Research and Development (R&D) Tax Incentive

Note: The following content is for informational purposes, whilst we make efforts to keep our content up-to-date exact figures and requirements may change from time to time.

For Australian businesses investing in innovation, the R&D Tax Incentive is one of the most powerful funding mechanisms available. Whether you’re developing custom software, building AI-driven systems, or engineering a breakthrough product, this government program can significantly offset the cost of your innovation work, often putting real cash back into your business.

Yet even though its value, many companies leave money on the table. The application process can be complex, eligibility rules are nuanced, and the difference between a successful claim and a rejected one often comes down to how well the R&D activities are documented and structured.

At AGR Technology, we can work alongside Australian businesses and their grant advisors as a technical implementation partner. We help ensure that innovation projects are built in a technically robust, compliant, and claim-ready way, so that when funding is approved, execution is seamless. This guide breaks down everything you need to know about the R&D Tax Incentive in Australia, from eligibility and offsets to the application process and common pitfalls to avoid.

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What Is the R&D Tax Incentive?

The R&D Tax Incentive (R&DTI) is a federal government program that encourages Australian businesses to invest in research and development by providing a tax offset on eligible R&D expenditure. Rather than waiting for commercial outcomes to materialise, businesses can recover a portion of their R&D spend in the same income year the costs are incurred.

This makes it particularly valuable for startups, scale-ups, and established companies pursuing genuinely novel technical work, from software development and AI to automation, digital transformation, and cybersecurity innovation.

How the Program Works

At its core, the program works by allowing eligible companies to claim a percentage of their eligible R&D expenditure as a tax offset. The offset rate depends on the company’s aggregated annual turnover and its tax position. Businesses with a turnover of less than $20 million may be eligible for a refundable offset, while larger companies receive a non-refundable offset applied against their tax liability.

To qualify, the R&D activities must involve genuine experimental work aimed at generating new knowledge, not just routine product development or standard software configurations. The technical uncertainty involved and the systematic approach to resolving it are central to what the ATO and AusIndustry look for when assessing claims.

For Australian companies, this means that projects like building a machine learning algorithm from scratch, developing a novel data processing architecture, or engineering a custom AI model with no pre-existing solution can all qualify, provided they’re properly documented and structured.

Who Administers the R&D Tax Incentive in Australia?

The program is jointly administered by two government bodies:

• AusIndustry (on behalf of the Department of Industry, Science and Resources): Responsible for registering R&D activities and assessing whether those activities meet the program’s technical eligibility criteria.
• The Australian Taxation Office (ATO): Responsible for administering the tax offset component, reviewing expenditure claims, and ensuring compliance with tax law.

Businesses must engage with both agencies, registering their activities with AusIndustry and then lodging their financial claim through the ATO as part of their annual tax return. Understanding how each body evaluates claims is essential to a successful application.

Types of R&D Tax Offsets Available

Not all companies receive the same benefit from the R&D Tax Incentive. The offset rate and its nature, refundable or non-refundable, depend on the size and tax position of the entity making the claim.

Refundable R&D Tax Offset

Small to medium businesses with an aggregated annual turnover of less than $20 million are typically eligible for the refundable R&D tax offset.

Critically, this offset can be refundable, meaning that if the offset exceeds the company’s tax liability for the year, the difference is paid out as a cash refund. This is a major advantage for early-stage startups and scale-ups that may not yet be profitable but are actively investing in innovation. It provides real liquidity to fund further R&D work without waiting on commercial returns.

There is, but, a cap to be aware of: the maximum R&D expenditure eligible for the refundable offset is $150 million per income year. Expenditure above this threshold is still eligible for the non-refundable offset.

See ATO more current up-to-date rates information

Non-Refundable R&D Tax Offset

Companies with an aggregated annual turnover of $20 million or more are typically eligible for the non-refundable R&D tax offset, which is calculated at 8.5 percentage points above the company tax rate for the first $150 million in eligible R&D expenditure, and 16.5 percentage points for expenditure beyond that threshold.

As the name suggests, this offset can only reduce a company’s tax payable to zero, any excess cannot be refunded as cash. But, unused non-refundable offsets can be carried forward to future income years, which still provides significant long-term tax value for larger companies with substantial R&D programs.

For businesses in this category, structuring R&D projects efficiently and maximising eligible expenditure is especially important. This is an area where working with experienced technical partners, and qualified R&D advisors, can materially improve outcomes.

Eligibility Requirements for the R&D Tax Incentive

Understanding eligibility is one of the most important steps before investing time in an R&D Tax Incentive claim. The program has specific requirements around who can apply and what types of activities qualify.

Eligible Companies and Entity Types

To be eligible for the R&D Tax Incentive, an entity must be an Australian incorporated company, or a foreign company operating through a permanent establishment in Australia. Trusts, partnerships, sole traders, and individuals do not qualify directly. Eligible entities must also be conducting R&D activities on their own behalf, not as a contractor for another company.

Joint ventures and R&D conducted on behalf of related entities are permitted in certain circumstances, but the arrangements must be properly documented and structured to satisfy AusIndustry’s requirements. Companies in a group structure need to be particularly careful about how R&D funding flows between entities.

Eligible Core and Supporting R&D Activities

The R&D Tax Incentive distinguishes between two types of eligible activities:

Core R&D Activities are the backbone of a claim. These are experimental activities that:

• Have a purpose of generating new knowledge
• Involve a hypothesis, experiment, observation, and evaluation process
• Cannot have the outcome known in advance based on existing knowledge
• Are conducted using a systematic progression of work

For software and technology companies, core R&D often involves developing novel algorithms, building experimental AI architectures, or solving genuinely complex technical problems where the solution isn’t commercially available.

Supporting R&D Activities are activities that are directly related to and support the core R&D activities. These might include data gathering, prototype construction, or technical documentation, but they must demonstrably support the experimental work to qualify.

It’s worth noting that certain activities are explicitly excluded from the program, including:

• Market research, sales, or distribution activities
• Quality control and routine testing
• Developing or modifying software for internal administrative purposes
• Activities conducted outside Australia (subject to limited exceptions)

Overseas R&D Activities and How They Qualify

The R&D Tax Incentive is primarily designed for activities conducted within Australia. But, there is a mechanism to include overseas R&D expenditure in a claim through an Advance Overseas Finding, which must be obtained from AusIndustry before the relevant activities are conducted offshore.

To qualify for inclusion, the overseas activities must:

• Have a genuine scientific link to Australian core R&D activities
• Be unable to be conducted in Australia (typically due to lack of facilities or expertise)
• Represent a minority of the total R&D expenditure for the income year (the Australian spend must exceed the overseas spend)

For technology companies working with international development teams or cloud infrastructure hosted globally, careful planning is needed to ensure overseas costs are structured to qualify within these constraints.

R&D Incentives and Grants: Other Funding Opportunities in Australia

The R&D Tax Incentive is the cornerstone of Australia’s innovation funding landscape, but it isn’t the only source of capital available to technology-focused businesses. Combining the R&DTI with other grant programs can significantly amplify the funding available for ambitious projects.

Business Research and Development Grants in Australia

Australia has a robust ecosystem of grants and funding programs designed to support innovation at different stages of business development. Some of the most relevant for tech-focused companies include:

• Entrepreneurs’ Program (EP): Administered through the Department of Industry, the EP offers grants and advisory support to help businesses commercialise innovative ideas. The Business Growth stream and the Accelerating Commercialisation grant are particularly relevant for technology companies.
• Export Market Development Grant (EMDG): Supports Australian businesses looking to expand into international markets, which is relevant for SaaS platforms and technology exporters.
• State-Based Innovation Grants: Each Australian state and territory operates its own innovation funding programs. For example, the Victoria Innovation Economy Infrastructure Fund and NSW’s various digital industry grants offer additional capital for eligible projects.
• CSIRO Kick-Start: Provides matched funding for startups and small businesses to undertake collaborative R&D with CSIRO, ideal for companies working in AI, agtech, or advanced analytics.
• CRC-P Grants: Collaborative R&D grants that fund short-term industry-led research partnerships with research institutions.

Business research and development grants in Australia are competitive, and applications require a clear articulation of the innovation activities, expected outcomes, and technical feasibility. This is where AGR Technology’s role as a technical partner becomes directly valuable, helping businesses structure and articulate their technology projects in ways that align with funding criteria.

How R&D Grants Complement the Tax Incentive

Used strategically, grants and the R&D Tax Incentive can work in tandem. Grant funding received for R&D activities does reduce the claimable R&D expenditure dollar-for-dollar (since you can’t double-dip on government support for the same costs), but net funding positions can still be substantially improved by accessing both.

For example, a startup receiving a $200,000 grant for an AI development project may still be able to claim the R&DTI on additional eligible expenditure not covered by the grant, such as internal staff time, complementary development costs, or infrastructure expenses. Careful planning with both a grant specialist and a technical partner like AGR Technology ensures that funding is maximised while remaining compliant.

How to Apply: The R&D Tax Incentive Grant and Application Process

The R&D Tax Incentive grant and application process involves two parallel streams, registration of R&D activities with AusIndustry, and lodgement of the tax offset claim with the ATO. Both must be completed correctly for a successful outcome.

Registering Your R&D Activities with AusIndustry

The first step is registering your R&D activities through the Business Research and Development (BR&D) portal, which is managed by AusIndustry. Registration must be completed within 10 months of the end of your income year, so for most companies with a 30 June financial year, this means lodging by 30 April of the following year.

During registration, you’ll need to describe:

• The nature of your core R&D activities
• The technical hypothesis or uncertainty being investigated
• The experimental methodology being applied
• The expected new knowledge to be generated
• Any supporting R&D activities and how they relate to core work

The quality of this registration is critical. AusIndustry reviews applications to determine whether activities genuinely meet the program’s criteria. Poorly articulated descriptions, even for genuinely eligible work, can result in rejection or requests for additional information.

For software and AI projects, this means clearly explaining why the technical outcome was uncertain, what existing approaches were considered and why they were insufficient, and how the systematic experimental process was conducted. This is an area where technical input from a partner like AGR Technology can directly strengthen a registration.

Lodging Your Tax Offset Claim with the ATO

Once AusIndustry registration is complete, businesses claim the tax offset by completing the R&D Tax Incentive schedule (form R&D) attached to their annual company tax return. This requires:

• Detailing total eligible R&D expenditure for the income year
• Separating expenditure by activity type (core vs. supporting)
• Disclosing any R&D conducted on behalf of other entities
• Reporting any feedstock adjustments or government grants that affect eligible spend

The ATO may review or audit claims, so it’s essential that the financial figures in the tax return are fully supported by underlying records and are consistent with the AusIndustry registration.

Key Deadlines and Documentation Requirements

Missing a deadline can mean forfeiting an entire year’s claim, so it’s important to map out the key dates well in advance:

Documentation requirements are substantial. Businesses should maintain contemporaneous records, meaning records created at the time the R&D is conducted, not reconstructed after the fact. This includes lab notebooks (or their digital equivalents), technical reports, meeting notes, version control histories, testing logs, and staff time records demonstrating involvement in eligible activities.

Maximizing Your R&D Tax Incentive Claim

Registering for the R&D Tax Incentive is only half the work. Maximising the value of a claim requires disciplined record-keeping, accurate scoping of eligible activities, and a clear-eyed understanding of the rules.

Maintaining Proper Records and Evidence

The ATO expects businesses to be able to substantiate every dollar of R&D expenditure claimed and every activity registered with AusIndustry. Inadequate records are the single most common reason claims are reduced or disallowed on audit.

Effective documentation for technology companies typically includes:

• Technical journals or logs capturing the hypothesis, experiments conducted, results observed, and conclusions drawn
• Development records such as GitHub commit histories, sprint retrospectives, architectural decision records, and test results
• Staff time records clearly allocating hours to specific R&D activities (distinct from routine development work)
• Financial records showing how R&D expenditure was incurred, including contractor invoices, salary calculations, and overhead allocations
• Meeting notes and emails evidencing the experimental nature of the work and any pivots made in response to failed experiments

At AGR Technology, we can assist projects with documentation standards that support this kind of evidence trail, not as an afterthought, but as part of how we structure technical delivery. This makes claims stronger and audits significantly less stressful.

Common Mistakes to Avoid When Claiming

Even well-intentioned companies make errors that reduce or invalidate their R&D claims. The most common ones to watch out for include:

1. Claiming routine development as R&D. Not all software development is R&D. Building a standard eCommerce site or configuring an off-the-shelf SaaS platform doesn’t qualify. Claims should focus on the genuinely novel, experimentally uncertain parts of a project.

2. Reconstructing records after the fact. AusIndustry and the ATO can often identify when documentation has been compiled retrospectively. Contemporary records carry far more evidentiary weight.

3. Miscalculating eligible expenditure. Salary, contractor costs, overheads, and depreciation all have specific rules for how they can be included. Errors in these calculations, particularly for contractor costs where the ‘on own behalf’ rules apply, are a frequent source of audit adjustments.

4. Failing to separate eligible from ineligible activities. If a project includes both R&D and non-R&D work, only the eligible portion can be claimed. Clear activity scoping and time tracking are essential.

5. Missing deadlines. The 10-month registration window with AusIndustry is firm. Extensions are rarely granted, and missing it means losing the entire year’s claim.

Working with both a qualified R&D tax advisor and a technically-focused implementation partner like AGR Technology reduces exposure to all of these risks. We help ensure the technical substance of your project is clearly defined, well-documented, and structured in a way that genuinely reflects eligible R&D criteria.

Conclusion

The R&D Tax Incentive is one of Australia’s most valuable and underutilised tools for innovation funding. For technology companies investing in genuinely novel software, AI, automation, or digital transformation projects, it can meaningfully reduce the cost of innovation, and in many cases, put cash directly back into the business.

But the program rewards preparation. Eligibility must be assessed carefully, activities need to be structured and documented correctly, and both the AusIndustry registration and ATO claim need to be handled with precision. Getting any of these elements wrong risks leaving significant funding on the table.

At AGR Technology, we work as a technical implementation partner for businesses pursuing innovation funding. We don’t provide tax or grants advice, but we do help companies design, build, and document technology projects in ways that are technically robust, commercially sound, and aligned with R&D eligibility criteria. Alongside your grant advisor or R&D tax specialist, we form part of a complete innovation funding team.

If your business is developing custom software, AI systems, mobile applications, or complex digital infrastructure, and you want to ensure those projects are built in a claim-ready way, book a technical consultation with our team today. Let’s build something worth funding.

Frequently Asked Questions About the R&D Tax Incentive

What is the R&D Tax Incentive in Australia?

The R&D Tax Incentive (R&DTI) is a federal government program that encourages Australian businesses to invest in research and development by providing a tax offset on eligible R&D expenditure. It allows businesses to recover a portion of their R&D spend in the same income year costs are incurred, supporting innovation in software, AI, automation, and more.

Who is eligible for the R&D Tax Incentive?

Eligibility is limited to Australian incorporated companies or foreign companies with a permanent establishment in Australia. Trusts, partnerships, sole traders, and individuals do not qualify. Eligible entities must conduct R&D activities on their own behalf, not as a contractor, and the activities must involve genuine experimental work aimed at generating new knowledge.

What is the difference between the refundable and non-refundable R&D tax offset?

Businesses with under $20 million annual turnover qualify for the refundable offset — approximately 43.5 cents per dollar of eligible spend — paid as cash if it exceeds tax liability. Companies with $20 million or more in turnover receive a non-refundable offset that reduces tax payable to zero, with unused amounts carried forward to future years.

What types of activities qualify as core R&D activities?

Core R&D activities must involve experimental work aimed at generating new knowledge, following a systematic process of hypothesis, experiment, observation, and evaluation — with outcomes that cannot be known in advance. For tech companies, this includes developing novel algorithms, experimental AI architectures, or solving complex technical problems without commercially available solutions.

What is the deadline to register R&D activities with AusIndustry?

R&D activities must be registered through the Business Research and Development (BR&D) portal within 10 months of the end of the income year. For companies with a 30 June financial year-end, this means the registration deadline is 30 April of the following year. Missing this deadline typically results in forfeiting the entire year’s claim.

Can R&D grants and the R&D Tax Incentive be claimed together?

Yes, but grant funding reduces eligible R&D expenditure dollar-for-dollar to prevent double-dipping on government support. However, companies can still claim the R&DTI on additional eligible costs not covered by the grant, such as internal staff time or infrastructure expenses, making strategic use of both programs a powerful way to maximize innovation funding.

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Source(s) cited:

[Online]. Available at: https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/incentives-and-concessions/research-and-development-tax-incentive-and-concessions/research-and-development-tax-incentive/rates-of-r-d-tax-incentive-offset (Accessed: 19 February 2026).

[Online]. Business.Gov.Au. Available at: https://business.gov.au/grants-and-programs/research-and-development-tax-incentive/check-if-you-are-eligible-for-the-randd-tax-incentive (Accessed: 19 February 2026).

[Online]. Available at: https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/incentives-and-concessions/research-and-development-tax-incentive-and-concessions/research-and-development-tax-incentive/in-detail/refundable-and-non-refundable-offsets (Accessed: 19 February 2026).

R&D Tax Incentive [Online]. Available at: https://www.holdingredlich.com/r-d-tax-incentive (Accessed: 19 February 2026).

(2025). How Much R&D Can My Business Claim? [Online]. Bridgepoint Group. Available at: https://www.bridgepointgroup.com.au/how-much-rd-can-my-business-claim/ (Accessed: 19 February 2026).

R&D Tax Incentive Benefit Calculation [Online]. Available at: https://www.azuregroup.com.au/research-and-development-tax-incentive/rnd-tax-incentive-benefit-calculation (Accessed: 19 February 2026).

Alessio

Alessio Rigoli is the founder of AGR Technology and got his start working in the IT space originally in Education and then in the private sector helping businesses in various industries. Alessio maintains the blog and is interested in a number of different topics emerging and current such as Digital marketing, Software development, Cryptocurrency/Blockchain, Cyber security, Linux and more.

Alessio Rigoli, AGR Technology