In the 2026/27 federal budget, the government announced major reforms to the R&D Tax Incentive (R&DTI) program, set to take effect from 1 July 2028. The reforms aim to reshape offset rates, eligibility, and the administration process, with the stated goal of simplifying the R&DTI process and sharpening its focus on companies conducting genuine development activities.
The proposed reforms include the following:
Expenditure Thresholds
The R&D expenditure threshold floor will increase from $20,000 to $50,000, and the maximum threshold will be raised from $150 million to $200 million. R&D activities valued below the $50,000 threshold must be undertaken with a Cooperative Research Centre or a Registered Service Provider to be eligible to be claimed.
Supporting R&D Activity Eligibility
From FY29, supporting R&D activities and expenditure will no longer be eligible for the R&DTI. This means the only eligible expenditure category is for ‘core’ R&D activities.
Offset Rate Changes
There will be changes to refundable and non-refundable offsets:
- Core R&D Offset Rates
Starting 1 July 2028, the offset rate for core R&D expenditure will increase by 4.5 percentage points. Currently, the offset rate is between 8.5% and 18.5% above the company’s corporate tax rate – in FY29, this increases to between 13% and 23%.
- Reduction in intensity thresholds
In addition, the intensity threshold for the intensity premium will be reduced from 2% to 1.5%. This will enable companies that are eligible for the non-refundable offset to more readily access the premium offset rate of up to 21% above their corporate tax rate.
Changes to turnover thresholds and refund eligibility
The turnover thresholds will increase from $20 million to $50 million, allowing growing companies with turnover below $50 million to access refundable tax offsets at the higher rate of 23% above the corporate tax rate.
However, the refundable tax offset for companies below $50 million will be limited to companies under 10 years old. For older companies, they will remain eligible for the R&DTI but will be limited to a non-refundable offset. However, it should be noted that they will still receive the higher offset rate of 23% above the corporate tax rate. It is currently unknown whether this will be based on the age of the corporate group as a whole or on the age of the R&D company.
Final Note
Overall, the above reforms to the R&DTI will narrow the definition of eligible R&D activities and expenses, significantly reducing the refundability; however, they will provide a higher rate of benefit for expenditure that does qualify. The change in the program’s will move Australia further out of step with the rest of the OECD in supporting research and innovation.
If you have any questions, contact the R&D Team at Prime Partners.