The R&D Tax Incentive: Complete Guide for Australian Businesses

The R&D Tax Incentive (RDTI) is a federal program that provides a tax offset for eligible R&D activities. For companies with less than $20 million in aggregated annual turnover, this means a refundable tax offset of 43.5 cents for every dollar of eligible R&D expenditure — even if your company is in a tax loss position.

For larger companies (over $20M turnover), the offset is non-refundable and based on a premium above your corporate tax rate (between 8.5% and 16.5% above the rate).

The program is jointly administered by AusIndustry (Innovation and Science Australia) and the Australian Taxation Office. You register your R&D activities with AusIndustry and claim the offset through your company tax return.

The RDTI requires "core R&D activities" — experimental activities designed to generate new knowledge or determine the feasibility of a hypothesis. The key test: you must not know in advance whether the outcome is achievable. If you're certain it will work, it's not eligible R&D.

Examples of common qualifying activities: developing a new software platform where the technical approach is uncertain, engineering a new manufacturing process, testing new materials or compounds, developing AI/ML models where the architecture is experimental.

"Supporting R&D activities" can also be claimed if they directly support the core activities. This includes things like project management of R&D, prototype fabrication, and data collection for the experimental work.

Eligible expenditure includes: salary costs for staff directly engaged in R&D (including employer superannuation contributions), contractor fees for R&D services, materials consumed in R&D activities, and overhead costs allocated to R&D.

You can also claim expenditure on R&D conducted overseas if it's approved by the Innovation Minister — though this requires additional application steps.

What you can't claim: management and overhead not directly connected to R&D, business-as-usual activities, and expenditure for activities that would have been conducted regardless of the R&D.

Step 1: Register your R&D activities with AusIndustry within 10 months of the end of your income year. This is a critical deadline — missing it means you can't claim for that year.

Step 2: Record your R&D activities throughout the year. Keep contemporaneous records — lab notebooks, project logs, test results, timesheet records. "Contemporaneous" means recorded at the time, not reconstructed later.

Step 3: Engage your accountant to include the claim in your company tax return. The offset is calculated on eligible expenditure and applied against your tax liability (or refunded if you're in a loss position).

Step 4: If selected for review, you'll need to substantiate your claim with the records you've kept. ATO and AusIndustry run joint compliance reviews that can extend to 7 years after lodgement.

Claiming activities that are just "business as usual": Development work is only eligible if there's genuine technical uncertainty. Routine software bug fixes, incremental improvements with known solutions, and market research don't qualify.

Poor record-keeping: The ATO expects contemporaneous records. If your records were assembled after the fact to support a claim, a review will likely find this.

Overclaiming hours: Only time directly spent on eligible R&D activities can be claimed. Management meetings, sales activities, and general engineering time that isn't part of the experimental work aren't eligible.

Missing the registration deadline: The 10-month deadline is strict. There is no extension mechanism.