TLDR: Your R&D tax offset is your total notional R&D deductions multiplied by your offset rate, after integrity adjustments. If aggregated turnover is under $20M, that rate is your company tax rate plus 18.5 percentage points (commonly 43.5%) and the offset is refundable. At $20M or more, it is your tax rate plus a two-tier intensity premium: 8.5 points up to 2% intensity, 16.5 points above.
The calculation in five steps
The arithmetic is short. The work sits in getting the inputs right.
- Total your notional R&D deductions for the income year (the expenditure attributable to registered R&D activities).
- Determine your aggregated turnover, which decides whether the offset is refundable or non-refundable.
- Apply the correct offset rate, including the intensity premium if you are at $20M or more.
- Net the offset against your income tax liability to work out cash versus carry-forward.
- Check the reductions: feedstock, clawback, the at-risk rule, offshore expenditure and the $150M cap.
Everything below expands one of those steps. The eligibility question, which activities qualify as core or supporting under s 355-25 of the Income Tax Assessment Act 1997, is a separate exercise covered in our complete guide and in core vs supporting R&D activities.
Step 1: total your notional R&D deductions
Your notional R&D deductions are the amounts you would otherwise deduct, to the extent they are incurred on registered R&D activities. They are not deducted twice: you either claim an amount as an ordinary deduction or you notionally deduct it and take the offset on it.
What counts in the base
| Cost type | How it enters the calculation |
|---|---|
| Salary and wages | Apportioned by time spent on R&D activities, plus on-costs (superannuation, payroll tax, leave loading) |
| Contractors | Payments for R&D activities performed on your behalf |
| Associate payments | Claimable only if actually paid in cash by year end, not merely accrued |
| Overheads | Apportioned to the extent directly related to the R&D activities |
| Depreciating assets | Decline in value to the extent the asset is used for R&D |
Apportionment is where most claims are won or lost. A developer who spent 40% of the year on a registered core activity contributes 40% of their salary and on-costs, and you need contemporaneous records supporting that split. Our guide to contemporaneous evidence sets out what holds up.
The $20,000 minimum spend rule
You generally need at least $20,000 of notional R&D deductions in the income year to access the offset. Below that, no offset.
Two exceptions: expenditure paid to a Registered Research Service Provider (RSP), and monetary contributions under the Cooperative Research Centre (CRC) program. Both are claimable regardless of amount.
Step 2: check your aggregated turnover
Aggregated turnover, not revenue on your P&L, determines which offset you get. It includes the annual turnover of your entity plus that of connected entities and affiliates, which catches foreign parents and commonly controlled groups.
The threshold is $20M. Under it, refundable. At or above it, non-refundable. That threshold is legislated to rise to $50M from 1 July 2028, which does not affect the years you are calculating now.
The May 2026 Federal Budget announced further changes proposed to start on 1 July 2028. None of them are law yet, and none of them change the rates for the income years you are calculating now. Our budget summary covers what was announced.
Get this test wrong and the entire calculation is wrong, so confirm the group position with your tax agent before you model anything. The ATO's R&D tax incentive guidance is the reference point for the expenditure and offset side of the program.
Step 3: apply the right offset rate
Your offset rate is your company tax rate plus a premium: 18.5 percentage points refundable under $20M aggregated turnover, or a two-tier 8.5 and 16.5 point non-refundable premium at $20M or more.
| Aggregated turnover | Offset type | Rate |
|---|---|---|
| Under $20M | Refundable | Company tax rate + 18.5 percentage points (43.5% at a 25% rate) |
| $20M or more | Non-refundable | Company tax rate + 8.5 points on notional R&D up to 2% intensity, + 16.5 points on the portion above 2% |
| Notional deductions above $150M | Either | Company tax rate only, no premium |
Refundable offset: turnover under $20M
One rate, applied to the whole notional deduction base. A base-rate entity taxed at 25% gets 43.5%. If your company tax rate is 30%, the refundable rate is 48.5%.
Refundable means the offset is applied against tax payable first and any excess is paid to you as cash. It is not available if you are controlled by income-tax-exempt entities.
Non-refundable offset: turnover $20M or more
Here the premium depends on how R&D-intensive your spending is. There are exactly two tiers, applied marginally, so the higher premium attaches only to the slice of notional R&D above 2% of total expenditure.
Any calculator or article quoting a flat 38.5% non-refundable rate is describing rules that ceased for income years starting on or after 1 July 2021. A three-tier premium is also wrong: that was a 2019 draft that was never enacted.
How is the R&D intensity premium calculated?
R&D intensity is notional R&D expenditure divided by total expenditure for the income year. You then split the notional R&D into two slices:
- The portion up to 2% of total expenditure, which attracts the company tax rate plus 8.5 percentage points.
- Everything above that, which attracts the company tax rate plus 16.5 percentage points.
So the 2% threshold is expressed as a dollar amount (2% of total expenditure), not as a percentage of your R&D spend. A company with $50M of total expenditure has a $1M first tier, regardless of whether its R&D spend is $200,000 or $10M.
Worked example: a pre-revenue software company
A company with aggregated turnover of $1.2M, a 25% company tax rate, and a full-year tax loss.
| Input | Amount |
|---|---|
| Apportioned developer salaries and on-costs | $620,000 |
| Contractor payments for R&D activities | $150,000 |
| Directly related overheads (apportioned) | $60,000 |
| Decline in value of R&D-used assets | $20,000 |
| Total notional R&D deductions | $850,000 |
Offset rate: 25% + 18.5 = 43.5%.
Offset: $850,000 × 43.5% = $369,750.
The company has no tax payable, so the full $369,750 is refundable as cash. Note the trade-off: because $850,000 is notionally deducted rather than ordinarily deducted, the carry-forward tax loss is reduced by the same amount. The cash arrives now; the future deduction does not.
Worked example: a $40M health-tech company
A clinical software company with aggregated turnover of $40M, total expenditure of $30M for the year, and a company tax rate of 30%. Its registered R&D includes a randomised study of whether its app reduces patient symptom scores, plus the engineering that supports it.
Notional R&D deductions: $2,400,000. R&D intensity = $2.4M / $30M = 8%.
| Tier | Slice | Rate | Offset |
|---|---|---|---|
| Up to 2% of total expenditure | $600,000 | 30% + 8.5 = 38.5% | $231,000 |
| Above 2% | $1,800,000 | 30% + 16.5 = 46.5% | $837,000 |
| Total | $2,400,000 | Effective 44.5% | $1,068,000 |
The first tier is $600,000 because that is 2% of $30M of total expenditure. The remaining $1.8M sits in the upper tier.
This offset is non-refundable. It reduces tax payable to nil and any unused amount carries forward to later income years, so its cash value depends on when the company becomes profitable. Whether your company is a base-rate entity taxed at 25% or a 30% taxpayer changes every number in this table, so confirm the rate before modelling.
Step 4: net the offset against tax payable
Both offsets are applied against your income tax liability for the year. What happens to the excess is the difference.
- Refundable: the excess is paid to you as a cash refund, subject to ATO processing and any offsetting against other tax debts.
- Non-refundable: the excess is carried forward and can reduce tax payable in future income years. There is no cash payment.
The offset is claimed through the R&D tax schedule attached to your company tax return, lodged by your tax agent. The registration with AusIndustry must come first.
Step 5: check the reductions that shrink the number
The headline figure from Step 3 is a ceiling, not a result. Work through these before you tell your board a number.
- Feedstock adjustments. Where R&D activities produce goods or materials that are sold or applied to your own use, a feedstock adjustment claws back part of the benefit on the inputs consumed.
- Recoupment and clawback. Government grants and recoupments that relate to the same expenditure trigger a clawback adjustment. A matched grant does not sit neatly alongside a full offset.
- The at-risk rule. Expenditure you are not genuinely at risk on, because it is guaranteed to be reimbursed by another party, is excluded.
- Associate payments. Amounts owed to associates must be paid in cash by year end. Accruals do not count.
- Overseas activities. R&D conducted outside Australia is ineligible unless you obtained an overseas finding, and the application had to be lodged before the end of the first income year in which the overseas activities were conducted. No late applications, ever.
- Excluded activities. Anything caught by the excluded-category list in s 355-25(2) of the Income Tax Assessment Act 1997, including market research, routine testing to show compliance with a standard, and software developed for the dominant purpose of your own internal administration, cannot be a core activity. It can only stay in the base as a supporting activity if it directly relates to a core activity and was undertaken for the dominant purpose of supporting it.
The $150M expenditure cap
Notional R&D deductions above $150M in an income year attract the offset at the company tax rate only, with no premium and no refundable uplift on that portion. The cap rose from $100M to $150M for income years starting on or after 1 July 2021. It is irrelevant to most claimants and decisive for a handful.
Why calculators overstate the rebate
Most online calculators multiply total payroll by 43.5%. That produces a number no reviewer will ever agree with, for four reasons.
They assume every hour is R&D. Only time on registered core and supporting activities counts, apportioned and evidenced. A team that spends half its time on customer support, DevOps toil and roadmap features has a much smaller base.
They ignore the offset's cost. Notional deductions are not also ordinary deductions, so your carry-forward losses fall.
They apply the wrong rate at scale. A $40M-turnover company modelled at 43.5% will be disappointed by the marginal two-tier result and by the fact that it is non-refundable.
They assume registration happens. Registration with AusIndustry is due 10 months after year end, 30 April for a 30 June year end, and it is a hard statutory deadline. Miss it and the calculated figure is zero.
The registration itself is field-by-field, with the hypothesis field (Q82) alone requiring at least 650 characters and the experiment field (Q83) another 650, so it is not a form you complete in an afternoon. See every deadline that matters for the full calendar.
Getting from an estimate to a defensible figure
An estimate is a spreadsheet. A claim is a registered set of activities, an apportioned expenditure base, and evidence that ties one to the other. The gap between them is where most of the risk lives, because the ATO reviews expenditure and apportionment while AusIndustry reviews the activities.
Rand builds both halves from the engineering and clinical evidence you already generate, deriving the apportioned expenditure base from logged time against registered activities. The number you model is the number you can support. If you are weighing that against a traditional adviser, our cost comparison sets out the difference.
This article explains the rules; it is not tax advice, and your offset depends on your own circumstances. Confirm your company tax rate, aggregated turnover and adjustments with your tax agent before relying on any figure. The program's official overview sits at business.gov.au.