R&D Tax Incentive

The Division 355 glossary

Every term of art in the R&D Tax Incentive, defined in plain English: what the legislation means, why the term matters to your claim, and where to read deeper. 28 terms across the program, eligibility, money, and compliance.

The program

R&D Tax Incentive (R&DTI): Australia's principal program for supporting business research and development: a self-assessed tax offset on eligible R&D expenditure, refundable in cash for companies under $20m aggregated turnover. Jointly administered by AusIndustry (activity eligibility) and the ATO (expenditure and payment). The complete guide
Division 355: The division of the Income Tax Assessment Act 1997 that contains the entire R&D Tax Incentive framework: who can claim, what counts as a core or supporting activity, which activities are excluded, and how the offset is calculated.
R&D entity: The only kind of taxpayer that can claim: a company incorporated in Australia, or a foreign company that is an Australian tax resident or operates through a permanent establishment under a double-tax agreement. Sole traders, partnerships, and most trusts are not R&D entities.
Self-assessment: The program's operating model: you determine your own eligibility, register your activities, and claim, with no up-front approval. Both regulators retain the right to review, audit, or amend any claim afterwards, which is why contemporaneous evidence carries the weight.

Activities and eligibility

Core R&D activity: An experimental activity whose outcome cannot be known in advance by a competent professional, conducted through a systematic progression from hypothesis to experiment, observation, evaluation, and conclusions, for the purpose of generating new knowledge. All four elements must hold simultaneously. Core vs supporting
Supporting R&D activity: An activity directly related to a named core activity: it enables, feeds, or follows from the experiment without being experimental itself, such as building a test rig or preparing data. Where it produces goods or services, or is otherwise excluded, it must also pass the dominant purpose test. Core vs supporting
Competent professional test: The benchmark for whether an outcome could be known in advance: a hypothetical practitioner in the relevant field with access to worldwide knowledge. If that person could determine the result from existing information without experimenting, the activity fails the unknown-outcome requirement.
Systematic progression of work: The mandatory experimental method for a core activity: a hypothesis articulated before the work, experiments that test it, observation of results, evaluation, and logical conclusions. Trial and error without a stated hypothesis does not satisfy it.
New knowledge: The required purpose of a core activity: knowledge that does not already exist, in the form of new or improved materials, products, devices, processes, or services. Generating it must be a substantial purpose when the activity begins, not a retrospective framing.
Excluded activities: Activities the legislation bars from being core R&D regardless of how they are conducted: market research, management studies, compliance with statutory requirements, reproducing existing products, prospecting, and software developed for the dominant purpose of internal administration, among others.
Dominant purpose test: The ruling, most influential purpose of an activity. It gates two things: whether internal-administration software is excluded, and whether a supporting activity that produces goods or services (or is otherwise excluded) can still be claimed as supporting a core activity.
Clinical Trials Determination 2022: A legislative determination deeming phase 0 to III clinical trials and pre-market pilot or pivotal studies of therapeutic goods not yet on the ARTG to be core R&D activities, without applying the four-part test. Phase IV trials, generics, and market-research components fall outside it.

Money

Notional deductions: The pool of eligible R&D expenditure a claim is calculated on: apportioned salaries and on-costs, contractor costs, depreciation on R&D assets, feedstock, and directly attributable overheads. At least $20,000 of notional deductions is required to claim at all.
Aggregated turnover: Your annual turnover plus that of all connected and affiliated entities worldwide. It determines which offset you receive: refundable below $20m, non-refundable with an intensity premium at or above it.
Refundable tax offset: The under-$20m offset: the corporate tax rate plus 18.5 percentage points (43.5% for a 25% rate company). Any amount beyond your tax liability is paid as cash, which is what makes the program a funding source for pre-profit companies. Estimate it with the calculator
Intensity premium (non-refundable offset): The offset structure for companies at or above $20m aggregated turnover: the corporate tax rate plus 8.5 percentage points on R&D up to 2% of total expenses, and plus 16.5 percentage points on the portion above 2%. It reduces tax payable rather than paying cash.
$4m refund cap: The annual ceiling on the refundable portion of the offset. Amounts above it convert to a non-refundable offset carried forward. Expenditure on eligible clinical trials is exempt, a significant carve-out for trial-stage biotech and medtech companies.
Feedstock adjustment: A clawback that applies when materials transformed or processed in R&D end up in products that are sold or used: part of the claimed benefit is added back to taxable income, so the program funds the experiment rather than the saleable output.
Clawback: Collective term for the mechanisms that reverse offset benefits in defined situations: feedstock adjustments, recoupment of government grants covering the same expenditure, and balancing adjustments on R&D assets. Reported in Part B of the R&D schedule.
Associate entity payments: Amounts owed to associates (related parties) count as notional deductions only when actually paid, not merely incurred, and are capped at market value. They are reported separately, and markups between connected entities are stripped out.

Process and compliance

Registration (AusIndustry): The mandatory annual step of describing each core and supporting activity to AusIndustry, due within 10 months of income year end (30 April for a 30 June year). Registration is administrative, not an approval of eligibility, and without it the year's claim cannot be made. All the deadlines
R&D schedule: The part of the company tax return that computes the claim: notional deductions (Part A), clawbacks (Part B), associate payments (Part C), aggregated turnover (Part D), and the offset itself (Part E). It requires the AusIndustry registration number.
Advance Finding: An optional binding determination from AusIndustry that named activities are eligible, valid for up to three income years. Useful where eligibility is genuinely uncertain or certainty is needed for financing. Must be applied for before the end of the income year it relates to.
Overseas Finding: The mandatory determination before any overseas activity can be claimed, available only in limited circumstances (for example, work that cannot be conducted in Australia). The application must be lodged before the end of the income year in which the overseas activity starts.
Contemporaneous evidence: Records created at the time the R&D was done, as a byproduct of doing it: experiment logs, pull requests, design notes, study protocols, time records. The foundation of a defensible claim; retrospective summaries alone will not sustain one. Records must be kept for five years after the claim. The evidence guide
Conducted-for arrangement: The question of whose R&D it really is. Activities conducted to a significant extent for another entity (one that bears the risk and owns the results, such as a foreign parent or a client) are generally not claimable by the company doing the work. The ATO's Taxpayer Alerts TA 2023/4 and TA 2023/5 target these structures.
Taxpayer Alert TA 2017/5: The ATO alert targeting whole-of-project software claims: sweeping an entire development project into the claim instead of identifying the specific experimental activities within it. It remains the defining compliance signal for software claimants. Software eligibility guide
Registered Research Service Provider (RSP): An organisation registered with AusIndustry to perform contracted R&D services. Expenditure with an RSP (or a Cooperative Research Centre) is exempt from the $20,000 minimum, letting very small claims proceed through those channels.

Definitions summarise Division 355 of the ITAA 1997 and related instruments in plain language and are general information, not tax, legal, or financial advice.