The R&D Tax Incentive: How Australian Businesses Get Rewarded for Solving Problems
If your business has spent time developing a new machine, testing an unfamiliar production method or solving a technical problem that existing solutions could not address, some of that work may qualify as research and development (R&D) under Australia’s R&D Tax Incentive. Eligibility depends on the nature of the activities, the technical uncertainty involved and the evidence you keep.
43.5%
Refundable offset for an eligible company on the 25% tax rate
$20,000
Minimum eligible R&D spend in the income year (limited exceptions)
10 months
To register with DISR after your income year ends
The Research and Development Tax Incentive (R&DTI) is a federal program designed to encourage businesses to invest in innovation. Yet many eligible companies never claim it, simply because they don’t know it applies to them or how the process works.
This guide explains the program in plain English: what it is, who can claim, what counts as R&D and the steps involved.
In this guide
- What is the R&D Tax Incentive?
- Who can claim?
- What counts as R&D?
- How much is the benefit?
- How to claim, step by step
- Keep records as you go
- Registration is not approval
- Changes announced from 2028
- Common myths
- Frequently asked questions
- How Explore Discover Invent can help
What is the R&D Tax Incentive?
The R&D Tax Incentive is a tax offset for companies that spend money on eligible research and development activities. Its goals are to:
- Encourage businesses to carry out R&D they might not otherwise do
- Give smaller companies a stronger reason to innovate
- Provide predictable, less complicated support for businesses.
DISR
The Department of Industry, Science and Resources (DISR) registers your R&D activities
ATO
The Australian Taxation Office checks your claim and pays or applies the offset through your company tax return.
Who can claim?
To be eligible, your business generally needs to:
Be a company
Companies incorporated in Australia (and certain foreign companies that are Australian residents for tax or operate here through a permanent establishment) can claim. Individuals, most trusts, corporate limited partnerships and tax-exempt entities cannot.
Carry out eligible R&D activities
usually in Australia, conducted for your own business.
Spend at least $20,000
on eligible R&D in the income year. Exceptions apply where the company pays a registered Research Service Provider to conduct its R&D, or makes contributions under the Cooperative Research Centres (CRC) Program.
Register your activities with DISR
before claiming in your tax return.
What counts as R&D?
R&D isn’t limited to people in lab coats. The program recognises two types of activities.
Core R&D activities
Experimental activities where:
- The outcome can’t be known in advance using existing knowledge or experience
- You work through a systematic process: forming a hypothesis, testing it, observing the results and drawing conclusions
- The purpose is to generate new knowledge, including new or improved materials, products, processes or services
Supporting R&D activities
Activities directly related to your core R&D, such as building test samples or gathering data needed for the experiments.
In practical terms, if your team faced a technical problem with no known solution, tested different approaches and recorded what worked and what didn’t, that work may qualify. In manufacturing and automation, examples could include developing a gripper designed to handle a product that existing equipment cannot reliably process, or designing a machine that processes a new product at consistent quality and speed.
Buying and installing standard equipment, or applying a solution that is already well known, generally won't qualify. Some activities, such as market research and routine quality testing, are specifically excluded from core R&D.
How much is the benefit?
The incentive works as a tax offset calculated on your eligible R&D spending.
Your situation
Offset type
General treatment
Eligible companies with aggregated turnover under $20 million
Refundable
Applicable company tax rate plus 18.5 percentage points, subject to the program’s eligibility conditions (for example, not being controlled by tax-exempt entities)
Companies with aggregated turnover of $20 million or more
Non-refundable
Applicable company tax rate plus a premium set by R&D intensity (eligible R&D spend as a share of total expenses): 8.5 percentage points for R&D intensity up to 2%, and 16.5 percentage points for incremental R&D intensity above 2%
For most small businesses, the refundable offset is the key benefit. The rate depends on the company’s applicable tax rate: a company eligible for the 25% rate could receive an offset of 43.5% of eligible R&D spending. Because it’s refundable, a company in tax loss can receive the benefit as a cash refund.
$43,500
Example: a small company with $100,000 of R&D spending could receive an offset of $43,500, assuming all $100,000 is eligible and the company qualifies for the 25% tax rate.
How to claim, step by step
Identify your R&D projects
List the technical problems you're trying to solve and why the answer wasn't already known
Track your spending
Record staff time, materials, contractor costs and equipment used for each activity.
Register with DISR
Register your activities with the Department of Industry, Science and Resources every year you want to claim, within 10 months after the end of your income year. For a standard 30 June year end, that's by 30 April the following year.
Work out your offset
Confirm your turnover, check whether the refundable or non-refundable offset applies and calculate your eligible spending
Lodge your claim
Complete the R&D Tax Incentive schedule with your company tax return, including your DISR registration number
Keep records as you go
The ATO requires records made at the time the R&D happens, not reconstructed later. Good records include:
Project plans and the hypothesis you were testing
Test results, photos, notes and design changes
Timesheets showing who worked on what
Invoices and costs linked to each activity
Registration is not approval
Registration with the Department of Industry, Science and Resources (DISR) is required before you can claim, every year you claim. But the R&DTI is a self-assessment program: registration does not automatically establish that your activities or expenditure are eligible, and it does not guarantee approval or payment of the offset. A registration number only means your application was received and is complete.
Companies must assess their own eligibility and keep appropriate supporting evidence to back up their claim.
The two agencies assess different things: DISR looks at whether your activities are eligible R&D, and the ATO looks at whether your company is eligible and whether the expenditure and offset you claim are correct. Either can review a claim before or after the offset is paid. If you want certainty before you start, you can apply to DISR for a binding advance finding. See the official guide to assessing whether your R&D activities are eligible.
Changes announced from 1 July 2028 (not yet law)
Everything above describes the rules currently in force. In the 2026–27 Federal Budget, the Government announced changes to the R&D Tax Incentive that would apply from 1 July 2028. These changes are not yet law: Treasury consulted on draft legislation in September 2026, and the final rules may differ.
Everything above describes the rules currently in force. In the 2026–27 Federal Budget, the Government announced changes to the R&D Tax Incentive that would apply from 1 July 2028. These changes are not yet law: Treasury consulted on draft legislation in September 2026, and the final rules may differ.
The announced changes include:
- Supporting R&D activities would no longer be eligible, while the offset for core R&D activities would increase by 4.5 percentage points
- The R&D intensity threshold for the non-refundable offset would drop from 2% to 1.5%
- The refundable offset would be limited to companies in their first 10 years (15 years for eligible therapeutic goods R&D), with the turnover threshold rising from $20 million to $50 million
- The minimum R&D spend would rise from $20,000 to $50,000
- The maximum expenditure threshold would rise from $150 million to $200 million
If you are planning a multi-year project, ask your adviser how these proposed changes could affect future claims.
Frequently asked questions
Can a small business claim the R&D Tax Incentive?
Yes. Companies with aggregated turnover under $20 million may access the refundable offset, which can be paid as a cash refund even if the business isn’t making a profit.
What is the minimum spend?
Generally $20,000 of eligible R&D spending in the income year, with limited exceptions.
When is the registration deadline?
Within 10 months after the end of your income year. For a 30 June year end, that’s 30 April the following year.
Can sole traders claim?
No. Only eligible companies can claim. Individuals and most trusts are not eligible.
Do I need an adviser?
It’s not required, but many businesses use a registered tax agent or R&D adviser. If you do, check they’re registered on the Tax Practitioners Board website.
How Explore Discover Invent can help
Explore Discover Invent designs and builds custom automation systems and bespoke machinery for small and growing FMCG and manufacturing businesses.
Some automation projects involve technical challenges that cannot be resolved using existing, readily available solutions. Addressing these challenges may require developing prototypes, testing different approaches and refining designs based on documented results.
Where a project involves eligible R&D activities, clear technical documentation can help a company’s registered tax agent or R&D adviser assess the work against the R&D Tax Incentive requirements.
Explore Discover Invent can help by:
- Identifying the technical challenges involved in a proposed automation project
- Documenting design iterations, experiments, test results and technical decisions as the project runs
- Providing technical information to support discussions with your tax agent or R&D adviser
Eligibility depends on the specific activities undertaken and the program requirements. Explore Discover Invent does not provide tax advice and does not guarantee that a project will qualify for the incentive.
The incentive is generally claimed by the company the R&D is conducted for. Your adviser will confirm who can claim based on how the project is set up, including who controls the work and owns the results.
Have a production challenge to solve?
Book a free consultation to discuss your automation requirements and explore possible solutions.
Disclaimer
This article provides general information only and is not tax, legal or financial advice. Eligibility for the R&D Tax Incentive depends on your company’s circumstances and the rules that apply at the time. Speak with a registered tax agent or R&D adviser before making a claim. Information is current as of October 2026; check the ATO and business.gov.au for the latest rules.
Sources
- About the R&D tax incentive program (ATO)
- Eligibility for the R&D tax incentive (ATO)
- Steps for claiming R&D tax offset (ATO)
- Assess if your R&D activities are eligible (business.gov.au)
- Better targeting the R&D Tax Incentive: announced changes (ATO)
- Better targeting the R&D Tax Incentive: draft legislation consultation (Treasury)
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