The exposure draft is the first legislative detail of the 2026–27 Budget R&D package. It proposes higher offsets for eligible core R&D activities, lifts the refundable turnover threshold to $50 million, narrows eligibility for supporting activities and generally limits cash refunds by company age.
Treasury has released exposure draft legislation for the Research and Development Tax Incentive (R&DTI) changes announced in the 2026–27 Budget, the first legislative detail of the package.
Consultation opened on September 10 and closes on September 28, with Treasurer Jim Chalmers announcing the draft in a media release on September 11.
The changes form part of the Government’s response to the Ambitious Australia – Strategic Examination of Research and Development final report. They start on July 1, 2028.
Until then, the current rules apply.
What the draft does
Here’s what the exposure draft would change:
- Higher offsets for eligible core R&D activities, which Chalmers said would rise by up to around 50 per cent
- Supporting R&D activities removed from eligibility
- Intensity threshold for the non-refundable offset cut from 2 per cent to 1.5 per cent
- Turnover threshold for the refundable offset lifted from $20 million to $50 million
- Minimum expenditure threshold lifted from $20,000 to $50,000
- Maximum expenditure threshold lifted from $150 million to $200 million
- Refundability generally limited to firms that have been incorporated for less than 10 years, with access potentially extended to 15 years for eligible firms undertaking R&D activities related to therapeutic goods
The Government estimates that each dollar of tax offset will generate around 20 per cent more business R&D and that R&D by young firms will increase by around $400 million a year.
Why it matters
This is the first time the Budget measures have moved into draft law, turning an announcement into wording businesses and advisers can test against their own claims.
The mix is deliberate. More generous core rates and a higher $50 million refundable turnover test are paired with cuts to what qualifies and who gets cash.
Supporting activities go. The minimum spend floor more than doubles. Cash refunds get an age limit.
Put simply, the proposed changes would allow eligible companies with turnover of up to $50 million to remain within the refundable-offset threshold, while generally limiting refundability to companies that have been incorporated for less than 10 years. Eligible therapeutic-goods R&D may qualify for the extended 15-year period. The Treasurer’s release says the higher turnover threshold is intended to help successful firms retain access to support as they scale.
The Government says the package will improve the effectiveness, sustainability and integrity of the program. At Budget time, Baker McKenzie reported that the measures were expected to reduce receipts by $910 million and payments by $1.6 billion over five years, with the savings intended to help fund other tax measures supporting small-business innovation and investment.
Biotech and medtech get the only sector carve-out
The draft would allow eligible firms undertaking R&D activities related to therapeutic goods to access the refundable offset for up to 15 years, the only sector-specific exception written into the R&DTI changes. The measure is intended to recognise the longer regulatory approval and product-development timelines commonly associated with biotechnology and medical technology.
Treasurer Jim Chalmers said the extension recognises the longer regulatory approval processes and product-development timeframes associated with therapeutic-goods R&D.
The carve-out has an estimated cost to revenue of $60 million over the forward estimates.
It applies to eligible firms undertaking R&D activities related to therapeutic goods. Every other firm faces the 10-year limit.
What changes for software, mining tech and supporting work
Supporting activities are those directly related to core R&D activities. In other words, the work that sits around the experiment rather than being the experiment.
Businesses conducting R&D in software, mining technology, clinical trials or infrastructure-related projects may need to reassess how they classify and substantiate their claims when the proposed 2028 rules commence. Claims relating to periods before commencement would continue to be assessed under the rules applying to those periods.
The higher floor adds to that. Advisory firms summarising the Budget measure said research valued below $50,000 would need to be carried out through a registered Research Service Provider or Cooperative Research Centre to remain eligible.
Older firms are also affected. Under the Budget measure, firms below the $50 million turnover line that are 10 years or older keep the higher offset rate but lose the refundable form of it.
Clinical manufacturing is an open question
Treasury is also seeking views on whether clinical manufacturing R&D expenditure should be eligible for the R&DTI.
The Treasurer’s release says the government will consider feedback on the appropriate treatment of that spending. Neither the consultation page nor the release says which way it is leaning.
The answer will matter most to biotech and medtech manufacturers.
Other draft measures released alongside
The Treasurer’s release also covered other exposure draft materials:
- The Innovative Business CGT Concession, announced in June, with a 15-year eligibility requirement across all firms alongside $50 million turnover and innovation requirements, three years of equity holding and no cap. Estimated cost: $160 million over the forward estimates
- Expanded venture capital tax incentives from July 1, 2027, with most caps not updated since the 2000s
- Fringe benefits tax changes for electric vehicles
- Flexibility for taxpayers to report and pay PAYG instalments monthly, allowing business and investment activity to be reflected more frequently
Consultation on the R&DTI draft closes on 28 September 2026.
