Key takeaways
- The R&D tax incentive is self-assessed. The Department of Industry, Science and Resources registers activities and the ATO processes claims.
- Eligibility is assessed at the activity level, and the work must be genuine experimentation whose outcome cannot be known in advance.
- You must register within 10 months of the end of the income year in which the R&D took place.
- The Budget reforms are not yet law, per the ATO, and are proposed to start from 1 July 2028.
What is the R&D tax incentive and who can claim it?
The R&D tax incentive is a legislated, self-assessed program that offsets some of the cost of eligible research and development, and it is open to all industry sectors, including technology businesses. To claim it you must be an eligible R&D entity, conduct at least one eligible core R&D activity, register your activities within 10 months of the end of the income year, and claim through your company tax return. The 2026-27 Federal Budget announced reforms. The ATO states they are not yet law and would start from 1 July 2028.
Business.gov.au describes eligible R&D entities as corporations: those incorporated under Australian law, foreign-incorporated companies that are Australian residents for tax purposes, and certain foreign companies operating through a permanent establishment in a treaty country. If you trade as a sole trader, partnership or trust, get advice before assuming access.
What counts as eligible R&D for a software business?
Eligibility is decided at the level of activities, not projects. Core R&D activities are experimental activities conducted to generate new knowledge, such as new or improved products, processes or services, where the outcome cannot be known or determined in advance and can only be determined by applying a systematic progression of work: hypothesis, experiment, observation, evaluation and logical conclusions.
Supporting R&D activities are those directly related to a core activity. Some must also be conducted for the dominant purpose of supporting a core activity. Certain activities are excluded altogether, and business.gov.au publishes the list. R&D relating to tobacco and gambling is ineligible for income years starting on or after 1 July 2025, unless conducted for the sole purpose of harm minimisation.
Illustrative example only: a software company tests several untested approaches to a technical problem where no competent professional could say in advance which, if any, would work, and records its hypotheses and results. That pattern fits the definition of core R&D. By contrast, building a standard feature using established methods, where the outcome can be determined in advance, would generally not qualify. The department decides whether activities are eligible, so test borderline cases rigorously.
What expenditure can you claim?
You can only claim expenditure on eligible activities that have been registered. You self-assess the expenditure and claim it in your company tax return.
At the time of writing, business.gov.au states that eligible R&D expenditure for the income year must be at least $20,000, unless you use a registered research service provider or contribute to the Cooperative Research Centres Program. The Budget proposes lifting this to $50,000 from 1 July 2028. The offset itself depends on your company's circumstances, and we have not set out rates here because they are the subject of proposed change. Check the current ATO and business.gov.au pages.
What are the steps to register and claim?
Business.gov.au sets out the process in four steps.
- Self-assess your eligibility as an entity, for your activities and for your expenditure. You can ask the department for an advance finding if you want assurance first.
- Conduct your R&D and keep records before, during and after each activity. If you will claim for work done overseas, you need an overseas finding.
- Register with the department within 10 months of the end of your company's income year in which the activities took place.
- Claim the offset through your company tax return with the ATO. Both the department and the ATO may review your claim.
What did the May 2026 Budget propose?
On 12 May 2026 the Government announced seven changes. The ATO states the measure is not yet law, and that all changes would take effect from 1 July 2028 and apply to all R&D entities. The proposals include:
- removing eligibility for supporting R&D activities, with a higher offset for core activities
- restricting refundable offsets to a company's first 10 years of operation, and lifting the turnover threshold for the refundable offset from $20 million to $50 million
- increasing the minimum annual expenditure from $20,000 to $50,000
- lowering the intensity premium threshold and lifting the maximum expenditure threshold from $150 million to $200 million
How should you prepare now?
Because current rules apply until any change commences and the proposals could be amended, keep contemporaneous records of the hypothesis, the experiment and the result for each activity. Separate core work from supporting work in your records, since the supporting category is proposed to lose eligibility. Review your timesheet and cost records so expenditure can be traced to registered activities.
Would a free 30-minute session help?
If you are unsure whether the R&D tax incentive is worth pursuing for your business, we can review your structure, activities and records and explain how a claim would fit into your company tax return. ANH Accounting is a Sydney advisory firm and a Registered Tax Agent (26258346). You are welcome to book a free 30-minute session, with no obligation.
Frequently asked questions
Can a sole trader claim the R&D tax incentive?
Business.gov.au describes eligible R&D entities as corporations, so a sole trader should get advice before assuming access.
How long do I have to register R&D activities?
You must apply within 10 months of the end of the income year in which the R&D activities took place.
Is the R&D tax incentive a grant?
No, it is a self-assessed tax offset, where the department registers your activities and the ATO processes your claim.
Is there a minimum amount I need to spend?
Currently yes, as business.gov.au states at least $20,000 of eligible expenditure per income year unless you use a registered research service provider. The Budget proposes $50,000 from 1 July 2028.
Can I get certainty before I register?
Yes, you can apply to the department for an advance finding on your Australian R&D activities before registering.
General information only, last reviewed October 2026. It is not personal advice. Tax law changes, so confirm your circumstances with a registered tax agent or on ato.gov.au.