The Death of “Supporting Activities”: How to Future-Proof Your R&D Claims

Australian innovation policy has not seen a shake-up like this in over a decade. The trigger was the “Ambitious Australia” strategic examination of research and development, released in March 2026. Off the back of it, the federal government is rebuilding how the R&D Tax Incentive (RDTI) works from the ground up. The headline numbers look good, with rate increases across the board. But buried in the detail is a change that’s going to catch a lot of businesses flat-footed: supporting activities are being removed from the eligible expenditure base entirely.

For most claimants, supporting activities are a real chunk of the claim. Sometimes the biggest chunk. From 1 July 2028, none of it counts. Only core experimental work survives the cut. I have seen clients build half their claim on this category without realising it, and that’s the habit that gets expensive in 2028. If your R&D file still gets assembled by your accountant every June, that stops working now. Run it as a documented, scientific process all year round, that’s the only kind of R&D the new rules will pay for.

Why Supporting Activities Are on the Way Out

The “Ambitious Australia” report did not pull punches. Australia funds R&D generously. We don’t turn much of it into commercial outcomes, and we’re behind most of the OECD on that score. The government’s answer, laid out in the 2026/27 budget, is a 10-year roadmap. Reward deep experimentation. Stop paying for business-as-usual work dressed up as R&D.

The direction is blunt: Fewer activities qualify from here on. The ones that do pay better. Pull supporting activities out, and every dollar of taxpayer support goes toward the high-risk, core experiments that actually produce a technical breakthrough. Data collection. Infrastructure maintenance. Admin overheads tied to the project. All of it is on the chopping block now, unless you can show it genuinely lives inside a core activity, not just next to one. That’s a harder argument than most people think.

Why the Clock Is Already Ticking

1 July 2028 sounds far off. It’s actually not!

Reworking an R&D program takes time, and the businesses that leave this until FY28 will be scrambling. These changes are not law yet, but the policy intent is firm, and legislation is being drafted around it.

If you are running a multi-year R&D program, understand this: the supporting activities you are claiming today are the ones that vanish from your FY29 budget. If your claim’s scale depends on that category, your future funding is looking at a real contraction. Better to know that now than find out in the middle of a claim.

Who Wins, Who Loses

This reform draws a clean line through the innovation ecosystem of Australia.

The winners are businesses running “deep” R&D where core experimental work makes up most of what they do. They pick up the 4.5% point increase in offset rates, pushing the top rate to 48% for most refundable claimants, and barely feel the expenditure base shrink because they were never leaning on supporting activities in the first place.

The losers are companies with a high proportion of supporting R&D activity in their claim. The regulators have already said as much; a high supporting-activity ratio is a flagged risk indicator for audit. Expect claim sizes to drop, and expect closer attention from both the ATO and the Department of Industry, Science and Resources.

Step 1: Model Your Core/Supporting Split Now

Don’t wait for legislation to do this. Sit down with your current R&D portfolio and work out the actual split between core and supporting expenditure.

This isn’t a spreadsheet exercise. It means testing every activity against the strict eligibility criteria for “core” R&D. Some of what you’re currently calling supporting might genuinely qualify as core; once you dig into it, that’s worth chasing. Case law like Morton is often the reference point for that argument. But be honest with yourself about the activities that won’t survive reclassification. Those need to come off the claim, and your budget needs to plan for that now, not in 2028.

Step 2: Build a Gold-Standard Documentation Habit

Under the new regime, nexus is everything: the direct, provable link between a dollar spent and a core experimental activity. No nexus, no claim. It is that simple.

The RDTI has always been a generous program, and generous programs come with a higher bar of proof than an ordinary tax deduction. The fix is contemporaneous documentation: write it down as it happens, not months later when you’re staring down a deadline.

Your audit-ready file needs:

1. The Experiment Record: A clear document outlining the hypothesis you set out to prove or disprove, the technical unknowns involved, and the systematic progression of work.
2. Evidence of Failure: Interestingly, “failed” experiments are excellent evidence for the RDTI. They prove that the outcome could not have been known in advance by a competent professional and that genuine experimentation took place.
3. Project Management Artifacts: Use the tools your team already uses Jira tickets, Slack channels, Confluence pages, emails, and Trello boards—to tag R&D-specific work as it occurs.
4. Financial Nexus: Ensure your accounting system (like Xero) tags items to specific R&D projects. Contractor invoices should not just say “Services Provided”; they should detail the specific experimental work undertaken to align with your R&D application.

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

Navigating a “One Strike” Regulatory Environment

Managing this transition also means managing regulatory risk. The government has put $87 million into extra ATO and DISER scrutiny of R&D claims. The soft landing of a letter of guidance or an education visit is largely gone; the posture now is one strike.

If a review finds you fall short on even one limb of the eligibility test for an activity, expect a negative finding straight away, not a warning shot. And because cutting supporting activities is central to this policy, any claim still heavy with supporting-activity spend is exactly the kind of claim that draws attention.

The Path Forward

Losing supporting activities is a genuine loss for a lot of claimants. But it is also a reason to sharpen your innovation strategy rather than absorb the hit. Focus on core experimental work, back it with real-time documentation, and you are positioned to benefit from the higher offset rates landing in 2028 instead of just absorbing the cut.

A few things to do now, not later:

• Act before 30 June: Any payments owed to associates, directors, or related parties need to be physically paid, not just accrued, if you want them in this year’s claim.
• Model the impact: Sit with your advisors and run your FY26 claim as if every supporting activity had already been stripped out. That number is your real baseline for future budgeting.
• Tighten the narrative: Write your R&D technical descriptions within the year the work happens. That’s your contemporaneous record, and it’s the difference between a claim that survives scrutiny and one that doesn’t.

Broad R&D claims had a good run. Deep experimentation is what gets funded from here. Ensure that your business stands on the correct side of the line.

Bruce Patten