The History of R&D Tax Incentive in Australia: 40 Years of Change and the 2028 Reforms

What if the government refunded almost half the cost of your next R&D project? That is roughly what happens today for many small Australian businesses under the Research and Development Tax Incentive (R&DTI).

The R&DTI is Australia’s main scheme for funding private-sector innovation. It gives eligible companies a tax offset for money spent on genuine experimental research, and for loss-making startups, that offset comes back as cash. Since the scheme launched in 1985, it has changed shape more than once. The next major change starts on 1 July 2028.

We wrote this guide to walk business owners through the history of the R&D Tax Incentive, what it offers today, and what changes are coming. If you are weighing up whether to start an R&D project this year or next, the timing genuinely matters.

A Quick Answer

The current R&DTI pays a 43.5% refundable offset to small businesses with turnover under $20 million. Larger companies get a non-refundable offset of 38.5% to 46.5%, based on their corporate tax rate plus an 8.5% or 16.5% premium. From 1 July 2028, the offset rates rise, but access to the cash-refundable version narrows to companies under ten years old with turnover under $50 million.

The History of R&D Tax Incentive: 1985 to 2028

• 1985. The government launches the R&D Tax Concession, a 150% tax deduction for businesses that invest in R&D.
• 1996. The concession rate drops from 150% to 125%, cutting the value of the deduction.
• 2001. As the corporate tax rate falls to 30%, the government adds a 175% Premium Tax Concession for extra R&D spend. It also introduces a refundable offset that lets loss-making startups cash out R&D losses.
• 2007. A 175% R&D International Premium is introduced to attract foreign-owned R&D projects to Australia.
• 2011. The Income Tax Rates Amendment (Research and Development) Act 2011 replaces the old concession model with the R&D Tax Incentive. Small businesses with turnover under $20 million get a 45% refundable offset. Larger entities get a 40% non-refundable offset.
• 2015. A $100 million annual cap is placed on eligible R&D spend, limiting the top offset rate to the first $100 million a company spends each year.
• 2021. The Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Act 2020 restructures the offsets again. SMEs move to a refundable offset set at their corporate tax rate plus an 18.5% premium (43.5% in total for most). Large entities move to a two-tier system, adding 8.5% or 16.5% to their corporate tax rate depending on R&D intensity. The annual cap rises to $150 million.
• 2022. Australia’s Patent Box regime begins. Income from eligible medical and biotechnology patents developed here is taxed at a concessional 17%, rewarding companies that keep their R&D and commercialisation onshore.
• 2024. The ATO publishes its first R&D Tax Incentive Transparency Report. It shows 11,545 companies claimed $11.2 billion in R&D expenditure, and for the first time, individual company claims become public information.
• 2025. The government opens its Strategic Examination of R&D, reviewing whether the scheme still does its job. Draft legislation also proposes excluding gambling and tobacco-related activities from eligibility, for income years starting on or after 1 July 2025.
• 2026. The Federal Budget announces the biggest redesign of the R&DTI since 2011. New offset rates, tighter eligibility for supporting activities, and an age limit on refundable offsets are all set to commence from 1 July 2028.

How the Scheme Has Changed Direction

The history of the R&D Tax Incentive shows a clear direction: away from deductions, toward direct cash.

Under the original 1985 concession, relief came only as an extra tax deduction. That suited profitable companies with a tax bill to reduce. It did very little for a startup with no revenue yet, because a bigger deduction just added to a tax loss the company could not use until later.

The move to a refundable offset changed that. SMEs in a loss position can now surrender their R&D tax losses for a direct cash payment from the ATO, instead of waiting years to use the deduction. That single change turned the R&DTI into working capital for pre-revenue companies in software, biotech, medical devices and advanced manufacturing.

Oversight has tightened alongside the funding. AusIndustry and the ATO now apply strict technical tests to every claim. Businesses have to show real experimentation against a documented hypothesis, not just general product development. The 2024 Transparency Report and the 2026 reforms both point the same way: more scrutiny, and a sharper focus on genuine experimental work.

What You Can Claim Right Now

SMEs with turnover under $20 million get a 43.5% refundable offset, made up of a 25% corporate tax rate plus an 18.5% premium. If the company is in a tax loss, this comes back as a cash refund rather than sitting as a deduction for later.

On $100,000 of eligible R&D spend, a company on the 25% tax rate saves $43,500 through the offset. A standard deduction on the same spend would only save $25,000, so the offset is worth considerably more to a profitable claimant.

Companies with turnover of $20 million or more get a non-refundable offset, an 8.5% or 16.5% premium on their corporate tax rate, with unused offsets carried forward against future tax. The annual cap sits at $150 million in eligible spend.

The 2028 Reforms at a Glance

None of this changes retrospectively. Every claim made before 1 July 2028 is assessed under today’s rules. Here is what shifts once the new rules commence.

Feature	Current rules	From 1 July 2028
Refundable offset premium	18.5%	23%
Non-refundable offset (low intensity)	8.5%	13%
Non-refundable offset (high intensity)	16.5%	21%
Intensity threshold for the top rate	2% of expenses	1.5% of expenses
Refundable offset turnover limit	$20 million	$50 million
Refundable offset age limit	None	Under 10 years old
Minimum annual R&D spend	$20,000	$50,000 (unless using a Research Service Provider)
Annual expenditure cap	$150 million	$200 million

Supporting activities such as administrative work, routine literature reviews and equipment maintenance will no longer qualify on their own. The government wants the incentive to reward core, experimental R&D specifically, not the paperwork around it.

The age limit on refundable offsets is the change most worth planning for. A profitable, well-established company in a loss year because of a large R&D program will no longer get a cash refund once it passes ten years old. It still gets the higher non-refundable rate, but as a credit against future tax, not cash now. That hits biotech, medtech and other long-cycle sectors hardest, since their R&D programs often run well past a decade before the product earns any revenue.

Draft legislation is expected in 2027, ahead of the 1 July 2028 start date. Until then, the current rules apply.

Eligibility: What Counts as R&D

To register for the R&DTI, your company needs to pay income tax in Australia. You also need to spend at least $20,000 a year on eligible R&D, rising to $50,000 from 2028. On top of that, register the activity with AusIndustry within ten months of your income year ending. This ten-month deadline is not among the items changing in 2028.

Division 355 of the Income Tax Assessment Act 1997 splits eligible activities into two groups.

Core R&D activities are experiments where the outcome cannot be worked out in advance by a competent professional using current knowledge. The purpose has to be generating new knowledge, such as a new product, process or service, and the work has to follow a real process: hypothesis, experiment, observation, conclusion.

Supporting R&D activities are directly related to a core activity. If a supporting activity also produces goods, services, or commercial output, it only counts if its main purpose is to support the core R&D.

What does not qualify: routine software updates, standard bug fixes, market research, reverse engineering, quality control testing and normal production runs. None of these count as core R&D on their own.

Keep records as you go. Lab notes, system logs, test results and project plans made at the time of the work are what the ATO and AusIndustry ask for if your claim gets reviewed.

The Patent Box: A Related Incentive Worth Knowing About

If your business develops medical or biotechnology patents, the R&DTI is not the only concession available. Australia’s Patent Box regime, running since 1 July 2022, taxes income from eligible patents at 17%, well below the standard 25% to 30% corporate rate.

Where the R&DTI funds the R&D itself, the Patent Box rewards what happens after the patent is granted and starts earning income. Companies in medtech, pharma and biotech can genuinely benefit from both, provided their R&D and patent activity happen in Australia.

What to Do Before 2028

• Keep claiming under the current rules while they still apply. If your project relies heavily on supporting activities, it may be worth progressing that work sooner rather than later.
• Separate core R&D spend from supporting spend now, so your documentation is ready when the new definitions take effect.
• Check your company’s age if you rely on the cash refund. Businesses over ten years old by mid-2028 will shift to non-refundable credits instead.
• Register within ten months of your income year end, every year. This deadline has not changed, and missing it means missing the offset entirely.

We work through these details with clients every year, because a project that looks eligible on paper does not always hold up under an ATO review. If you are planning R&D spend for the next financial year, now is the time to check your position. Look at where your activities sit under both the current rules and the reforms coming in 2028.

Frequently Asked Questions