Clinical Trial R&D Tax Incentive Eligibility Rules

Clinical trials can qualify for the R&D Tax Incentive, and for many of them the argument is already settled: Phase 0, I, II and III trials, plus pre-market pilot and pivotal stage trials, of a therapeutic good not yet on the ARTG are deemed Core R&D Activities by determination.

Everything else, including Phase IV trials, generic product trials and unregulated wellness apps, must satisfy the four-part test in Division 355 ITAA 1997 on its own evidence.

The uncertainty that carries a health-tech claim is often clinical, not technical.

Where clinical trials sit in Division 355

The R&D Tax Incentive is a tax offset for eligible R&D activities registered with AusIndustry (on behalf of Industry Innovation and Science Australia) and claimed through the ATO. Eligibility is assessed per activity, never per project or per product.

A well-designed clinical trial maps closely onto the statutory test: it is typically experimental, run against a hypothesis stated in advance, and directed at new knowledge. But outside the determination, each of those elements still has to be demonstrated on the evidence for the specific activity, not assumed.

What causes problems is usually not the trial. It is the work around the trial: regulatory submissions, market testing, usability sessions and overseas sites, each of which is treated differently.

The clinical trials determination shortcut

Under the Industry Research and Development (clinical trials, phase 0, I, II, III, pre-market pilot stage, pre-market pivotal stage, for an unapproved therapeutic good) Determination 2022, those trial phases for a therapeutic good not yet on the ARTG are deemed Core R&D Activities. You do not need to separately argue the four criteria for the trial itself.

You still capture the protocol, the phase and the ARTG status of the good, because those are the facts that put you inside the determination.

Outside the determination, the ordinary test applies. A Phase IV trial can still be eligible, it just has to demonstrate the knowledge gap, hypothesis and systematic progression like any other core activity.

Pre-clinical work

Pre-clinical laboratory and animal studies, and formulation work before Phase 0, sit outside the determination, so they must satisfy s 355-25(1) ITAA 1997 on their own evidence.

They frequently do qualify, either as core activities in their own right (dose-ranging or toxicology work run against a stated hypothesis) or as supporting activities to a later trial, provided the hypothesis, method and evaluation are documented as the work happens.

Technical, scientific or clinical uncertainty

The eligible uncertainty does not have to be an engineering problem. Under Division 355 it can be technical (can this be built, will this approach hold at this scale) or scientific and clinical (is this intervention effective, is it safe, how do outcomes respond).

This matters most for digital health. If your app's real unknown is whether a six-week program reduces IBS symptom severity scores by a clinically meaningful margin, that is a genuine knowledge gap even though the app itself is a routine build on known frameworks.

The competent professional test is applied against the worldwide clinical literature, judged by a clinician or health researcher, not against engineering practice.

Wellness apps and the determination

Software excluded from TGA regulation (general wellness, lifestyle and behavioural coaching apps) is not a therapeutic good, so the determination shortcut is unavailable. A genuine efficacy study for such an app can still be a core activity under the ordinary four-part test.

Regulated software as a medical device being trialled pre-ARTG is different: the pre-market pilot and pivotal stage limbs cover device-style trials.

Adherence studies, market research and usability

For a digital therapeutic, adherence is the dose. A randomised experiment testing what sustains adherence sufficient for therapeutic effect, with a behavioural or clinical endpoint fixed before the experiment runs, such as program completion or symptom change, is a legitimate core activity.

The discriminator is the endpoint, not the tool. The same A/B infrastructure measuring trial-to-paid conversion, churn or revenue is excluded market research under s 355-25(2)(a). Mixed experiments get the dominant purpose test based on the registered primary endpoint, and the hypothesis must be documented before the experiment runs.

Pure usability testing with no behavioural or clinical endpoint set in advance is not core. It can be a supporting activity where it directly enables an adherence or efficacy experiment.

Core and supporting activities in a trial

The core activity is the experiment testing the intervention against a hypothesis and endpoint stated in advance. Most of the operational work around it is supporting.

Typical supporting activities include:

• Participant recruitment and screening against protocol criteria
• Site set-up, investigator training and site monitoring
• Data collection, cleaning and de-identification for the primary endpoint
• Ethics (HREC) submissions and CTN or CTA (formerly CTX) notification work
• Statistical programming and analysis-plan implementation

Supporting activities must be directly related to a core activity. Where the supporting activity falls in an excluded category, or produces goods or services, it must also be undertaken for the dominant purpose of supporting the core activity. See core vs supporting R&D activities for how that test is applied in practice.

Work whose dominant purpose is complying with statutory requirements or standards, including TGA dossier preparation, quality-management-system certification and post-market surveillance, can never be a core activity under s 355-25(2)(f). Being conducted in a regulated manner, however, does not make genuine experimentation ineligible.

Eligible expenditure and the offset

Claimable expenditure includes:

• Salary and wages apportioned by R&D time, plus on-costs
• Contractor and CRO payments for R&D activities
• Apportioned overheads directly related to the R&D
• Decline in value of depreciating assets to the extent used for R&D

Payments to associates must be paid in cash by year end, not merely accrued.

There is a minimum of $20,000 in notional R&D deductions, unless the expenditure is paid to a Registered Research Service Provider or is a monetary contribution under the Cooperative Research Centre program.

Offset rates and worked examples

The refundable offset is not available to companies controlled by income-tax-exempt entities.

Worked example: a medtech company with $18M turnover and $1.2M of notional R&D expenditure on a Phase II trial. At a 25% company tax rate the refundable offset is $1.2M × 43.5% = $522,000, paid as a cash refund to the extent it exceeds tax payable.

Larger claimant: $30M turnover (assume a 25% company tax rate applies), $25M total expenditure, $2M notional R&D (8% intensity). The first $500,000 (2% of total expenditure) attracts 33.5% = $167,500, and the remaining $1.5M attracts 41.5% = $622,500, for a $790,000 non-refundable offset. At a 30% company tax rate the tier rates become 38.5% and 46.5%.

Notional R&D above $150M in a year attracts the offset at the company tax rate only.

Integrity risks: CROs and foreign parents

Two integrity points bite hard in clinical work. You must bear the financial risk and hold rights to the results.

Trials run through CROs, associated entities or for foreign parents are active ATO risk areas, flagged in Taxpayer Alerts TA 2023/4 and TA 2023/5. Surface those arrangements early rather than drafting around them.

Do overseas trial sites qualify?

Only with an Overseas Finding from AusIndustry. Overseas expenditure is otherwise not claimable, no matter how clearly eligible the activity itself is.

The finding requires three things: a significant scientific link to an Australian core activity, a permitted reason the activity cannot be conducted in Australia (such as an unavailable patient population), and overseas cost that stays below the related Australian cost.

The application is due by the end of the income year in which the overseas activity starts, which is earlier than the registration deadline and cannot be fixed retrospectively.

TGA notification and the R&DTI

The CTN and CTA schemes and the R&D Tax Incentive are separate regimes with no automatic link. A CTN notification does not make a trial eligible, and eligibility does not depend on which scheme you used. See the TGA's clinical trials guidance for the regulatory pathway.

The overlap is evidentiary. Your CTN or CTA notification, protocol version and HREC approvals date-stamp the trial design and confirm the phase and ARTG status that the determination turns on.

Evidence AusIndustry expects

Records must be contemporaneous. The expected hierarchy for a clinical claim is:

1. The trial or study protocol, with version history
2. HREC approval and correspondence
3. CTN or CTA notifications to the TGA
4. A statistical analysis plan with endpoints registered in advance
5. Literature review notes and search records that predate the activity
6. De-identified participant outcome data and interim analyses
7. Investigator meeting minutes and CRO or site contracts
8. Engineering artefacts (commits, tickets, test logs) for any software component

Our contemporaneous evidence guide covers the general taxonomy. Rand builds the registration from these artefacts and the underlying time records, so the drafted activity matches what the evidence actually shows.

Why clinical claims fail review

The failure modes are consistent across sectors, and the tribunals have named them.

• Commercial dressed as scientific. In GQHC [2024] AATA 409, vague commercial hypotheses failed. A hypothesis must be specific and capable of being validated or invalidated, and observation and evaluation must be evidenced rather than asserted.
• No documented knowledge gap. In Absolute Vision Technologies [2022] AATA 2319 the absence of a literature review meant no demonstrated gap, and documents prepared after the fact were not accepted as contemporaneous.
• No hypothesis on the record. In Royal Wins Pty Ltd [2020] AATA 4320, the lack of contemporaneous documentation that a hypothesis was developed and tested defeated the claim regardless of the work performed.
• Applying known methods. Coal of Queensland [2021] FCAFC 54 confirmed that even after the broad reading of "experimental activities" in Moreton Resources Ltd v ISA [2019] FCAFC 120, known methods without a genuine unknown outcome still fail.

If your claim is selected for examination, ATO reviews and AusIndustry activity reviews test these exact points.

Registering a clinical trial activity

1. Define the core activity around the discrete clinical question, one per hypothesis and primary endpoint. Avoid over-grouping several trials into one activity.
2. Note whether the determination applies (phase, therapeutic good, ARTG status) and record the basis.
3. Draft the registration field by field. The AusIndustry portal form is structured as projects, then core activities, then supporting activities, with separate narrative fields:
   • Sources investigated
   • Why a competent professional could not know the outcome
   • Hypothesis
   • Experiment
   • Evaluation of results
   • Conclusions
   • New knowledge
4. Link each supporting activity to its core activity and, where relevant, state the dominant purpose.
5. Lodge an Overseas Finding application separately if any activity occurs offshore.
6. Register within 10 months of year end, so 30 April for a 30 June year end. This is a hard statutory deadline, and registration must precede claiming the offset. See every R&DTI deadline.

Each field carries its own character minimum, so write to each requirement rather than pasting one narrative across all of them.

Full program guidance sits on business.gov.au and the ATO's R&D Tax Incentive pages. For a broader walkthrough of the whole process, start with our end-to-end guide.

Clinical claims are usually strong on substance and weak on structure: the protocol, the ethics file and the analysis plan all exist, but nothing ties them to a registration written the way AusIndustry assesses it. That is the gap Rand is built to close, with Expert Reviewers approving the registration before it is lodged.

This article explains the eligibility rules in general terms; it is not personal tax advice.