The Research and Development (R&D) Tax Incentive is the Australian Government’s main program for rewarding businesses that experiment and innovate. Companies with an aggregated turnover under $20 million receive a refundable tax offset equal to their company tax rate plus an 18.5 percent premium, which for a base rate entity is an effective 43.5 percent. To claim, you must spend at least $20,000 on eligible R&D and register the activities with AusIndustry.
If your business builds, tests or improves products, processes or software and takes on genuine technical risk to do it, you may be leaving real money on the table. The R&D Tax Incentive is one of the most generous and most underused concessions available to Australian companies. In our experience working with business owners, the two failures we see are eligible companies never claiming, and ineligible claims that fall over under review. Mina Baselyous, a Chartered Tax Advisor (CTA), CPA and Registered Tax Agent, helps businesses claim it correctly. This guide explains what it is worth, who qualifies, what counts as R&D, and how to claim it without stepping into trouble.
What is the R&D Tax Incentive?
The R&D Tax Incentive is a targeted tax offset that reduces the cost of eligible research and development. It is jointly administered by AusIndustry, which assesses whether your activities qualify as R&D, and the ATO, which handles the tax offset in your company return. The aim is to encourage companies to conduct experimental work they might otherwise consider too risky.
Unlike a grant, you do not compete for a limited pool of funding. If your activities and expenditure meet the rules, the offset is an entitlement. It applies across industries: manufacturing, software, engineering, food and agriculture, medical and biotech, and more. The common thread is not lab coats, it is technical uncertainty resolved through a systematic, experimental process. You can read the government overview on business.gov.au.
How much is the R&D Tax Incentive worth?
The value depends on your company’s turnover. Companies with aggregated turnover under $20 million receive a refundable offset of their company tax rate plus 18.5 percent, so a company on the 25 percent rate receives an effective 43.5 percent, and can get cash back even in a loss year. Companies with turnover of $20 million or more receive a non-refundable offset at a tiered premium above their tax rate.
For larger companies the premium is 8.5 percent above the company tax rate for R&D expenditure up to 2 percent of total expenditure, and 16.5 percent above for spend beyond that intensity threshold. A cap applies: the offset falls back to the company tax rate on notional R&D deductions above $150 million in an income year. These rates apply for the 2025-26 income year per the ATO R&D rates and entitlements guidance. From 1 July 2028 the refundable turnover threshold is legislated to rise from $20 million to $50 million and the expenditure cap from $150 million to $200 million. As Mina Baselyous (CPA, CTA) puts it, for a profitable company on 25 percent, a genuine R&D claim turns an ordinary deduction into an offset worth almost 44 cents in the dollar, which is why it is worth getting right.
Who is eligible to claim?
To claim, you must be a company (not a sole trader, partnership or trust) that is liable to Australian tax, you must conduct at least one eligible core R&D activity, and you must incur at least $20,000 of eligible notional R&D deductions in the year, or use a registered Research Service Provider. This company requirement is one reason business structure matters so much for innovative businesses.
Because only companies can claim, sole traders and trusts running genuine R&D often restructure so the R&D sits in a company. If innovation is central to your plans, factor this into your business structure from the start rather than trying to fix it retrospectively. The $20,000 minimum spend is a low bar for most serious projects, and expenditure below that can still qualify if the work is done by a registered Research Service Provider.
Not sure whether your work qualifies as R&D?
At Pinnacle, we help Melbourne companies test eligibility, document activities correctly, and claim the R&D Tax Incentive with confidence. Book a consultation with Mina to see what you could claim.
Book a ConsultationWhat activities and costs qualify?
Eligible R&D falls into two categories. Core R&D activities are experimental activities whose outcome cannot be known in advance and can only be determined by a systematic progression of work based on established science, conducted to generate new knowledge. Supporting R&D activities are those directly related to and undertaken for the purpose of the core activities.
The test that trips people up is technical uncertainty. Improving a product using known methods is not R&D; resolving a genuine unknown through hypothesis, experiment and evaluation is. Eligible expenditure can include the salaries of staff doing the work, contractor costs, a portion of overheads, and the decline in value of assets used in R&D. Routine data collection, market research, quality control and reproducing an existing product are specifically excluded. Careful, contemporaneous record keeping, notes of the hypothesis, the experiments and the results, is what separates a defensible claim from one that collapses under review.
How to claim: registration and the process
Claiming is a two step process. First, register your R&D activities with AusIndustry within 10 months of the end of your income year, which is 30 April for a company with a 30 June year end. Second, claim the offset in your company tax return by completing the R&D tax incentive schedule. You cannot claim the offset without registering first.
The registration describes your core and supporting activities and why they meet the definition, so the technical write up matters. Once registered, your accountant calculates the notional deductions and the offset in the tax return. Because the program is jointly reviewed by AusIndustry and the ATO, both the technical eligibility and the expenditure must stand up. This is exactly the kind of forward planning that sits alongside broader tax planning and, for scaling companies, a Virtual CFO engagement that keeps the numbers and the records in order year round.
Getting it right and avoiding the traps
The R&D Tax Incentive is generous, and that generosity attracts scrutiny. Overstated or poorly documented claims are a common target for review, and the cost of getting it wrong includes repaying the offset with interest and penalties. The safest approach is to claim only genuine R&D, keep contemporaneous records, and get the eligibility assessment right before you lodge.
Treat the incentive as one lever in a broader strategy rather than a standalone windfall. It works best when it is planned alongside your other concessions, such as the instant asset write-off and your wider approach to paying less tax legally. Done properly, it can materially change the economics of innovation for your business, funding the next project from the tax saved on the last one.
Frequently Asked Questions
How much is the R&D Tax Incentive worth?
For companies with aggregated turnover under $20 million, the refundable offset equals your company tax rate plus 18.5 percent, an effective 43.5 percent for a 25 percent company, and it can be refunded in cash. Larger companies receive a non-refundable offset of 8.5 or 16.5 percent above their tax rate depending on R&D intensity.
Who is eligible for the R&D Tax Incentive?
You must be a company liable to Australian income tax, conduct at least one eligible core R&D activity, and incur at least $20,000 of eligible R&D expenditure in the year, or use a registered Research Service Provider. Sole traders, partnerships and trusts cannot claim directly, which is why many innovative businesses run R&D through a company.
What counts as eligible R&D?
Core R&D activities are experiments whose outcome cannot be known in advance and are resolved through a systematic, scientific process to create new knowledge. Supporting activities are directly related work. Routine improvements, market research, quality control and copying an existing product are excluded. The key test is genuine technical uncertainty, not just effort or novelty.
When do I have to register my R&D activities?
You must register your R&D activities with AusIndustry within 10 months after the end of your income year. For a company with a 30 June year end, the deadline is 30 April. Registration must happen before you claim the offset in your company tax return, so do not leave it until lodgement.
Can a startup that is not yet profitable claim the incentive?
Yes. That is one of the biggest advantages. Because the offset is refundable for companies with turnover under $20 million, a loss making startup can receive the R&D offset as a cash refund rather than carrying it forward. This can be a vital source of funding for early stage companies investing heavily in development.
General Advice Disclaimer: The information in this article is general in nature and does not constitute personal financial, tax, or legal advice. It has been prepared without taking into account your personal objectives, financial situation, or needs. Before acting on anything in this article, consider its appropriateness to your circumstances and seek advice from a registered tax adviser or CPA. Liability limited by a scheme approved under Professional Standards Legislation.
Ready to do Business with Us?
Join the Melbourne business owners who work with a CPA and Chartered Tax Advisor, so you can focus on growing your business while we take care of the numbers.