With the 30 June 2026 year-end approaching, entities undertaking Research and Development (R&D) activities should assess whether they intend to claim the Research and Development Tax Incentive (R&DTI) for any eligible overseas R&D expenditure.
If there is an intention to claim, an Advance and Overseas Finding application must be lodged.
This application is required to be submitted via the R&DTI customer portal by 30 June 2026. Failure to lodge the application by this deadline will preclude the entity from claiming the relevant overseas R&D expenditure under the R&DTI.
Federal Budget announcement on R&DTI
The recent Federal Budget announced proposed changes to Australia’s R&DTI, with a proposed start date of 1 July 2028.
These reforms are broadly aligned with the recommendations in the Ambitious Australia: Strategic Examination of Research and Development (SERD) report, which was finalised on 17 March 2026. The Government has indicated that the Budget measures represent its initial response to that review. Importantly, no legislation has been released at this stage, and the current R&DTI rules continue to apply.
Over the coming weeks, we will be undertaking a more detailed analysis of the proposed changes, including their potential impact on different business models and R&D structures. There will be a dedicated R&DTI update at the client R&D Tax Incentive briefing on 2 July, following which we will share further insights.
The key proposed changes to R&DTI from the Federal Budget are as follows.
The Good
Increase in the turnover threshold for refundable tax offsets
The turnover threshold for refundable tax offsets will increase from $20 million to $50 million. This is a welcome change and would allow more growing businesses to receive R&D tax offsets as cash, rather than as non-refundable tax offsets. This proposed change aligns with the recommendation proposed by the SERD report.
Lower intensity premium threshold
The SERD report recommended removing the R&D intensity measures and replacing it with a standard offset rate.
While this simplification has not been adopted, the Federal Budget proposes to reduce the R&D intensity threshold from 2 per cent to 1.5 per cent. This change is expected to benefit larger businesses claiming the R&DTI by potentially increasing the amount of non‑refundable tax offsets available.
Increase in the maximum expenditure threshold
The SERD report recommended to remove the $150 million R&D expenditure cap. This was intended to increase the R&DTI incentives for corporates and multi-national corporations to encourage them to conduct ambitious R&D projects in Australia.
Although the maximum R&D expenditure cap has not been completely removed, the cap has been increased from $150 million to $200 million.
This change is expected to benefit businesses with significant R&D investment, potentially enabling a greater portion of their expenditure to qualify for the non‑refundable tax offset.
Increase in the offsets for expenditure on core R&D activities
The offset rates applicable to core R&D activities will increase by 4.5 per cent. For example, for entities eligible for the refundable tax offset, this would result in the offset rate increasing from 18.5 per cent to 23 per cent.
Compared to this, the SERD report had only proposed an increase in the higher refundable offset rate to 23.5 per cent for businesses that are eligible for the premium startup stream (refer to below section ‘Premium startup stream).
Increase in the minimum expenditure threshold
The SERD report recommended to increase the minimum annual R&D expenditure threshold from $20,000 to $150,000.
The Federal Budget instead proposed a more moderate increase to $50,000, allowing a broader range of businesses with lower levels of R&D expenditure to remain eligible for the R&DTI. Please be aware that this threshold doesn’t apply to businesses that are working with registered Research Service Providers (RSP) or under the Cooperative Research Centre (CRC) program.
This would still exclude many small businesses and early-stage startups from the program. Losing access to the R&DTI could be challenging for businesses still finding their feet. If this change is implemented, smaller businesses may need to rethink the scale of their R&D, consider working with registered RSPs or under the CRC program, or explore alternative funding sources.
The Bad
New ‘less than 10-years’ restriction for the refundable tax offset
Refundable tax offsets will be limited to entities that have been in operation for less than 10 years.
This change may have significant implications for more established businesses, particularly those that rely on the R&DTI to support cash flow. These entities may no longer be eligible to access refundable tax offsets or the highest available offset rates under the proposed changes, thereby limiting the advantages of the increased turnover threshold.
This proposed change is not mentioned in the recommendation proposed by the SERD report. Further consultation in this regard is necessary.
Removal of the eligibility of supporting R&D activities
Supporting R&D activities will no longer be eligible under the R&DTI, with only expenditure incurred on core R&D activities qualifying for notional deductions.
This represents a significant departure from the SERD report’s recommendation to introduce a deemed rate for supporting activities aimed at reducing documentation requirements and lowering compliance risk.
This change is expected to narrow the scope of eligible R&D activities and may introduce uncertainty in determining what constitutes qualifying R&D expenditure. While the full implications will depend on the final legislative detail, it is likely that most businesses will be adversely impacted, particularly those whose R&D activities involve a significant proportion of supporting activities.
Further consultation in this regard is necessary.
The Ugly
More resources for ATO audits
According to the budget papers “The ATO will undertake additional targeted compliance activities over the two years from 2026-27 to further address fraud in the system, including in relation to the Research and Development Tax Incentive.”
Interestingly, this starts post budget, hence make sure you can support your claim.
Other key recommendations from the SERD report
The SERD report also included a number of additional recommendations that were not reflected in the Federal Budget announcement.
These measures may still be considered by the Government as part of future phases of the R&DTI reform, alongside the recommendations outlined above, as the legislation for the changes has still yet to be finalised and approved. Many changes can happen before legislation is implemented on 1 July 2028.
Restructure of the R&DTI
The SERD report reflects an overall intention to make the R&DTI easier to use, more predictable and more competitive internationally. This is evident in several of its recommendations, including the proposed removal of R&D intensity calculations and the introduction of a deemed rate for supporting activities.
Removal of clawback rules
Under the SERD recommendations to simplify the administration of the R&DTI, there was a proposal to remove clawback rules in the R&DTI.
This would enable some businesses to claim a greater proportion of their eligible R&D expenditure, while also reducing the compliance burden by minimising the time, cost and complexity associated with calculating and applying clawback adjustments.
Franking credits
SERD recommends removing the R&DTI offset from franking credit calculations, with the aim of improving the value and enhancing the overall attractiveness of R&D investments for shareholders.
Premium startup stream
SERD recommends incentivising startups by introducing a premium R&DTI startup stream. Businesses that meet the eligibility criteria will have access to improved benefits. Some recommendations include increasing the higher refundable offset rate to 23.5 per cent and the introduction of quarterly advanced payments (rather than annually upon lodgement of the tax return) for eligible businesses, along with the extension of eligible expenditure.
What should you do now?
While the proposed commencement date remains some time away (1 July 2028), it provides businesses with an opportunity to assess how the reforms may impact their R&D strategy and eligibility, consider whether any structural or commercial changes are required, and stay informed as further details emerge through draft legislation and guidance.