Australia's R&D Tax Incentive (R&DTI) is the largest single source of non-dilutive funding for technology companies in the country, worth up to 43.5 cents back on every eligible R&D dollar. It is also widely misunderstood: it is not a grant, nobody approves your claim up front, and the same features that make it generous (self-assessment, cash refundability) are what make it reviewable years after the money lands.
This guide walks the whole path end to end: who can claim, what the offset is worth, how eligible activities are defined, what evidence you need, and the mechanical steps of registration and lodgement.
What is the R&D Tax Incentive?
The R&DTI is a self-assessed tax offset under Division 355 of the ITAA 1997 that rewards companies for conducting eligible research and development in Australia. It is jointly administered: AusIndustry (within the Department of Industry, Science and Resources) handles activity registration and eligibility, while the ATO handles the expenditure and pays the offset.
Self-assessment is the load-bearing concept. You decide what qualifies, you register it, you claim it. Registration is administrative, not an approval. Either regulator can examine the claim afterwards, so the program effectively runs on trust up front and evidence afterwards.
Who can claim?
Eligibility sits with R&D entities: companies incorporated in Australia, or foreign companies that are Australian tax residents or operate through a permanent establishment under a double-tax agreement. Sole traders, partnerships, and most trusts cannot claim.
Beyond entity type, the practical tests are:
- You conducted at least one eligible core R&D activity during the income year.
- Your eligible expenditure (notional deductions) totals at least $20,000, unless the spend went to a Registered Research Service Provider or a Cooperative Research Centre.
- The activities were conducted in Australia, or you hold a positive Overseas Finding for the overseas portion.
- You conducted the R&D for your own benefit, not "conducted for" another entity that bears the risk and owns the results.
How much is it worth?
The offset rate depends on your aggregated turnover, which includes connected and affiliated entities worldwide.
| Aggregated turnover | Offset | Refundable? |
|---|---|---|
| Under $20m | Corporate tax rate + 18.5pp (43.5% for a 25% rate company) | Yes, paid as cash beyond tax liability |
| $20m and over, R&D intensity up to 2% | Corporate tax rate + 8.5pp | No, reduces tax payable |
| $20m and over, R&D intensity above 2% | Corporate tax rate + 16.5pp on the portion above 2% | No |
Three caps and floors to know:
- $20,000 minimum in notional deductions to claim at all (RSP and CRC spend exempt).
- $4m annual cap on the refundable portion; anything above converts to a non-refundable offset carried forward. Expenditure on eligible clinical trials is exempt from the cap.
- $150m expenditure threshold: notional deductions above it earn only the corporate tax rate, no premium.
For a pre-profit startup, refundability is the headline: a company with no tax to pay receives the offset as a cash refund. On $400,000 of eligible spend at 43.5%, that is a $174,000 payment. You can estimate your own numbers with our R&D Tax Incentive calculator.
Note that the 2026-27 Federal Budget proposes significant changes from 1 July 2028, including higher rates on a narrower, core-only base. Claims for income years before then run under the current settings.
What activities are eligible?
A claim is built from two kinds of registered activity.
Core R&D activities are experimental activities whose outcome cannot be known in advance by a competent professional with access to worldwide knowledge, conducted through a systematic progression from hypothesis to experiment, observation, evaluation, and logical conclusions, for the purpose of generating new knowledge. All four elements must hold. The software eligibility guide applies each criterion to real development work.
Supporting R&D activities are directly related to a core activity: building the test rig, preparing the dataset, constructing the prototype. They do not need unknown outcomes, but where they produce goods or services (or fall under an exclusion) they must pass a dominant purpose test. The core vs supporting guide covers the classification in detail.
The law also names activities that can never be core regardless of how experimental they feel: market research, management studies, compliance work, reproducing existing products, and software developed for the dominant purpose of internal administration. Claims built on excluded activities fail no matter how well they are documented.
The biggest single mistake: whole-of-project claims
Claiming an entire project as R&D, rather than separating the specific experimental activities inside it, is the most common failure pattern in software claims and the specific target of the ATO's Taxpayer Alert TA 2017/5. Activities are the unit of eligibility, not projects.
What expenditure can you claim?
For each eligible activity, the claimable categories are:
- Salaries of people directly engaged in the R&D, apportioned to their R&D time, including superannuation and on-costs. Usually the largest component, and the one that lives or dies on time records.
- Contractor costs for R&D services.
- Depreciation on assets used in R&D, proportional to R&D use.
- Feedstock: materials transformed or processed in the R&D (with clawback rules if outputs are sold).
- Overheads directly attributable to the R&D, reasonably apportioned.
Excluded outright: interest, building expenditure, core technology acquisition, and the cost of preparing the claim itself. Payments to associate entities count only when actually paid, not merely incurred.
How do you actually claim? The five steps
- Do the R&D and keep records as you go. Contemporaneous evidence created during the work (pull requests, experiment logs, design notes, time records) is the foundation of a defensible claim. Records reconstructed at year end are the weakest tier. See contemporaneous evidence.
- Apply for findings if you need them, before year end. An Advance Finding gives binding certainty on eligibility; an Overseas Finding is mandatory for claiming overseas activity. Both must be lodged before the end of the income year in question.
- Register with AusIndustry within 10 months of year end. For a standard 30 June year end, the deadline is 30 April. Registration describes each core and supporting activity in the official form's structured fields.
- Lodge your company tax return with the R&D schedule. The schedule calculates notional deductions, applies clawbacks, reports associate payments, and computes the offset. Your tax agent lodges it with the return.
- Keep everything for five years. Both regulators can review the claim after it is paid. Review readiness is a records problem, and the time to solve it was step 1. See what triggers a review.
What does it cost to claim?
You can self-prepare, engage a consultant (typically 15-20% of the benefit plus a retainer), or use software with built-in expert review. The cost comparison works through the fee models on real numbers. Whichever route you choose, the quality of the evidence behind the claim matters more than who assembles it: a beautifully written registration built on retrospective memory is still a weak claim.
Common failure modes
The claims that fail reviews share a short list of causes:
- No genuine technical uncertainty (the outcome was determinable with existing knowledge).
- Whole-of-project claims with no activity-level separation.
- Commercial risk dressed up as technical risk: "we did not know if customers would want it" is not R&D uncertainty.
- Time apportionments that cannot be substantiated with records.
- Documentation written after the fact, with no contemporaneous trail behind it.
Every one of these is avoidable with accurate framing and records kept as the work happens, which is precisely the discipline the program is designed to reward.
The R&D Tax Incentive is a self-assessment program and this guide is general information, not tax, legal, or financial advice. Rand helps you prepare and document a defensible claim, but your company and its directors remain responsible for its accuracy, and you should seek advice specific to your circumstances.