R&D Tax Incentive

To access the R&D Tax Incentive, you must be an Australian company (not sole trader or partnership) incorporated in Australia or a foreign company with a permanent establishment in Australia.

Your business must conduct "core R&D activities" — experimental activities designed to generate new knowledge where the outcome is not known in advance. This includes developing new software with uncertain technical approaches, engineering novel manufacturing processes, testing new materials or compounds, and developing AI/ML models with experimental architectures.

For the 43.5% refundable offset: your aggregated annual turnover must be less than $20 million. For larger companies (over $20M turnover), a non-refundable offset applies at between 8.5%–16.5% above your company tax rate.

For eligible companies under $20M turnover, the offset is 43.5 cents per dollar of eligible R&D expenditure. Critically, this offset is refundable — meaning if your company is in a tax loss position, you receive the difference as a cash refund.

Example: A startup with $500,000 in eligible R&D spend receives $217,500 back — either as a reduction in tax owed or as a cash refund.

Example: A profitable company with $2M in eligible R&D spend receives $870,000 back through their tax assessment.

There is no cap on the amount you can claim (for the small company offset), though special rules apply to very large R&D programs.

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

You can also claim overseas R&D expenditure if approved, which requires a separate application to Innovation and Science Australia before the work begins.

Common ineligible costs: management time not directly in R&D activities, market research, sales activities, and routine development using known methods.

Step 1: Register your R&D activities with AusIndustry via the Business Registration Service. This must be done within 10 months of the end of your income year. Missing this deadline means no claim for that year — there are no extensions.

Step 2: Keep contemporaneous records throughout the year — project logs, lab notebooks, test results, timesheets, and any documentation showing the experimental nature of your work.

Step 3: Engage your accountant to calculate eligible expenditure and lodge the R&D claim through your company tax return (Schedule B).

Step 4: The ATO assesses the claim and either applies it against tax owed or issues a refund.

Most businesses engage a specialist R&D consultant or accountant for their first claim — the registration and documentation requirements have specific standards that can trip up first-time claimants.

Claiming routine development: Only activities with genuine technical uncertainty qualify. If you know how to build it and the outcome is certain, it's not eligible R&D.

Poor record-keeping: The ATO expects records created at the time of the activity — not reconstructed afterwards. A compliance review (which can go back 7 years) will look for contemporaneous documentation.

Missing the registration deadline: The 10-month registration deadline is strict. Calendar it immediately.

Overclaiming hours: Only time directly spent on eligible experimental activities can be claimed. Meetings, project management, and non-R&D engineering time don't qualify.