TLDR: The R&D Tax Incentive has two offsets, split by aggregated turnover. Under $20 million you get the refundable offset, your company tax rate plus 18.5 percentage points, commonly 43.5%. It is paid as cash to the extent it exceeds tax payable.
At $20 million or more the offset is non-refundable: your tax rate plus an 8.5 or 16.5 point premium depending on R&D intensity. It reduces tax payable and carries forward if unused.
The two offsets at a glance
Both offsets sit in Division 355 of the Income Tax Assessment Act 1997. The entitlement provision is s 355-100, which sets the offset by reference to your company tax rate plus a premium. Which premium applies depends on one number: aggregated turnover.
| Refundable offset | Non-refundable offset | |
|---|---|---|
| Aggregated turnover | Under $20M | $20M or more |
| Rate | Company tax rate + 18.5 percentage points | Company tax rate + 8.5 points (to 2% intensity) and + 16.5 points (above 2%) |
| Common headline rate | 43.5% at a 25% tax rate | Varies with tax rate and intensity: tiers of 33.5%/41.5% at a 25% rate, 38.5%/46.5% at a 30% rate |
| Excess above tax payable | Paid as a cash refund | Carried forward to later years |
| Expenditure cap | $150M notional R&D | $150M notional R&D |
Everything else about the program is identical: the same activity eligibility test under s 355-25, the same registration with AusIndustry, the same deadlines.
What decides which offset you get?
Aggregated turnover for the income year, tested against $20 million. There is no election and no discretion. If your aggregated turnover is under $20 million you are in the refundable regime, and if it is $20 million or more you are in the non-refundable regime with the intensity premium.
The other gate on the refundable offset is control. A company controlled by one or more income-tax-exempt entities cannot access the refundable offset even below $20 million.
Aggregated turnover, not revenue
Aggregated turnover is not the revenue line in your management accounts. It is your annual turnover plus the annual turnover of every entity connected with you and every affiliate, worked out under the ATO R&D tax incentive guidance.
That includes offshore group members. An Australian subsidiary with $3 million of local revenue and a foreign parent turning over $400 million is a non-refundable claimant, not a refundable one. This surprises venture-backed and multinational-owned companies most often, and it changes the cash outcome dramatically.
Two practical consequences:
- Work out aggregated turnover before you model the benefit, not after.
- If you are near the threshold, know that crossing it mid-growth changes the character of the offset for that whole income year.
The refundable offset: turnover under $20M
The refundable offset is the company tax rate plus 18.5 percentage points. For a base-rate entity taxed at 25%, that is 43.5% of eligible notional R&D deductions. For a company taxed at 30%, it is 48.5%.
The rate is built off your tax rate, so the headline 43.5% is a consequence of the base rate, not a fixed statutory number.
How the 43.5% figure is built
| Component | Base-rate entity | 30% taxpayer |
|---|---|---|
| Company tax rate | 25% | 30% |
| Statutory premium | +18.5 points | +18.5 points |
| Refundable offset rate | 43.5% | 48.5% |
Worked example: a $500,000 refundable claim
Take a software company with $6 million aggregated turnover, taxed at 25%, with $500,000 of eligible notional R&D deductions after apportioning salaries by R&D time, contractor costs and directly related overheads.
- Offset: $500,000 x 43.5% = $217,500
- If the company is in a tax loss and has no tax payable, the full $217,500 is refunded in cash.
- If it had $60,000 of tax payable, the offset extinguishes that liability and $157,500 is refunded.
What refundable means for cash flow
Refundable means the offset is not merely a credit against tax. To the extent it exceeds your income tax liability for the year, the excess is paid to you as cash after your company tax return is lodged and assessed.
That is why the R&DTI functions as a genuine funding line for pre-revenue companies. It is also why lodgement timing matters: no registration, no offset, and registration closes 10 months after year end, meaning 30 April for a 30 June year end.
The non-refundable offset: turnover $20M or more
At $20 million or more of aggregated turnover, the offset is your company tax rate plus a two-tier R&D intensity premium. It reduces tax payable rather than producing cash, and the effective rate depends on how R&D-intensive your total spending is.
There is no flat 38.5% non-refundable rate for income years starting on or after 1 July 2021. If you are still modelling one, your numbers are wrong.
The two-tier R&D intensity premium
R&D intensity is notional R&D expenditure divided by total expenditure for the income year. The premium has exactly two tiers, applied marginally:
| Slice of notional R&D expenditure | Premium above company tax rate |
|---|---|
| Up to 2% of total expenditure | +8.5 percentage points |
| The portion above 2% of total expenditure | +16.5 percentage points |
Marginal means the higher premium applies only to the slice above the 2% line, not to the whole claim once you cross it. A proposal for a three-tier premium circulated in 2019 and was never enacted, so ignore any model that shows three bands.
Worked example: intensity applied marginally
A base-rate entity (25% company tax rate) with $40 million aggregated turnover has total expenditure of $30 million for the year and $3 million of notional R&D deductions. Intensity is 10%.
- The 2% threshold in dollars: 2% x $30,000,000 = $600,000.
- Tier 1: $600,000 at 25% + 8.5 points = 33.5% = $201,000.
- Tier 2: the remaining $2,400,000 at 25% + 16.5 points = 41.5% = $996,000.
- Total offset: $1,197,000, an effective rate of 39.9% on $3 million of notional R&D.
Note what drives the result. A company with the same $3 million of R&D but $150 million of total expenditure would have intensity of 2%, so the entire claim would sit in tier 1 at 33.5%, worth $1,005,000. Same R&D spend, $192,000 less benefit, purely because the denominator is larger.
Carrying forward an unused non-refundable offset
If the non-refundable offset exceeds your tax payable for the year, the excess is not paid out. It is carried forward and applied against income tax in later years under the carry-forward tax offset rules, which impose continuity tests similar to those for tax losses; your tax agent applies these in the return.
For a profitable group that is straightforward. For a loss-making subsidiary of a large multinational, it can mean years pass before the benefit is monetised, which is worth flagging in board-level modelling.
Side-by-side comparison
| Question | Refundable | Non-refundable |
|---|---|---|
| Who qualifies | Aggregated turnover under $20M, not controlled by tax-exempt entities | Aggregated turnover $20M or more |
| Rate driver | Fixed 18.5 point premium | R&D intensity (2% marginal split) |
| Benefit if in tax loss | Cash refund | Carried forward |
| Effect of growing total expenditure | None on rate | Lowers intensity, lowers effective rate |
| Minimum notional R&D | $20,000 (with exceptions) | $20,000 (with exceptions) |
| Registration deadline | 10 months after year end | 10 months after year end |
The $150M expenditure cap
Notional R&D deductions above $150 million in an income year attract the offset at your company tax rate only, with no premium on the excess. The cap rose from $100 million to $150 million for income years starting on or after 1 July 2021.
The cap applies to both offsets, though in practice only very large programs reach it.
The $20,000 minimum spend rule
You generally need at least $20,000 of notional R&D deductions in the income year to claim. Below that, the offset is not available.
Two exceptions remove the floor entirely:
- Expenditure paid to a Registered Research Service Provider (RSP) is claimable regardless of amount.
- Monetary contributions under the Cooperative Research Centres (CRC) Program are claimable regardless of amount.
When companies move between the two offsets
The test is applied each income year, so a company can be refundable in one year and non-refundable the next. The most common triggers are a revenue year that clears $20 million, and an acquisition or investment that brings connected entities or affiliates into the aggregation.
Three things to do in the year you expect to cross:
- Recalculate aggregated turnover including all connected entities and affiliates, not just the Australian ones.
- Forecast total expenditure, because it becomes the denominator that sets your intensity tier and therefore your effective rate.
- Re-plan cash flow. A company that has been budgeting an annual cash refund needs to know the year it stops arriving.
The proposed $50M threshold from 1 July 2028
The 2026-27 Budget proposes raising the refundable-offset turnover threshold from $20 million to $50 million for income years starting on or after 1 July 2028. It is exposure draft legislation (Treasury consulted from 10 to 28 September 2026), not yet law. If it passes as drafted, companies with aggregated turnover between $20 million and $50 million would move to the refundable offset while they are inside the proposed 10-year age limit (15 years for eligible therapeutic goods R&D). Older companies under $50 million would keep the top rate as a non-refundable offset.
It does not affect current-year claims. Companies sitting in that band should model both regimes when planning multi-year R&D programs, because the cash profile of the same spend changes across the switch.
Eligibility comes before either rate
Neither rate matters until the underlying activities pass the core R&D activity test in s 355-25: experimental activities whose outcome cannot be known or determined in advance, resolved by a systematic progression of work from hypothesis to experiment, observation and evaluation, conducted to generate new knowledge.
The offset percentage is arithmetic. The defensible part of a claim is the activity drafting and the contemporaneous evidence behind it, which is where reviews land.
If you are still deciding what to register, start with core versus supporting activities and, for software teams, the software eligibility criteria.
Rand builds the AusIndustry registration from your engineering and clinical evidence and surfaces the expenditure figures your tax agent needs for the ATO R&D tax schedule, including the exclusions and risk flags a reviewer should see before lodgement.
For the full picture, including registration mechanics and evidence expectations, see the end-to-end guide to the R&D Tax Incentive and the announced policy changes ahead.
The rates in this article are current for income years commencing on or after 1 July 2021. Program mechanics are set out on business.gov.au, and the expenditure and offset rules are administered by the ATO.
This article explains the rules and is not personal tax advice.