R&D Tax

The 2026–27 Federal Budget introduces potential changes to Australia’s Research & Development Tax Incentive (RDTI) regime, with a continued focus on innovation, productivity and business investment.

From updates to R&D tax offsets and eligibility rules to broader innovation funding measures, businesses undertaking research and development activities may need to review their tax strategies, compliance obligations and future investment plans.

In the wake of the Ambitious Australia report recommendation, the Government has announced several sweeping reforms to the Research and Development Tax Incentive (RDTI) regime that will take delayed effect from 1 July 2028:

• Lifting the refundable R&D tax offset threshold from $20m to $50m aggregated turnover as recommended but tempering this potentially transformative development by limiting refundability to companies under 10 years old. Access to the higher R&D tax offset will subsequently still be available but it will not be refundable.  
• Increasing the R&D expenditure cap from $150m to $200m, a move that will benefit only a handful of the largest R&D claimants but could restore some of Australia’s international competitiveness with other global R&D jurisdictions.  
• Funding an increase in both refundable and non-refundable sets of R&D tax offset rates applying to core R&D activities by removing the eligibility of supporting R&D activity expenditures.
• Raising the minimum R&D spend from $20,000 to $50,000 for all claimants, with lower spends still eligible only if undertaken with registered service providers (RSPs) or Cooperative Research Centres (CRCs).

The ATO will receive $2.8m in funding over three years from 2027-28 to support the implementation of these measures.  

Overall, the proposed amendments will significantly reduce R&D registration and costing compliance efforts and will disincentivise RDTI claims that are disproportionately made up of supporting activities.  

The increase in R&D minimum spend is not unexpected and fortunately less than the recommended threshold of $150,000, which would have wiped out a significant number of claimants. Nonetheless, a cash refund may be the difference between continuing or abandoning R&D. Whether collaboration vouchers, as recommended by Ambitious Australia, eventuate or indeed are an appropriate replacement mechanism will remain to be seen.

Regardless of any statutory changes announced, SMEs making RDTI claims will continue to face scrutiny from the ATO, which could reduce the overall positive economic impact of the changes made.

From a wider corporate tax perspective, the reintroduction of the loss carry back rules once again treats tax losses more favourably than excess non-refundable R&D tax offsets. This regime will disincentivise RDTI claims that increase the use of tax losses that could otherwise be carried back and create complexities between the two regimes.  

Similarly, the permanent increase in the $20,000 instant asset write-off for small business entities will also intensify the consequences of its relatively-little-understood interaction with the RDTI regime.