TLDR: Yes, you can claim your own salary, but only the part actually paid to you by the R&D entity as salary or wages, and only to the extent that time was spent on registered R&D activities. Drawings, dividends and trust distributions are not salary and produce no notional R&D deduction. Add on-costs (superannuation, payroll tax, workers compensation) in the same proportion, and support the R&D percentage with contemporaneous records rather than a year-end guess.
The short answer for founders and directors
Founder salary is one of the larger line items in most early-stage claims, and it is claimable on exactly the same basis as any other employee's salary: the amount incurred by the R&D entity on employees for time spent on eligible R&D activities.
What changes for a founder is not the rule. It is the evidence burden, and the number of ways money can leave the company without ever being salary.
Two questions decide the outcome:
- Was the amount incurred by the R&D entity as salary or wages? Payroll records with PAYG withholding reported are the clearest evidence.
- What proportion of that paid time was spent on activities registered as core or supporting R&D?
If the answer to the first is no, there is nothing to apportion. If the answer to the second is unsupported, the percentage is what gets reduced on review.
What makes a founder's salary claimable
Three conditions must all hold. The expenditure must be incurred by the company claiming the offset, it must be on registered R&D activities, and it must be genuinely incurred rather than notional.
| Condition | What it means in practice |
|---|---|
| Incurred by the R&D entity | The company registering the activities pays the salary. A salary paid by a parent, a trust or a service entity is not the R&D entity's salary expenditure, though a fee the R&D entity itself pays that entity for R&D work may be claimable, subject to the associate rules. |
| Relates to R&D activities | The time was spent on activities that meet the core test in s 355-25 ITAA 1997 or qualify as supporting activities under s 355-30. |
| Actually paid | Salary run through payroll. For amounts payable to associates, cash payment by year end is required, not an accrual. |
The activities themselves must be registered with AusIndustry within 10 months of year end (30 April for a 30 June year end) before the offset can be claimed. Registration is a statutory deadline. AusIndustry approves an extension of 14 days or less requested before it and considers longer extensions (capped at 92 days) case by case, but no amount of good payroll evidence cures a missed one. See R&D Tax Incentive deadlines.
Payments that do not qualify
Money moving from company to founder is not automatically expenditure on R&D. The three most common substitutes for salary all fail, for different reasons.
Director drawings and loan accounts
Drawings booked against a shareholder or director loan account are a movement in a balance sheet account, not a payment for services. They carry no PAYG withholding, no superannuation obligation and no payroll record connecting the payment to time worked.
Reclassifying drawings as salary after year end is not a fix. It changes the accounting label without changing what was withheld and reported at the time, and it creates exactly the mismatch between records and claim that reviewers look for.
Dividends and trust distributions
A dividend is a distribution of profit to a shareholder in their capacity as owner. It is not expenditure incurred on R&D activities, and it is not deductible expenditure at all, so it can never form part of a notional R&D deduction.
The same applies to distributions from a trust to a founder who works on the R&D. The distribution is a share of trust income, not payment for R&D labour by the R&D entity.
Unpaid or accrued amounts
An accrued salary that sits in the accounts unpaid at year end is a problem when the recipient is an associate of the company, which most founders are. Under the notional deduction rules in Subdivision 355-C ITAA 1997, amounts payable to associates must be paid in cash by the end of the income year to be claimable in that year.
Paying an accrued amount in a later year generally moves the deduction to that later year rather than the year the work was done. If cash is tight, plan the payment date before 30 June rather than after.
Am I an associate of my own company?
Almost certainly, if you are a director and a substantial shareholder. That matters because the associate rule tightens the timing test: expenditure to an associate is only claimable in the income year it is actually paid in cash, not the year it is incurred or accrued.
Practically, this means a founder salary run monthly through payroll with superannuation paid before year end is straightforward. A director fee journalled at 30 June and settled in September is not claimable in the year the work happened. The ATO sets out its position on associate expenditure in its R&D tax incentive guidance.
Apportioning founder time between R&D and everything else
Founders rarely spend 100% of their week on R&D, and claiming as though they do is the fastest way to lose credibility across the whole claim. The apportionment needs a method, a percentage, and evidence that connects the two.
What a defensible apportionment looks like
A defensible apportionment starts from a record made at the time, not a memory reconstructed in April. In descending order of strength:
- Time logs coded to specific registered core and supporting activities.
- Engineering system evidence: commits, pull requests, Jira tickets and sprint boards attributable to a named person and date.
- Calendar records showing experiment reviews, testing sessions, and technical working blocks.
- A documented sampling approach, for example two representative weeks per quarter logged in detail and extrapolated with a written rationale.
Whichever approach you take, write it down and keep the underlying data. The ATO's position in cases such as Tier Toys and Ozone Manufacturing is blunt: without contemporaneous records, a taxpayer cannot show that claimed R&D expenditure was anything more than normal business expense.
Time that sits outside the R&D percentage
Founder weeks are full of work that is real, valuable and not R&D. Exclude it explicitly rather than letting it disappear into a round number.
- Fundraising, investor updates and board management.
- Sales, customer demos, pricing and marketing, including market testing, which is an excluded activity under s 355-25(2)(a).
- Recruitment, people management and general administration.
- Bookkeeping, statutory compliance and legal work.
- Routine engineering: bug fixes, refactors, version upgrades, dashboard builds and documented API integrations.
That last group catches people out. A founder who codes all week may still have a modest R&D percentage if most of the code is routine build around a narrow experimental question. Where that line sits is covered in core vs supporting R&D activities.
Superannuation, on-costs and what else attaches
On-costs follow the salary. Superannuation contributions, payroll tax and workers compensation premiums are claimable in the same proportion as the underlying salary that relates to R&D activities, so you apply one percentage across the package.
What does not attach: dividends, director loan interest, and personal expenses paid by the company. Overheads such as rent and software subscriptions are claimable separately as apportioned overheads directly related to the R&D, on their own reasonable basis. The full expenditure categories are covered in what R&D expenditure can you claim.
What the offset is worth on a founder salary
For a company with aggregated turnover under $20M, the refundable offset is the company tax rate plus 18.5 percentage points, commonly 43.5% for a base-rate entity taxed at 25%. Refundable means the excess over tax payable is paid as cash.
Worked example, one founder, 30 June year end:
| Item | Amount |
|---|---|
| Salary paid through payroll | $160,000 |
| Superannuation paid before 30 June | $19,200 |
| Total salary and on-costs | $179,200 |
| R&D percentage supported by time logs | 55% |
| Eligible R&D expenditure | $98,560 |
| Refundable offset at 43.5% | $42,874 |
Two thresholds to keep in view. Total notional R&D deductions must reach at least $20,000 in the year, unless the expenditure is paid to a Registered Research Service Provider or is a monetary contribution under the Cooperative Research Centre program.
At $20M or more of aggregated turnover the offset becomes non-refundable: the company tax rate plus a two-tier intensity premium, applied marginally. The premium is 8.5 percentage points on notional R&D up to 2% of total expenditure, and 16.5 points on the portion above 2%. The arithmetic is worked through in how to calculate your R&D tax incentive rebate.
Evidence AusIndustry and the ATO expect
Two agencies, two evidence sets. AusIndustry (as delegate of Industry Innovation and Science Australia) assesses whether the activities are eligible. The ATO assesses whether the expenditure was incurred and correctly apportioned.
For a founder salary claim, expect to be able to produce:
- Payroll reports, payslips and STP or PAYG withholding records for the founder.
- Bank evidence that salary and superannuation were actually paid, with dates.
- The time records or sampling workings behind the R&D percentage, plus a written note of the method, in line with the business.gov.au R&D Tax Incentive guidance.
- Engineering artefacts tying the founder's time to the registered activities (evidence AusIndustry accepts): commits, tickets, test results, experiment notes.
- Board minutes or employment agreements setting the remuneration.
In GQHC [2024] AATA 409 the Tribunal treated maintaining adequate documentation as part of the systematic progression itself, not a separate administrative chore. The same logic runs through the expenditure side: if the record does not exist, the amount is difficult to defend. More detail in R&D tax incentive record keeping.
Common mistakes that put a founder salary claim at risk
- Claiming 100% of founder time, which almost never survives contact with a calendar.
- Recharacterising drawings as salary after year end.
- Accruing a director fee at 30 June and paying it in the next income year.
- Paying the founder from a related trust or service entity while registering the R&D in the operating company.
- Applying a single company-wide R&D percentage to a founder whose week looks nothing like an engineer's.
- Including fundraising, sales and market testing time inside the R&D percentage.
- Building the apportionment in April from memory, then finding it contradicts the commit history.
Rand builds the expenditure figures from time logs and engineering evidence already in GitHub and Jira, so the founder percentage is derived from records made during the year rather than reconstructed at deadline.
Getting your own salary into the claim correctly
The rule is narrow but workable: pay yourself as an employee, pay it before year end, apportion it honestly, and keep the evidence that supports the percentage. Do that and founder salary can be one of the largest and best-evidenced lines in an early-stage claim.
If you want the salary apportionment, the activity descriptions and the AusIndustry registration to line up with the same underlying evidence, that is the problem Rand was built to solve. Nothing here is tax advice for your circumstances, and the treatment of associate payments in particular is worth confirming with your accountant before year end.