Can I Claim R&D Tax Incentive as a Business Expense in Australia?
Yes, eligible R&D activities receive a refundable tax offset of 18.5% above the company tax rate for groups under A$20m turnover (effectively 43.5%), or non-refundable 8.5%/16.5% for larger groups. Activities must be registered with AusIndustry.
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What Australian Taxation Office (ATO) says
Division 355 ITAA 1997 provides the R&D Tax Incentive. Eligibility requires 'core R&D activities' (experimental, with no known outcome) and 'supporting R&D activities'. Registration with AusIndustry is mandatory before the offset can be claimed in the company tax return. For income years from 1 July 2021, a company with aggregated turnover under A$20 million claims a refundable offset at its own company tax rate plus 18.5 percentage points. For a base rate entity on 25 percent that is 43.5 percent, but a company on 30 percent gets 48.5 percent. A company with turnover of A$20 million or more claims a non-refundable offset at its rate plus 8.5 points (R&D intensity up to 2 percent) or plus 16.5 points (above 2 percent). The minimum annual eligible expenditure is A$20,000. Activities must be registered within 10 months of the end of the income year.
When you can claim
- Salary of staff conducting eligible R&D
- Contract R&D services from registered RSPs
- Materials consumed in R&D
- Decline in value of plant used for R&D
- Software developer time on experiments to solve a technical problem that has no known solution
When you cannot claim
- Activities that don't meet 'core R&D' definition (no technical novelty)
- Routine software upgrades or marketing
- Activities outside Australia (limited exceptions with approval)
- Expenditure not at risk (e.g. paid by customer)
- Spending on activities that are routine, such as adding a feature to an existing product with a known method
Good to know
Pro tip: Document the R&D hypothesis, experiments and results contemporaneously. AusIndustry audits frequently focus on whether activities were genuinely 'experimental' or just routine engineering.
Important: From 1 July 2028 the intensity threshold is announced to fall from 2 percent to 1.5 percent and the refundable turnover threshold to rise from A$20 million to A$50 million. Keep an eye on these dates if a claim is planned for later years.
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