Australia R&D Tax Incentive Draft Reshapes Support

The Australia R&D Tax Incentive is headed for a structural rewrite rather than a simple rate increase. Treasury’s exposure draft would lift support for core experimental work, widen the turnover threshold for refundable claims and raise the expenditure ceiling, while excluding supporting R&D activities and limiting refundability by company age.

Everyone else is reporting higher thresholds; we are explaining the cash-flow trade, the new boundary between core and supporting work, and why biotechnology, medical technology and young software firms will experience the same draft differently.

What the Australia R&D Tax Incentive draft proposes

From 1 July 2028, the government proposes higher offsets for eligible core R&D activities, described in Budget materials as a 4.5 percentage-point increase in core offset rates. The non-refundable offset’s R&D-intensity threshold would fall from 2% to 1.5%, allowing more companies with substantial research spending to access a higher rate.

The refundable-offset turnover threshold would increase from A$20 million to A$50 million. That change can let a successful young company retain refundable support while scaling revenue. However, refundability would generally be limited to firms no more than 10 years old, making company age a much more important planning and evidence field.

The age test creates a new cash-flow boundary

A refundable tax offset can return value when a company has insufficient tax liability to use a non-refundable offset. That feature matters to loss-making startups because R&D spending often precedes commercial revenue. Under the draft, an older company under the turnover threshold may retain access to an offset but lose refundability, changing timing rather than necessarily eliminating all support.

Cash timing can affect hiring, laboratory runs and runway. Finance teams should model both the accounting benefit and the period in which cash becomes available. A startup approaching its tenth anniversary should not assume that being below A$50 million turnover preserves the same cash outcome.

Therapeutic goods receive a longer runway

Treasury proposes allowing eligible biotechnology and medical technology firms undertaking R&D related to therapeutic goods to receive the refundable offset for up to 15 years. The government says the extension recognises longer development and regulatory-approval cycles. Consultation also asks whether clinical manufacturing R&D expenditure should qualify.

The exception is important but needs precise boundaries. A business may combine diagnostics, software, devices, contract manufacturing and therapeutic development. It should not infer eligibility from a biotech label alone. The final law and guidance must explain which activities, entities and evidence connect a claim to therapeutic goods.

Core work gains while supporting work exits

The biggest operational change may be the removal of supporting R&D expenditure. The current program can recognise certain activities that directly support core experiments. The proposal concentrates the incentive on core work whose outcome cannot be known in advance and that follows a systematic progression of experimental activity.

Research rarely happens in a vacuum. Literature reviews, equipment preparation, data cleaning, prototype fabrication and regulatory documentation may be necessary around an experiment even when they are not the experiment itself. Claimants will need better activity-level time recording and cost allocation to avoid treating an entire project as one undifferentiated R&D block.

The minimum claim threshold rises

The minimum expenditure threshold would increase from A$20,000 to A$50,000. Treasury says activities below that amount would need to be conducted through a registered Research Service Provider or Cooperative Research Centre to qualify. The higher floor may reduce low-value claims and administration, but it can affect very small or newly formed teams.

For a young startup, A$30,000 of genuine experimental work can still be material. The policy question is whether routing smaller projects through registered providers preserves access without adding disproportionate fees or coordination. Consultation evidence should quantify those transaction costs and explain how regional or specialised firms find providers.

The maximum expenditure threshold also rises

At the other end, the maximum R&D expenditure threshold would rise from A$150 million to A$200 million. Expenditure above the existing ceiling generally receives an offset at the company tax rate rather than an additional incentive. The proposed increase can matter to large, research-intensive businesses with Australian programs at global scale.

That upper-cap expansion and the startup age limit point in opposite directions by design: larger core programs can receive more support, while refundable cash is concentrated on younger firms. Whether that improves additional R&D depends on behaviour. Policymakers need to test whether companies expand experiments in Australia or merely receive more support for work already planned.

The government’s impact claims need measurement

Treasury says each dollar of tax offset is expected to generate around 20% more business R&D under the reform and that young firms will perform about A$400 million more R&D each year. Those are policy estimates, not observed results. The final framework should publish a baseline, evaluation interval and definitions for additional research.

Good measurement separates gross claimant spending from activity caused by the incentive. It should also examine survival, employment, patents, regulatory milestones and commercialisation without assuming every successful project produces a patent. Transparent evaluation will make later changes less dependent on anecdotes.

Why the Ambitious Australia review matters

The draft is the first stage of the government’s response to the Ambitious Australia review. That report argued that a one-size-fits-all incentive did not match the needs of startups, SMEs and corporates, and recommended a premium startup stream with simpler access. It also warned that complexity can divert money toward advisers and R&D finance rather than experiments.

The exposure draft adopts some targeting ideas but does not eliminate judgment. Separating core from supporting activities remains fact-intensive. Company-age, turnover and therapeutic-goods tests add boundaries that firms and administrators must interpret consistently.

What software startups should test

Software teams should map hypotheses, unknown outcomes, experiments, versions and evidence of results before allocating costs. Ordinary product engineering, bug fixes, integration and customer-specific implementation are not transformed into core R&D merely because they are technically difficult. The proposal increases the value of clear contemporaneous records.

Removing supporting expenditure may require separate treatment for cloud infrastructure, data preparation and tooling. Teams should identify which costs directly form part of eligible experiments and which support commercial delivery. Consultation examples should cover modern continuous-development workflows instead of assuming research occurs as a single laboratory project.

What biotech and medtech companies should test

Life-science firms should model the 10-year general rule against the proposed 15-year therapeutic-goods extension. Corporate restructures, spinouts, acquired programs and platform companies can make age difficult to interpret. The law should prevent artificial resets while avoiding penalties for legitimate restructures or technology transfers.

Clinical manufacturing deserves special attention because trial material may be produced before commercial approval and under strict quality systems. Submissions should distinguish manufacturing undertaken to answer an experimental question from routine production, validation and inventory. Evidence should show where exclusion would interrupt development rather than simply shift ordinary costs into the incentive.

Finance systems will need more than a rate table

Claimants should add founding date, aggregated turnover, activity classification and refundable status to their forecasts. Project codes must be granular enough to separate core experiments from excluded support. Contracts with universities, Research Service Providers and Cooperative Research Centres should identify the activity and evidence each party supplies.

Boards should receive scenario views for current rules, proposed rules and a delayed commencement. Tax advisers can help interpret law, but technical leaders must own the experimental record. A claim assembled after year-end from invoices and recollection is weaker than a record created as hypotheses and tests occur.

What changes now and what does not

The current Australia R&D Tax Incentive continues until the proposed commencement, according to business.gov.au. Companies should not prematurely apply the 2028 thresholds to current claims. The September document is a consultation draft, so details can change before introduction and parliamentary passage.

Treasury lists 28 September 2026 as the submission deadline. Companies should separate questions about policy merit from drafting defects. Clause-specific examples can show whether the law captures the announced design, while costed case studies can test whether the design changes research behaviour.

The answer-first assessment

The draft creates a more concentrated incentive: more generous for defined core activity, more accessible to young firms up to A$50 million turnover, but less accommodating of support work, small standalone claims and older loss-making companies. That is a redistribution of program value, not a universal increase.

Its success will depend on clear definitions, practical evidence rules and predictable administration across the ATO and Industry Innovation and Science Australia. India’s innovation-policy debate can draw a useful lesson: refundable support can protect startup cash flow, but age and activity gates determine who receives it. For adjacent Australian context, read Lapaas Voice on Australia’s AI infrastructure investment and Australia’s algorithm-choice proposal.

Facts at a glance

Setting	Current reference	Exposure draft
Refundable turnover threshold	A$20m	A$50m
Refundability age	No proposed age rule	Generally up to 10 years
Therapeutic-goods extension	Not applicable	Up to 15 years
Minimum expenditure	A$20,000	A$50,000
Maximum expenditure	A$150m	A$200m
Proposed start	1 July 2028

Frequently asked questions

Are the R&D Tax Incentive changes in force?

No. The current program continues while the exposure draft is consulted on and legislation is considered.

Would every company under A$50 million turnover get a refundable offset?

No. Turnover is one condition. The draft generally adds a company-age limit and all activity and entity rules still apply.

Why is there a 15-year biotech and medtech pathway?

Treasury says therapeutic-goods development can involve longer research and regulatory-approval cycles.

When does consultation close?

Treasury lists 28 September 2026 as the deadline.

This report is informational and is not tax, legal or investment advice.