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PRACTICAL DISR CHANGES
New RDTI registration form and formal reviews with one-strike review and audit policy introduced by DISR
RDTI AND PATENT PATHS DIVERGING
Patent decision means can no longer assume a technically inventive project attracting patent protection will inevitably attract RDTI support
R&D TOBACCO AND GAMBLING EXCLUSIONS
Draft legislation released for previously announced exclusions from core R&D activities
Summary
Whilst no new or high-impact R&D announcements were made during 2025, several practical and administrative changes were implemented by both DISR and the ATO and the strategic examination into Australia’s R&D system (SERD) has made some progress. In the Courts, the first RDTI decision was made by the Administrative Review Tribunal (ART), with another judicial decision reiterating the need for the ART to be independent.
A patent decision this year means that the alignment between patents and RDTI eligibility is likely to start to diverge, and the ATO has continued to focus on the substance of ‘Australian-owned’ R&D claims made by inbound multinationals. The second tranche of RDTI transparency information was published, with the claim profile substantially changed by the first-time inclusion of around 850 multinationals with substituted accounting periods (SAPs) for 2022-23. Finally, the tobacco and gambling draft legislation was recently released with submissions due early in the new year.
As the calendar year end has approached, the draft legislation to stop gambling and tobacco-related activities being eligible for the Research and Development Tax Incentive (RDTI) was released for consultation on 8 December 2025, with submissions due by 30 January 2026.
The draft legislation essentially seeks to amend the existing definition of core R&D activities to remove eligibility for activities related to tobacco and gambling.
There is a carve out for activities which is focused solely on those activities that would reduce the harm associated with these activities. This measure was originally announced in the Mid-Year Economic and Fiscal Outlook 2024 and the provisions, once enacted, are still intended to apply for income years starting on or after 1 July 2025.
Otherwise, one could be forgiven for thinking it has been an unremarkable year for the RDTI regime, the key federal support mechanism to encourage innovation in Australia. However, several other developments, some of which have largely escaped the headlines, remain worthy of reflection in respect of how the operation of the RDTI regime has been or may continue to be affected.
Strategic examination of R&D gained (some) traction
At a macro level, the early months of 2025 saw the strategic examination of Australia’s R&D system (SERD) - as originally announced in the 2024-25 Federal Budget - finally gain some traction. A discussion paper was released on 12 February 2025 posing a variety of questions on what an integrated, sustainable, dynamic and impactful Australian R&D system should look like.
This consultation period ended in mid-April and was followed by the progressive publication of various issues papers for further comment by September and October 2025, with the next step to be the final recommendations of the panel. At the time of writing, these have not yet been published.
However, based on what has been presented publicly to date, at least in the RDTI issues paper, we believe that significant further progress must be made before the panel will be in any credible position to make viable government recommendations. Although some ideas expressed in the RDTI issues paper individually had some merit, in our response, we submitted that the overall proposals did not form a holistic proposal but rather encompassed an eclectic mixture of visual concepts and academic ideas with no reference to how they could be achieved or work with the mechanics of the existing RDTI program in practice.
We found it difficult to respond to the overall RDTI issues paper in the absence of a coherent narrative or purposeful design to achieve the desired goals. Furthermore, there was no appropriate recognition of the role of the dual regulatory bodies, and the increase in expected scrutiny that any new or revised R&D regime should and would be subject. Overall, we remain of the view that enacting the myriad types of approaches suggested would encompass a costly and lengthy period of extensive and unnecessary legislative reform, with the same outcomes able to be achieved by moderating the parameters of the existing well-regarded RDTI regime.
Practical DISR regulatory changes
In August 2025, the Department of Industry, Science and Resources (DISR) introduced a new RDTI registration form to register self-assessed eligible R&D activities. The key changes focused on reordering and streamlining sections to better align with legislative requirements, expanding character limits, additional applicant questions and new fields including requesting information on independent contractor numbers.
Other significant changes to the DISR review processes were also announced in mid-2025, intended to streamline compliance processes, remove duplicate steps and simplify assessor review workflows. These changes were in response to feedback from industry which highlighted extended delays and uncertainty, with the new model aiming to provide faster RDTI eligibility certainty for taxpayers.
As a result, with effect from 1 July 2025, informal risk assessments and education visits, part of the former Integrity Framework, will no longer take place. Instead, only formal examinations will be commissioned by DISR where the assessor is concerned the taxpayer has a ‘high risk of ineligibility’. The DISR announcements also indicated a one-strike policy under which, if an assessor finds that a single eligibility requirement is not substantiated as met (e.g., the ‘purpose of generating new knowledge’ requirement) then the activity will be rejected, and the other eligibility aspects of the activities will not be examined at all.
Overall, these regulatory DISR changes are substantive and mean that the R&D Registration Application will form the sole basis of an assessor judging the RDTI claim. The full impact has not yet been felt but it is inevitable that while the move to streamlined processes may reduce waiting times and increase certainty one way or another, it will leave genuinely innovative taxpayers with significantly less room for meaningful dialogue and negotiations with the regulators.
In practice, the accelerated speed of formal DISR findings will also lead to an increased need for external reviews once the limited range of internal review processes have been exhausted. Where taxpayers have the appetite and the resources, more R&D activity cases will undoubtedly end up in front of the Administrative Review Tribunal (ART) and Courts.
Impact of technology on RDTI governance and substantiation
From both an ATO and DISR perspective, reviews and audits in 2025 have continued to display several wide-ranging technical arguments to challenge RDTI claims, with the ATO able to refer matters on the eligibility of R&D activities to DISR for a formal examination, or able to independently assess the eligibility of R&D 
activities.
The focus of defending such reviews and audits will always centre on traditional rigorous written documentation, covering hypotheses, testing protocols, and uncertainty analysis, with taxpayers unable to rely on innovative intent alone. However, as technology is advancing, taxpayers may also be able to support successful audit outcomes with other crucial pieces of evidence in the form of underlying photos and videos accompanying documented reports of the R&D activities being undertaken.
Notably, the ATO can and will check the properties and metadata on these types of technological evidence and will test whether they are contemporaneous or whether they have been produced after the end of the relevant income year.
These technological developments may add a new dimension to the contemporaneous substantiation required to ensure that RDTI claims are robust and can stand up to regulatory scrutiny. Claimants should consider the best ways to record the carrying-on of activities on a contemporaneous basis, with a focus on, inter alia, documenting the specific hypotheses, the new knowledge sought, the current state of the art, and how and when the experiments have been conducted. On the expenditure side, a traditional written recording of staff time is vital in all industries, with the ATO expressing a very strong preference for detailed timesheets. The direct nexus of all other expenditures to the relevant R&D activities will also need to be proven.
As always, it bears repeating that both tax agents and claimants must appreciate that the RDTI documentation hurdle is significantly higher than for the general income tax requirements to substantiate the notional deductions incurred. The key lesson for RDTI claimants is a robust R&D governance framework focusing on timely evidence preparation as part of a wider income tax governance process.
RDTI cases discuss social sciences and independent tribunal decisions
Early 2025 saw the first RDTI case heard by the, then new, ART. The Body by Michael Pty Ltd and IISA [2025] ARTA 44 decision was also the first concerned with the application of the ‘social sciences’ exclusion from core R&D activities contained in subpara 355-25(2)(d) of ITAA 1997. At [145] onwards the ART held that mental health and physical health do not fall within the concept of ‘social sciences’ which was an argument that IISA had sought to put forward.
Rather at [149] the ART commented that “….’health’….is included in ‘social science’ to the extent of ‘public health,’ for example, considering issues such as health ethics, social factors influencing health (for instance, the role of prejudice and discrimination in health policy and the impact of socioeconomic position on health inequality) and the history of health care. This is as opposed to health per se being a ‘social science.’”
Nonetheless, despite the ART rejecting the RDTI claim due to a lack of hypothesis, experimental process, and documentation, the decision reflected a thorough analysis of the relevant RDTI provisions. This represented a marked improvement from some of the former Administrative Appeals Tribunal (AAT) decisions, the body replaced in October 2024 in recognition that the sitting members were not necessarily appointed on a merits and suitability basis.
Evidence to this effect also surfaced more recently in Ultimate Vision Inventions Pty Ltd and IISA [2025] ARTA 1813. This long running case related to the development of a digital health and fitness management system. The case was originally heard by the former AAT in 2019, but in 2023 the Federal Court allowed the taxpayer’s appeal and held that the AAT had substantially copied IISA’s submissions and failed to conduct an independent review. 
The case was remitted back to the ART for rehearing where the ART affirmed IISA’s decision that the activities were not eligible R&D activities and emphasised that the activities were more akin to product development or commercial testing, rather than genuine scientific experimentation. Whilst this outcome was unsurprising, the saga is a welcome reminder that the ART must conduct its own review of the eligibility of R&D activities independently of IISA findings.
It will be interesting to see a potential dichotomy play out in future RDTI cases that come before the ART, in that the ART will be required to conduct a full and independent review of the eligibility of the R&D activities whilst DISR may have rejected a claim based on the perceived failure of a single statutory eligibility requirement.
Other than these key decisions, 2025 added few clarifications to the prior litany of court cases which have often seen well-meaning and genuinely innovative companies fail at the documentation and substantiation hurdles. Without sufficiently robust contemporaneous documentation to substantiate the activities, the expenditures incurred, and the direct nexus between the two, a taxpayer will fail.
Impact of Aristocrat patent case on activity eligibility
Traditionally, it has often been assumed that activities resulting in a patent are likely to be eligible R&D activities, with the RDTI provisions operating within a framework of eligibility focusing on process rather than outcomes. However, the recent decision in Aristocrat Technologies Australia Pty Ltd v Commissioner of Patents [2025] FCAFC 131 has clarified that, when assessing patentable subject matter, the outcomes of the claimed invention must be considered as a whole, which can encompass both inventive and non-inventive elements.
Subject to special leave to appeal to the High Court being granted, the approach of the Full Court marked a significant departure from prior Australian examination practices to assess only the novel features of an invention for patent eligibility. This means that technology developments and computer-implemented innovations including algorithms and system architectures may now have stronger prospects for Australian patent protection in Australia.
However, in turn, this means that companies can no longer assume that a technically inventive project attracting patent protection will inevitably attract RDTI support since the alignment between patents and RDTI eligibility is likely to start to diverge.
ATO focus on cross-border RDTI issues
There are long-standing deliberate policy-driven exceptions to the ‘by or for’ rule that allows Australian RDTI claimants to undertake R&D activities on behalf of related foreign parties, provided that the activities are solely carried out in Australia, often termed foreign-owned R&D (FORD).
However, the interplay with the Australian transfer pricing provisions mean that these FORD provisions are largely viewed as less generous for inbounds than claiming a refundable R&D tax offset for Australian-owned R&D activities (AORD) being carried on by a newly established Australian entity. In the latter case, there is no cross-border mark-up income to absorb some of the refundable R&D tax offset.
During 2025, the ATO has continued to closely examine many biotech and life science groups carrying on clinical trials and activities in Australia where they form a small part of global multinational IP trials and developments. It is imperative for any inbound RDTI claimant to consider the funding, management and commercial nature of any purported Australian company to ensure that there is sufficient economic substance onshore to support an AORD claim. RSM currently recommend obtaining a private binding ruling in potentially high-risk cases to ensure certainty.
More generally, all cross-border R&D arrangements relating to any Australian development, enhancement, maintenance, protection, and exploitation (DEMPE) activities in connection with offshore intangible assets must be documented carefully in line with the onerous evidentiary expectations of the ATO in PCG 2014/1.
Feedstock admin solution follows ancillary overseas costs out the door
Although not formally announced by either regulatory body, it appears that the feedstock administrative solution has been withdrawn by the joint regulatory bodies. This means that feedstock input expenditures must be claimed, and the consequent clawback amount calculated, despite being a net-zero outcome (subject to the presence of tax losses to shelter the additional assessable income arising from the clawback calculation).
The joint ATO/DISR compliance measure was originally introduced in 2015 because of a statutory inability to deduct R&D expenditures elsewhere, for example under s 8-1, due to a strict anti-overlap rule that directs the gross tax benefit for registered R&D activities to be claimed as an R&D tax offset. The necessary feedstock calculations for large claims will add to increasing RDTI compliance cost and efforts at a time when Australia’s innovation support rankings are falling.
This disappointing withdrawal of a well-received and effective compliance measure also reflects a similar withdrawal some time ago of the ability to claim ancillary overseas costs, such as travel for research or an overseas conference, without being covered by a costly advance overseas finding.
Recent company tax administrative changes now in effect
On 4 September 2025, the latest Income Tax Assessment (1936 Act) Regulations 2025 were made – these include regulations originally inserted in late 2022 to override the standard amendment provisions in section 170 of ITAA 1936. That is, certain entities are excluded from a two-year shorter period of review (SPOR); this includes those with R&D tax offset claims such that affected company income tax returns will have a standard four-year amendment period. 
The key outcome is that for assessments made on or after 9 December 2022 for income years beginning on or after 1 July 2021, the period of review will be four years regardless of the size of the company if there is an RDTI claim in the company income tax return.
Should an RDTI claim be denied during that four-year period of review, and a tax shortfall arises, or a refund must be repaid, the recent changes to deny the deductibility of the general and shortfall interest charges from 1 July 2025 will also compound the financial pain of that outcome.
In addition, it is often not appreciated that the withdrawal of an RDTI claim at a later stage will not nullify the penalties that may be imposed, with a 50% failure to take reasonable care penalty in practice often being the starting point of the ATO.
Second tranche of RDTI transparency reports published
September 2025 saw the publication of the second tranche of the RDTI data transparency information which for the first time included the relevant information for approximately 850 companies and multinationals with substituted accounting periods (SAPs) for 2022-23.
Key changes since the maiden 2021-22 report:
A 10.5% increase in the number of claimants
A 44.6% increase in the total amount of R&D expenditure claimed
A 28% increase in the average claim
A 77.5% increase in claims by public and multinational businesses
A 4.8% reduction of Australian-owned companies in the total population
The mining sector making its appearance in the top 10 claimants and the top 5 by expenditure
This annual RDTI data is intended to inform public debate and improve awareness about the R&D aspects of the Australian company income tax self-assessment system. However, it should be noted that if the initial suggestions in the RDTI issues paper released by SERD were to eventuate in the form of new streams of RDTI eligibility, the resulting complexities would either likely incapacitate the data collection or defeat the purpose of the central RDTI data disclosures.
In a related development, October 2025 also saw the finalisation of the redesigned Voluntary Tax Transparency Code (VTTC) to take effect from 1 July 2026. This is a set of principles and minimum standards first introduced in 2016 to guide corporate tax transparency for medium and large businesses. The VTTC has been simplified to minimise duplication with other transparency regimes and align with further tax policy developments.
Nonetheless, given ongoing RDTI transparency disclosures, large taxpayers could consider including RDTI information in any annual reports where there are material net tax benefits or significant deferred tax liabilities arising from RDTI claims.
Ongoing RDTI compliance corporate tax risk areas
From an enduring corporate tax governance perspective, there are two key RDTI risk issues. The first is the need to track deferred franking debits that have previously arisen on the receipt of any refunds received from refundable R&D tax offsets. These must be used to reduce future franking credits arising from the payment of company income tax until exhausted or the R&D entity’s franking account ceases to operate.
The second key risk area is around the disposal of tangible depreciating assets that have been the subject of, or used to facilitate R&D activities, especially given recent pandemic-era concessional capital allowance amounts. The strong likelihood of over-depreciated assets and high temporary full expensing (TFE) amounts having been previously included as a notional R&D deduction means that the possibility of an R&D clawback should be considered for all material asset disposals.
It is also worth remembering that any mirror catch-up deductions for R&D assets have been real rather than notional deductions since the tranche of RDTI changes were introduced with effect from 1 July 2021, even if the asset was wholly used for R&D purposes. This means that in practice, such a catch-up deduction can only create losses rather than a cash refund and was likely a deliberate policy response to the Moreton Resources decisions.
Where to in 2026?
In conclusion, whilst 2025 was unexceptional in that there were limited high impact RDTI developments, there are many issues that should remain front of mind. Significant developments may also be forthcoming due to the SERD recommendations.
In the event that no key definitional changes to the RDTI regime come to fruition, more substantive judicial decisions would be welcomed in the future given the continuing lack of judicial authority in relation to further key aspects of the RDTI regime. Finally, the experiences from the UK’s very recently announced pre-R&D claim reviews may also be of interest to Australia as that proposal progresses.
