AUTHORS

Jessica Olivier
National Executive & Partner
Tax Advisory
Brisbane, Sydney
Larissa Lai
Partner
Tax Advisory
Brisbane
Róisín Arkwright
National Tax Technical Director
Tax Advisory
Sydney

Examining the research and development tax incentive (RDTI) reforms sitting before Parliament

On 27 October 2026, the Treasury Laws Amendment (Tax Reform No. 4) Bill 2026 (the Bill) was introduced into Parliament with Schedule 2, containing the proposed RDTI reforms.

The speedy introduction of the Bill follows closely on the heels of the Exposure Draft (ED) legislation released on 10 September 2026. RSM lodged a submission as part of the consultation, which ended on 28 September 2026. 

At the time of writing, it remains to be seen whether the omnibus Bill, also containing venture capital and innovative CGT reforms, will be referred to the Senate Economics Committee.

Despite widespread concerns from industry groups and innovation experts, aside from tightening up administrative and transitional issues, there are few key differences between the ED and the Bill.

Key differences from exposure draft:

Introduced powers for relevant Ministers to determine that certain activities may be eligible research and development (R&D) activities, where they are integral to conducting another eligible R&D activity.

Tweaked provisions for the new 10-year or 15-year cash refund test to ensure alignment of the refundability outcomes for any relationships with exempt entities. For the purposes of the new testing for refundability, an exempt entity will only be counted where there are interests of 50% or more, rather than 40%

Removed the therapeutic use limb to narrow the extension of the 10-year refundability cap to 15 years for certain R&D entities conducting activities for the dominant purpose of generating new knowledge about defined therapeutic goods.

Notably, although both the ED legislation and the Bill now before Parliament have maintained the direction of the Strategic Examination of Research and Development (SERD) published in March 2026 as ‘Ambitious Australia’, the Government has chosen to go much further than the recommendations made in the SERD report in reducing access to the innovation tax incentives currently available.

 A summary of the (almost final) RDTI amendments 

 

Subject to the timely enactment of the Bill as introduced, the modifications of the operative RDTI technical measures now likely to take effect from 1 July 2028 are as follows: 

  • Increases the minimum and maximum R&D expenditure thresholds from $20,000 to $50,000 and from $150m to $200m respectively.
  • Completely removes the eligibility of supporting R&D activities. Instead, newly devised powers would enable the Minister to determine ‘integral’ activities that would be eligible R&D activities.
  • Increases the offset rates for the narrower sets of R&D activities by 4.5 percentage points for each current offset rate (to 13%, 21% and 23.5% respectively.)
  • Reduces the non-refundable intensity premium threshold from 2% to 1.5% of total expenses.
  • Increases the refundable turnover threshold for the refundable R&D offset from $20m to $50m – albeit introducing time-limited cash refundability tests.
  • Restricts access to cash refunds of the refundable R&D offset for R&D entities with a general 10-year time-related test. The test conditions require examination of when an enterprise started to be carried on or was first registered for the RDTI and contentiously continues to extend to certain connected and affiliated entities. 
  • As announced after the 2026-27 Federal Budget in response to sustained industry feedback, an extension of the 10-year time cap to 15 years for R&D entities conducting R&D activities related to generating new knowledge about therapeutic goods.

 

Notably, failing to satisfy the conditions of the 10 or 15-year time cap does not preclude eligibility for the higher rate of the refundable R&D tax offset but rather serves to deny access to cash refunds for any excess refundable offsets. This will effectively create two parallel tiers of non-refundable R&D tax offsets. 

The unchanged structural reforms (being the removal of supporting activities and the 10 or 15-year time limit refundability cap) will result in the most practical concerns, and will undoubtedly remain contentious. Together, they represent the most significant narrowing of the RDTI program since its inception in 2011.

 

    Analysis of Bill provisions

a) Elimination of supporting activities

The Bill continues to propose to eliminate all supporting R&D activities from eligibility and retain the existing ‘core’ R&D activities definition under the label of ‘R&D activities’ in revised ss.355-25(1). 

The Bill also makes clear in proposed s.355-25(2A) that an activity does not qualify merely because it is directly related to, or supports, another R&D activity. Activities such as literature reviews and trial project management, which are estimated to make up almost one-third of claims, will no longer qualify at all.

However, in likely recognition of the concerns raised and practical difficulties in bifurcating activities, the Bill has introduced powers in proposed ss.355-25(1A) and (7) for the relevant Minister, in consultation with the industry minister, to determine that certain activities may be eligible R&D activities where they are integral to conducting another eligible R&D activity. 

Para 2.39 of the Explanatory Memorandum to the Bill (EM) clarifies that the term ‘integral’ means necessary or essential. This is stated to be a higher hurdle than the current concept of merely providing support, but there is no discussion of how this could relate to the existing concept of dominant purpose.
In summary, the trade-off for higher offset rates is a substantially narrower base, which will result overall in reduced tax offsets for the significant majority of claims. 

Subject to a sector carve-out discussed below, the measures in the Bill will generally limit access to cash refunds arising from a refundable RDTI offset by reference to a general 10-year period, achieved by confining the application of s.67-30 refundability to Item 1 of the table in ss.355-100(1) only. 

If the conditions of the 10-year test are breached, the R&D entity will instead be entitled to a non-refundable offset at the same offset rate, being calculated at the corporate tax rate plus 23 percentage points.
Notably para 2.16 of the EM to the Bill states that further integrity measures will be considered if avoidance behaviour in respect of this test becomes apparent. 

i.    Start time 
The relevant 10-year limit will be determined in proposed new item 1A of the table in ss.355-100(1) based on whether any day of the income year in question occurs after the anniversary of the R&D entity’s ‘start day’, regardless of how many RDTI claims have been made since the start day. 
The start day definition has been refined by changes to proposed ss.355-100(6) of the Bill such that the start date will be the earlier of:

  • The day on which the R&D entity, or a connected* or affiliated entity, first started carrying on an enterprise.
  • The day on which the R&D entity, or a connected* or affiliated entity, first registered R&D activities.


* Notably the legislative refinements to align the outcomes of exempt entity refundability rules mean that an exempt entity, or combination thereof, can only be considered in the above definition where there are interests of 50% or more, rather than the general requirement of 40% for connected entities. This is an issue that will be relevant for groups including academic and research institutions.

In practice, the earlier of the two start date test times will be the date of carrying on an enterprise, and where the tenth anniversary of that determined start day falls at any time during an income year, the R&D entity will cease to qualify for a cash refund from that income year inclusive. 

ii.    Carrying on an enterprise
The proposed provisions import the concept of ‘carrying on an enterprise’ with the term “enterprise” relevant within the GST legislation. This broadly encompasses any activity, or series of activities, which are undertaken in the form of a business or an adventure or concern in the nature of trade, within other activities related to property, trusts, and charities.

The associated term ‘carrying on’ such an enterprise is defined within the GST law as doing anything in the course of the commencement or termination of the enterprise.

In practice, determining an R&D entity’s start day will therefore require both a detailed assessment of which entities must be included and when the relevant business activities began for each entity. This includes having regard to historical GST positions. 

Practically, given the overlap in concepts, the related entity analysis for the 10-year test can be built upon the necessary analysis of whether the $50m threshold to access the refundable R&D tax offset was satisfied for the income year in the first place

Sustained feedback from the biotech industry resulted in a post-Budget announcement of a sole sector-specific carve-out, which first appeared in the ED. As a result, R&D activities in respect of eligible therapeutic-goods may access cash refunds under the refundable R&D tax offset for up to 15 years, rather than 10 years, in recognition of extended regulatory and development timeframes. 

The R&D entities must be related to conducting activities for the dominant purpose of generating new knowledge about therapeutic goods (with the Bill removing the ED limb relating to therapeutic use). Notably, proposed ss.355-100(5) continues to require the relevant R&D entity to have registered for one or more R&D activities for an income year within a 10-year time frame from the R&D entity’s start date.

As with the RDTI clinical trial determination, the meaning of “therapeutic goods” is based on the definitions within the Therapeutic Goods Act 1989, which broadly includes any good:

  • likely to be taken for therapeutic use
  • used as an ingredient or component in the manufacture of therapeutic goods
  • used as a container for such goods.

Satisfying dominant purpose
Claimants will have to demonstrate a ‘dominant purpose’ which, although not defined in legislation, is an existing feature of the RDTI and other income tax law. It is broadly understood to mean the prevailing or most influential purpose for conducting an activity, whilst acknowledging that there may be more than one purpose present.

Although modified from the ED provisions, the Board may make an advance finding under proposed s.28EA of the Industry Research and Development Act 1986 (IRD Act 1986) that the dominant purpose condition has been met. These finding provisions will be encompassed within the existing framework of pathways to obtain an advance finding. 

    Impact on existing findings

 

 

There are several transitional provisions, with items 76 and 77 of the Bill dealing with the key issues of how existing findings that are in force at the relevant transition time will be impacted by the amendments. 

Generally, there will be a grandfathering carry-across mechanism such that refusals will carry across as refusals under the new law and subject to the below, a certificate given under the old law will be treated as setting out the finding as it continues under item 77, discussed below, so the Commissioner will remain bound to the extent the law provides.


Item 77 of the Bill is modified from the initial ED legislation to list detailed IRD Act 1986 continuation rules for each type of finding that will be in force at the entity’s relevant transition date as follows:

  • Section 28A(1)(a) positive findings for core activities will continue as new 28A(1)(a) findings meaning an R&D activity.
  •  Section 28A(1)(b) or (c) positive findings for supporting activity findings will continue as a revised 28A(1)(b) negative finding, meaning not an R&D activity.Section 28C(1)(a) positive overseas findings will become negative s.28C(1)(b) findings if the activity starts to fail the revised s.28D(1) 50% expenditure condition. Otherwise, the finding will continue as a positive s.28C(1)(a) finding, with the s.28D conditions deemed met.
  • Section 28C(1)(b) negative findings will continue as before.
  • Section 28E core technology findings will lapse if the activity is no longer an R&D activity or otherwise continue.

For example, if an R&D entity holds a s.28A(1)(a) core activity finding made before 1 July 2028 that is still in force on 1 July 2028, from that date the finding will operate as an “R&D activity” finding for 2028-29 onwards. 

If the finding had lapsed before 1 July 2028, item 77 would not apply.

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With only a 15-year history under its belt, the flagship RDTI has faced more than its fair share of amendments to date. 

These substantive cuts to the program, initiated as far back as the Federal Budget 2024-25, follow on from other incrementally negative changes resulting from ‘innovation reviews.’ These include the 2016 Triple F report, as well as government interventions in 2014 and 2021 solely intended to reduce the cost of the program. 

With only the focus on scientific research in the wake of the Covid pandemic averting the most recent set of undesirable proposed changes, the latest ‘reforms’ now frame the ongoing desire to cut costs as a positive intent to improve Australia’s innovation landscape. However, the SERD panel advanced a wider tranche of recommendations and warned that adopting selected measures without the wider supporting architecture could produce less than optimal results. 

Given the elapse of time to the provisions taking practical effect, the economic implications of the most extensive amendments since its inception will only become known from the early 2030’s – an extended period of uncertainty during which Australia will most certainly see a significant flight of local and global innovation investment.

Against an existing backdrop of falling R&D investment over the past decade, there is unanimous agreement from industry and multinationals that enactment of the proposals will continue to have a negative impact on Australia’s diminishing innovation landscape. This will undoubtedly exacerbate Australia persistently falling well behind OECD countries since 2008 in terms of innovation expenditure as a share of GDP. 

 

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