7 R&D Tax Incentive Changes in the Budget 2026-27 Shake-up

On 12 May 2026, the Federal Government of Australia announced significant reforms to the R&D Tax Incentive in the Federal Budget 2026-27. These changes offer opportunities for businesses to benefit from increased offsets and streamlined support. This update aims to help R&D programs grow and succeed.

Remember that none of this is law yet. The seven changes below apply from income years starting 1 July 2028. Until then, the current rules stand, and the Department of Industry, Science and Resources keeps running the program as is.

With FY2027 and FY2028 still under the current rules, you have time to plan effectively, giving you confidence to prepare for upcoming changes without feeling rushed.

Where does this reform come from?

The package answers the first stage of the Ambitious Australia review, a strategic look at government research spending released in December 2025. The stated goal: push R&D dollars toward work that pays off for the wider economy, and slow the growth in what the scheme costs the budget each year.

The 7 changes in the R&D Tax Incentives in the Federal Budget 2026-27

1. A bigger offset for core R&D

The offset rate on core R&D activity goes up by 4.5 percentage points. For a base rate entity, that moves the refundable offset from 43.5 percent to roughly 48 percent, a jump of 25 to 50 percent, depending on your circumstances.

2. Supporting activities lose eligibility

Supporting R&D activities loses its spot in the R&D scheme entirely. Trials, integration work, equipment maintenance, literature reviews, and similar tasks that back up the core research but do not test anything new no longer qualify. Only core experimental work does.

This one lands hardest in software, hardware, biotech, medtech, and advanced manufacturing, where supporting work often makes up a good chunk of a claim.

3. A lower intensity threshold

The intensity premium threshold drops from 2 percent to 1.5 percent of total spend. More companies doing serious core R&D now qualify for the higher offset band.

4. A higher turnover ceiling for the top offset

The turnover limit for the top, refundable offset rate rises from $20 million to $50 million. As companies succeed and grow in value, they tend to retain access to the cash-back R&D support for longer.

5. A 10-year cap on refundability

This one lands hardest in software, hardware, biotech, medtech, and advanced manufacturing, where supporting work often makes up a good chunk of a claim, especially for companies approaching the 10-year refundability limit.

For mid-market companies with long R&D cycles, this age cutoff could hit cash flow hard right when a project needs it most.

6. A higher expenditure cap

The maximum yearly R&D spend that qualifies for the offset rises from $150 million to $200 million. Companies running large R&D projects have less reason to shift that work offshore.

7. A higher minimum spend

The floor for claiming the offset moves from $20,000 to $50,000 a year. Spending under $50,000 still qualifies, but only if you are running it through a registered Research Service Provider or a Cooperative Research Centre.

What this costs, and what it funds

Treasury expects the changes to cut receipts by $910 million and payments by $1.6 billion over five years starting 2025-26. The savings help fund other parts of the tax package, including loss carry-back for companies and the permanent $20,000 instant asset write-off.

The Australian Taxation Office picks up $2.8 million over three years from 2027-28 to run the transition.

A crackdown on fraud

Separate from the seven structural changes, the ATO gets funding for two years starting 2026-27 to run targeted compliance work against fraud in the R&D scheme. If your claims are clean, this shouldn’t change much for you. If they’re not, the review window just got shorter.

The rest of the innovation package

The R&D offset changes sit inside a wider set of moves.

Venture capital tax incentives expand. Asset caps for investee businesses go up across Early Stage Venture Capital Limited Partnerships (ESVCLP) and Venture Capital Limited Partnerships (VCLP), opening the door to bigger funding rounds for early-stage companies.

A new National Resilience and Science Council starts up, advising the government on R&D priorities and how industry and government work together on them.

Direct funding lands for CSIRO ($387.4 million), the National Measurement Institute ($273 million), and medical research through the Medical Research Future Fund.

What to do before 2028

While two years may seem ample, acting now ensures your claims remain compliant and maximise benefits before the new rules take effect in 2028. Two years sounds like plenty of runway. It isn’t, if your claims lean on supporting activities that won’t survive the switch.

Start here.

Pull your last two years of R&D claims and work out how much sits in supporting versus core activity. That split tells you how exposed you are and helps you prepare for the upcoming reforms.

Look again at the work you’ve logged as supporting. Some of it may hold up as core experimental activity with sharper framing and better records kept as you go, not built after the fact.

If your turnover sits between $20 million and $50 million, map out what the refundable offset means for your cash position and where the 10-year cutoff lands for your company.

If you sit under the current $20,000 minimum spend, this year and next may be your last chance to claim before the floor moves to $50,000.

The government still owes the sector draft legislation, expected sometime in 2027, and a consultation period before anything locks in. Definitions of core versus supporting, transition rules, and administration will keep moving until then.

Businesses that start reviewing their R&D spend now, ahead of the deadline, get to shape their claims around the new rules instead of scrambling once they land.

Two years feels like plenty of runway, until you are the one sorting supporting spend from core spend on a claim that’s already tight. Start now, while the current rules still apply. Wait for the 2027 legislation instead, and you are reacting to a claim you should have already fixed. Pull your last two years of claims. See what changes.