Australia R&D Tax Relief Regime R&D Relief factsheet
The Australian Research and Development (R&D) Tax Incentive is a Federal Government program designed to encourage companies to invest in innovation. It provides tax offsets for eligible R&D activities, helping reduce the cost of developing new products, processes, or technologies. There are two distinct steps requiring claimants to deal with two separate regulators: Industry Innovation and Science Australia and the Australian Tax Office.
Who is eligible?
The incentive is available to:
- Australian companies incorporated under Australian law.
- Foreign companies operating in Australia through a permanent establishment.
- Companies with at least AUD$20,000 in eligible R&D expenditure (unless using a Registered Service Provider).
Not eligible:
- Individuals and sole traders.
- Partnerships and most trusts.
- Tax-exempt entities such as charities.
Additional notes:
- R&D must generally be conducted in Australia.
- Overseas R&D may qualify with prior approval (Overseas Finding).
- Only the head company in a tax-consolidated group can claim.
What activities and costs can qualify?
Eligible activities
Core R&D activities must:
- Be experimental in nature.
- Aim to generate new knowledge.
- Involve scientific or technological uncertainty.
- Follow a systematic approach with documented evidence.
Supporting R&D activities are those directly related to core R&D or, for certain activities undertaken for the dominant purpose of supporting core R&D activities., and include:
- Background research.
- R&D activity planning and management.
Excluded activities include:
- Market research.
- Sales and promotion.
- Routine quality control.
- Cosmetic changes.
- Social sciences and arts research.
Eligible costs
Potentially claimable expenses include:
- Salaries and wages for R&D staff.
- Contractor and consultant fees.
- Materials and consumables used in R&D.
- Depreciation of R&D-related assets.
- Overheads attributable to R&D.
- Travel directly related to R&D.
- Software used in R&D.
Non-claimable expenses:
- Capital purchases (only depreciation is claimable).
- Patent and trademark costs.
- Commercialisation and marketing.
- Routine software development for internal use.
How the scheme works
- Self-assess R&D activities and maintain records.
- Register R&D activities with the Department of Industry, Science and Resources within 10 months of year-end.
- Claim the tax offset in your company tax return.
- Comply with audits and reviews from the ATO and the Department.
Registration is mandatory before claiming. Claims are self-assessed but subject to review. Robust, contemporaneous documentation is essential.
Benefit per AUD$1 Spent
For SMEs (turnover < AUD$20 million)
- Refundable tax offset: 43.5%
- AUD$1 of R&D spend = AUD$0.435 benefit
For Large Companies (turnover ≥ AUD$20 million)
- Non-refundable tax offset:
- 8.5% for R&D up to 2% of total expenses (at 30% company tax rate)
- 16.5% for R&D above 2% intensity (at 30% company tax rate)
- AUD$1 of R&D spend = AUD$0.085 to AUD$0.165 after tax benefit
Annual cap: AUD$150 million of R&D expenditure per company.
Recent updates
- Intensity-based rates introduced for large companies.
- Expenditure cap increased to AUD$150 million.
- Software R&D clarified as eligible if experimental.
- Transparency: ATO publishes company R&D claim data.
- Exclusions: Gambling and tobacco-related R&D excluded from 1 July 2025.
Strategic considerations
- Plan R&D with the incentive in mind; structuring projects accordingly.
- Maintain detailed records and documentation.
- Use of Registered Service Providers.
- Carefully consider where IP is held, Associate rules and other complexities.
- Seek Advance Findings for uncertain or overseas activities.
- Consider seeking professional advice.
