Unlock up to 43.5% in refundable tax offsets to fuel your company’s innovation and technical growth.
What is the R&D Tax Incentive?
The Research and Development (R&D) Tax Incentive is the Australian Government’s principal legislative measure to stimulate industry investment in innovation. It operates as a self-assessment program designed to encourage “additionality”, inducing research activities that firms might otherwise deem too financially risky to conduct.
Are You Eligible?
- Australian company (Pty Ltd or Ltd)
- Investing over $20,000 annually in eligible R&D activities
- Developing new or improved products, processes, or technologies
- Facing technical uncertainties and solving problems unique to your industry
Why the R&D tax incentive matters
By leveraging the incentive, you’ll reduce costs and make opportunities to expand your core capabilities. You’ll foster a culture of creativity, build greater resilience for your workforce, and contribute to Australia’s competitiveness.
Financial
Support
Access up to 43.5% of your eligible R&D costs to reinvest in other initiatives.
Support
Innovation
Research, prototype, and test new products and techniques with less financial stress.
Economic
Growth
Increased R&D activities contribute to productivity improvements and overall economic growth.
Stay
Competitive
Build a stronger innovation pipeline for tomorrow, future-ready business.
Where should you start?
To help you unlock the full potential of your company’s innovation efforts, we have developed the guides below, which explore the key aspects of the R&D Tax Incentive program. From understanding eligibility requirements to navigating the claim process, these resources will equip you with the knowledge needed to make informed decisions and confidently access this incentive.
How the R&D Tax Incentive Works?
The R&DTI is a self-assessment program jointly administered by two agencies:
AusIndustry (DISR)
Assesses the technical eligibility of your R&D activities.
Registration: You must register eligible activities with AusIndustry within 10 months after your financial year-end.
Australian Taxation Office (ATO)
Assesses the financial eligibility of your expenditure and administers the payment.
Claim on Your Tax Return: Once registered, your company lodges the R&D claim through the ATO as part of your annual tax return.
⚠️ Important
You must register your activities with AusIndustry annually to claim the offset in your tax return with the ATO.
What are the Current R&D Tax Incentive Rates? (2026)
Your benefit is determined by your aggregated annual turnover and, for larger companies, your R&D intensity.
|
Company Turnover |
Offset Type |
Tax Position |
Base Benefit (2025-26) |
Key Condition |
|---|---|---|---|---|
|
Under $20 million |
Refundable |
Loss |
Corporate tax rate + 18.5% |
Not controlled by tax-exempt entities. |
|
Under $20 million |
Non-Refundable |
Profit |
Corporate tax rate + 18.5% |
Premium depends on R&D intensity (see below). |
|
$20 million & over |
Non-Refundable |
Corporate tax rate + a tiered premium |
Premium depends on R&D intensity (see below). |
What are the Current R&D Tax Incentive Rates? (2026)
Your benefit is determined by your aggregated annual turnover and, for larger companies, your R&D intensity.
8.5%
premium for R&D expenditure up to 2% of total expenses.
16.5%
premium for R&D expenditure above 2% of total expenses.
Note: The premium applies only to the first $150 million of R&D expenditure.
What Activities are Eligible?
The law divides R&D into two categories: Core and Supporting.
Core R&D Activities
Your benefit is determined by your aggregated annual turnover and, for larger companies, your R&D intensity.
Experimental: Based on a hypothesis.
Systematic: Follows a planned progression of work.
Investigative: Logical conclusions and new knowledge.
Supporting R&D Activities
These are activities directly related to a core activity. If an activity involves production or is on the “excluded list,” it must meet the Dominant Purpose Test.
This means its primary reason for existing was to support the R&D, not standard business operations.
Common Exclusions: What You Cannot Claim
The ATO maintains a list of activities that do not qualify as Core R&D:
- Market research or sales promotion.
- Management studies or efficiency surveys.
- Commercial or legal aspects of patenting.
- Prospecting for minerals or petroleum.
- Standard software development for internal administration.
Do You Qualify? The 4 Eligibility Tests for Core R&D
Not all innovation qualifies. Core R&D activities must satisfy all four of these legislative tests:
The ESI Test
Activities must be Experimental, Systematic, and Investigative, following the scientific method (hypothesis → experiment → observation → conclusion).
The Novelty Test
You must be seeking knowledge that is not publicly available or deducible by a competent professional in your field worldwide.
The Technical Risk Test
There must be a scientific or technological uncertainty that cannot be resolved without experimentation.
The PKI (Purpose) Test
The dominant purpose of the activities must be to generate new knowledge or create new/improved products, processes, services or software.
Excluded Activities & Supporting R&D
Activities like market research, management studies, mineral exploration, and software for internal administration are NOT core R&D. They may qualify as supporting R&D if conducted for the dominant purpose of supporting core R&D experiments.
The Step-by-Step Claim Process & Critical Deadlines
Missing a deadline can void your entire annual
claim.
|
Step |
Key Action |
Critical Deadline & Details |
|---|---|---|
|
1 |
Conduct R&D |
Throughout your income year. |
|
2 |
Register |
Within 10 months of your financial year-end.
|
|
3 |
Claim |
Your tax return due date. Registration must be done first. |
|
4 |
Review |
Both AusIndustry & ATO conduct compliance reviews. |
For an SME (Turnover < $20m):
If your eligible R&D expenditure is $100,000 and your corporate tax rate is 25%, your refundable offset is calculated as:
$100,000 × (25% + 18.5%) =
$43,500
You may receive this as a cash refund if you are in a tax loss position.
For a large company (Turnover ≥ $20m) with R&D Intensity of 4%:
The premium is tiered. On $1m of R&D spend against $25m total expenses:
- First 2% ($500,000) gets the 8.5% premium.
- Next 2% ($500,000) gets the 16.5% premium.
This tiered reward incentivises higher R&D investment.
Critical Compliance: The “On Own Behalf” & “At Risk” Rules
“On Own Behalf” Rule
To claim, your company must be the major benefactor of the research. This means you must satisfy the “On Own Behalf” rule by proving:
“At Risk” Rule
The “At Risk” rule ensures that expenditure is only eligible if your company truly bears the technical and financial risk. If a third party guarantees your payment regardless of the R&D outcome, the expenditure may be disqualified from the incentive.
Common R&D Tax Incentive Mistakes
Missing Mandatory Registration Deadlines
Failing to register activities with AusIndustry within the 10-month window following the income year-end (e.g., 30 April for June year-ends) results in a total loss of claim eligibility.
Relying on Retrospective Evidence
Using after-the-fact estimates instead of maintaining contemporaneous, real-time records—such as time-tracking logs and project reports—fails to prove a “demonstrable nexus” to R&D activities.
Mistaking Routine Problem-Solving for R&D
Attempting to claim “trial and error” or “business as usual” activities that do not follow a systematic progression of work (the scientific method) to resolve technical uncertainty.
Claiming Specifically Excluded Activities
Including ineligible work such as market research, management studies, or software development intended for internal business administration in a core R&D claim.
Breaching the “At Risk” and “Own Behalf” Rules
Claiming expenditure where the financial risk is shifted to a third party via guaranteed reimbursement or where the claimant lacks effective ownership and control of results.
Neglecting Overseas Findings
Conducting R&D activities abroad without securing a positive Overseas Finding from AusIndustry before the end of the income year in which the work is performed.
Miscalculating Aggregated Turnover
Failing to include the worldwide income of all connected entities and affiliates when determining if the company sits above or below the $20 million threshold for refundable offsets.
Why Partner with Pattens Group?
With a 99% success rate, we help Australian businesses navigate these complex statutory requirements. We provide end-to-end support, from initial eligibility checks to defending your claim during compliance reviews. While the program is self-assessment, the complexity and compliance risks are high. A specialist like Pattens Group ensures you:
Maximise Your Claim
Identifying all eligible activities and linked expenditure.
Ensure Compliance
Building a defensible claim with robust documentation to withstand ATO review.
Save Time & Manage Risk
Handling the entire process, from technical narratives to managing agency queries.
100%
Success Rate
Helping Australian businesses maximise their R&D claims
FAQs
What our clients say
Ready to explore how we can help support your business growth?
Contact Pattens Group today for a complimentary consultation. With the right strategy and our expertise, you may maximise your benefits from the R&D Tax Incentive.