The recent Federal Budget included a number of proposed changes to the R&D Tax Incentive program that may affect how businesses claim R&D from 1 July 2028.
These proposed reforms appear to adopt several recommendations from the Government’s Strategic Examination of Research and Development report and are intended to reshape how innovation support is delivered in Australia.Key points include:
- Increase in the R&D offset for experimental core activities
The Budget proposes an increase of approximately 25–50% to the R&D tax offset for experimental core R&D activities only. This enhancement is intended to better reward genuinely experimental work. Further detail will be confirmed once exposure draft legislation and ATO guidance are released, expected later in the 2026–27 financial year or into 2027. - Removal of eligibility for expenditure that only supports R&D
Under the proposal, expenditure that solely supports R&D activities would no longer be eligible. This change is expected to negatively impact some claims, particularly where supporting activities form a significant portion of total R&D spend. The overall impact will vary depending on each business’s mix of core versus supporting R&D expenditure and may be partially offset by the higher core R&D offset rate. - Reduction in the R&D intensity threshold to 1.5%
The R&D intensity threshold is proposed to reduce from 2% to 1.5%, improving access to higher R&D offset rates. This change is expected to benefit larger businesses on the non‑refundable tier by lowering the threshold for accessing the premium offset rate, allowing more firms that were previously just below the 2% threshold to qualify. - Expanded refundable offset for younger businesses
The turnover threshold for accessing the refundable R&D offset is proposed to increase from $20 million to $50 million, providing greater support to young, fast‑growing businesses. However, refundability would be limited to businesses operating for less than 10 years, with older businesses eligible for an equivalent non‑refundable offset. This may negatively impact cashflow for established companies continuing to invest heavily in R&D. - Increase in the maximum R&D expenditure cap
The maximum eligible R&D expenditure cap is proposed to increase from $150 million to $200 million. This measure is targeted at larger businesses and is intended to encourage more R&D activity to be undertaken in Australia, rather than overseas. - Increase in the minimum R&D expenditure threshold
The minimum R&D expenditure threshold is proposed to increase from $20,000 to $50,000. Claims below this level would be required to be undertaken in conjunction with a Research Service Provider (RSP) or Cooperative Research Centre (CRC). This represents a softening from the previously suggested $150,000 threshold and provides some relief for smaller R&D claimants.