for software claims, and the practical moves worth making now.
Status: announced, not yet legislated
These are Budget announcements. They still need to pass as legislation, and detail can shift during consultation and drafting. Treat the direction as firm and the fine print as provisional. We will update this article as the bills progress.
The five changes that matter
| Change | Today | From 1 July 2028 |
|---|---|---|
| Supporting R&D activities | Eligible (with dominant purpose test) | No longer eligible |
| Core R&D offset rate | 43.5% refundable / 38.5% non-refundable | Increased (core only, ~4.5 percentage points higher) |
| Minimum R&D spend | $20,000 | $50,000 (lower allowed via registered service providers or CRCs) |
| Refundable offset turnover threshold | Under $20m | Under $50m, but refundability limited to companies under 10 years old |
| Annual R&D expenditure cap | $150m | $200m |
Sources: RSM Australia, EY Australia, and the ATO's "better targeting" guidance.
1. Supporting R&D activities lose eligibility
This is the structural change. Under Division 355 of the ITAA 1997, a claim today is built from two kinds of activity: core activities (the experimental work itself) and supporting activities (work directly related to a core activity, such as trials, integration, data preparation, and certain process development). From 1 July 2028, the offset is proposed to apply to core activities only.
For software, hardware, biotech, and advanced manufacturing, supporting activities often make up a material share of the total claim. A team resolving a genuine technical uncertainty in core does a great deal of directly related work around it. Removing that category narrows what counts and raises the bar on how cleanly you can describe the experimental core.
The practical takeaway
The winners under the new design are companies that can articulate a sharp, well-evidenced experimental core. The losers are claims that leaned on a broad supporting-activity envelope. The skill that matters now is framing and documenting core work precisely.
If you want a refresher on how core and supporting activities are defined and tested, see our guide to R&D Tax Incentive eligibility for software development.
2. Higher offset rates, concentrated on core
To offset the narrower base, the Government is funding an increase in both the refundable and non-refundable offset rates, applied to core activities. EY estimates the core rate rises by roughly 4.5 percentage points. In effect, the program pays a higher rate on a tighter definition of eligible work.
For a company whose claim is genuinely core-heavy, the rate increase can partly or fully offset the loss of supporting expenditure. For a claim that was supporting-heavy, it will not. The arithmetic depends entirely on your mix, which is why mapping your activities now is worth doing.
3. Minimum spend rises to $50,000
The minimum R&D expenditure to claim rises from $20,000 to $50,000 for all claimants. Smaller spends remain eligible only when undertaken through a registered service provider (RSP) or a Cooperative Research Centre (CRC). For early-stage startups running lean, this raises the floor to participate directly.
4. Refundability: bigger threshold, but a 10-year clock
The aggregated turnover threshold for the refundable offset rises from $20m to $50m, which extends cash refunds to larger scale-ups. The catch: refundability is proposed to be limited to companies under 10 years old. A refundable offset is paid as cash even when you are not yet paying tax, which is exactly what a pre-profit startup needs. Tying it to company age changes the calculus for older companies that are still investing heavily in R&D.
5. Expenditure cap rises to $200m
The annual R&D expenditure cap rises from $150m to $200m, which benefits the largest claimants. For most software startups and scale-ups this is not the binding constraint, but it signals the program is being reshaped at both ends of the size range.
What software founders should do now
You have financial years between now and 1 July 2028 to prepare. The companies that come through this well will be the ones that treat the runway as preparation time, not a countdown.
- Audit your core-to-supporting mix. Pull your most recent claim and split the expenditure. If a large share sits in supporting activities, model what the claim looks like with supporting removed and the higher core rate applied. That number is your real exposure.
- Tighten how you describe the experimental core. The new design rewards a precise, defensible hypothesis-and-experiment narrative. Vague "we built X" framing will not survive. See our guide on contemporaneous evidence.
- Re-examine work you previously filed as supporting. Some of it may genuinely belong in core when framed against the technical uncertainty. This is not relabelling for its own sake, it is describing the work accurately. Get it right and it stays eligible.
- Build the evidence habit now. Contemporaneous records created at the time of the work are the foundation of any claim, and they matter more under a tighter definition. Retrospective write-ups will not hold up.
- Watch the legislation. Detail will move through consultation. Anchor your planning to the direction, and revisit specifics as bills are introduced.
A quieter opportunity
Because the changes do not start until 1 July 2028, your upcoming claims are still under the current rules, including supporting activities at the current rates. There is a window to claim well under the existing settings while you prepare your structure for the new ones.
How Rand fits
Rand's model is built around exactly the distinction the Budget just sharpened. In Rand, your Streams are core R&D activities (the unit you register with AusIndustry) and Activities are supporting activities linked to them. That means you can already see how your benefit splits between core and supporting, frame each piece against the four eligibility criteria, and keep contemporaneous evidence tied to the work as it happens. When the new rules land, you are not starting from a pile of receipts and memories. You are starting from a structured, expert-reviewed claim.
The R&D Tax Incentive is a self-assessment program. Rand helps you prepare and document a defensible claim, but you and your directors remain responsible for its accuracy, and you should seek advice specific to your circumstances.