The $20,000 minimum for the R&D Tax Incentive

The $20,000 minimum: the floor under every R&D claim

The R&D Tax Incentive needs at least $20,000 of notional R&D deductions in an income year. Below that, the offset is available only on amounts paid to a registered Research Service Provider that is not an associate, and on Cooperative Research Centre contributions. The test applies to each income year separately; spending cannot be pooled across years.

Reviewed by George WalchFacts last verified 31 October 2026

Example

For example, an illustrative startup has $14,000 of in-house R&D salary costs and pays $5,000 to a registered Research Service Provider that is not an associate, for analysis on a registered activity. Its total of $19,000 is under the threshold, so only the $5,000 earns an offset: $2,175 at 43.5%. With $15,000 in house, the total reaches $20,000 and the whole amount earns $8,700.

The threshold works as a cliff, not a deductible. One dollar under $20,000 and most of the claim disappears; at $20,000 the whole amount counts.

What is tested

The test is the total of the year's notional deductions under section 355-100(1): R&D expenditure, decline in value of R&D assets, earlier-year associate amounts once paid, partnership amounts and CRC contributions. Every figure is already apportioned to R&D. Each income year stands alone, so a short first year, or work that straddles two years, is where companies most often fall under the line.

The exception

Below $20,000, section 355-100(2) still allows an offset on two kinds of spending:

Research Service Provider fees, where the provider is registered with AusIndustry, is not an associate of the company, and does the work within a research field it is registered for (see research service provider).
Contributions to a Cooperative Research Centre deductible under section 355-580 (see Cooperative Research Centre).

Everything else in the year is ignored. AusIndustry adds that using a provider does not make the activities eligible; the company still self-assesses them. Amounts paid to a provider that is an associate fall outside the exception, so a related research company cannot be used to get around the floor.

How it affects your claim

For pre-revenue startups with one or two people doing R&D part time, the floor is the first thing to check. Time records matter here too: undercounting R&D hours can push a genuine claim under the line. The 2026-27 Budget package proposes raising the floor to $50,000 for income years from 1 July 2028, still exempting Research Service Provider and CRC amounts; it is proposed, not law, and Treasury consulted on draft legislation from 10 to 28 September 2026 (see the $50,000 minimum spend).

Frequently asked questions

Is the $20,000 measured before or after apportioning time to R&D?

After. It tests notional deductions, which are already the R&D share of each cost. A company paying $60,000 in salaries with a quarter of the time on registered activities has $15,000 of salary towards the threshold, not $60,000.

Do we still need to register if we only use a Research Service Provider?

Yes. Notional deductions only arise for registered activities, so the activities must still be registered with AusIndustry. The provider's registration covers its capability, not your activities' eligibility.

The R&D Tax Incentive is a self-assessment program. This page is general information, not tax, legal or financial advice; eligibility depends on your circumstances and you should seek independent advice for them.