R&D Tax Incentive for Pharmaceutical & Biotech Companies

R&D Tax Incentive for Pharmaceutical & Biotech Companies – Prime Innovation

Australian pharmaceutical and biotech companies can claim a 43.5% refundable R&D tax offset on eligible expenditure where aggregated turnover is under $20 million – paid as a cash refund even when the company is pre-revenue and making losses. Clinical trials in phases 0, I, II and III for an unapproved therapeutic good are accepted as core R&D activities under the Clinical Trials Determination 2022, which removes much of the usual eligibility uncertainty. Prime Innovation prepares and defends these claims for a fixed fee.

Does Your Clinical or Laboratory Research Qualify?

For most Australian biotechs the R&D Tax Incentive is the single largest source of non-dilutive funding – frequently the difference between a program continuing and a company running out of runway. Drug and device development is long, capital-intensive and almost entirely pre-revenue, which is exactly where a refundable offset matters most: the ATO pays cash regardless of profitability.

For eligible companies with aggregated turnover under $20 million, the incentive provides a 43.5% refundable tax offset on eligible R&D expenditure. Larger companies (turnover $20 million or more) receive a non-refundable offset at their corporate tax rate plus an intensity premium.

Prime Innovation, a specialist division of Prime Partners, helps pharmaceutical, biotech and medtech companies identify eligible activities, apply the Clinical Trials Determination correctly, manage overseas-trial findings and maintain documentation that withstands AusIndustry scrutiny.

Discuss Your Biotech R&D Claim

Clinical Trials and the R&D Tax Incentive

The biggest single development for biotech claims was the Industry Research and Development (clinical trials, phase 0, I, II, III, pre-market pilot stage, pre-market pivotal stage, for an unapproved therapeutic good) Determination 2022 – usually shortened to the Clinical Trials Determination. It commenced on 1 April 2022 and remains in force.

Activities that fall within the determination are taken to be core R&D activities. In practice this means you only need to demonstrate that your trial is covered by the determination, rather than separately proving each limb of the core R&D test (technical uncertainty, a systematic progression of work, and the purpose of generating new knowledge) for that activity. It is a certainty and registration short-cut, not a separate program.

Covered by the determination

  • Phase 0 – exploratory first-in-human microdosing studies
  • Phase I – first administration to humans; safety, tolerability, pharmacokinetics
  • Phase II – trials in patients with the target condition; safety and efficacy signals
  • Phase III – larger confirmatory trials of clinical benefit and side effects
  • Pre-market pilot stage and pre-market pivotal stage trials

All must relate to an unapproved therapeutic good – a medicine, medical device, diagnostic or other therapeutic good not yet on the Australian Register of Therapeutic Goods.

NOT covered by the determination

  • Phase IV and other post-market trials
  • Clinical trials of generic products and biosimilar medicines
  • Marketing, market testing and promotional activities
  • Routine bioequivalence testing with no technical uncertainty

Important: not all clinical trial activities are covered by the determination. Trials outside its scope may still qualify, but they must be self-assessed against the standard core and supporting R&D tests – which is exactly where specialist advice earns its keep.

What Pharma and Biotech R&D Qualifies

The R&D Tax Incentive is governed by Division 355 of the Income Tax Assessment Act 1997. Beyond covered clinical trials, a wide range of pre-clinical and laboratory work qualifies as core R&D activities where it involves genuine technical uncertainty, a systematic progression of work and the purpose of generating new knowledge.

Drug Discovery & Formulation

Developing new molecular entities, novel formulations or delivery mechanisms where efficacy, stability or bioavailability is genuinely uncertain.

Pre-Clinical Studies

In-vitro assays and animal model studies designed to test a hypothesis about safety or mechanism of action where the outcome cannot be known in advance.

Covered Clinical Trials

Phase 0, I, II and III trials of an unapproved therapeutic good, accepted as core R&D under the Clinical Trials Determination 2022.

Biomarker & Diagnostic Development

Discovering and validating biomarkers, companion diagnostics or assays where sensitivity and specificity outcomes are unproven.

Medical Device Development

Designing devices and combination products where technical performance against the intended clinical use is uncertain.

Process & Bioprocess R&D

Developing novel synthesis routes, cell-line or fermentation processes where yield, purity or scalability cannot be predicted from existing knowledge.

Investigational Batch Manufacture

Manufacturing trial or investigational material for use in a covered clinical trial, as a supporting activity tied to the core trial.

Supporting Activities

Data management, biostatistics and trial documentation that directly support core R&D activities also qualify.

The Benefit – Why Refundability Matters for Biotech

Because most biotechs are pre-revenue and in a tax-loss position, the refundable offset is the key feature. The offset is paid as cash, not held as a credit against future tax.

Aggregated turnover Offset What it means
Under $20 million 43.5% refundable Cash refund from the ATO even when making losses – the typical pre-revenue biotech outcome
$20 million or more Corporate tax rate + intensity premium (non-refundable) A credit against tax payable; premium scales with R&D intensity

Watch the turnover test. Aggregated turnover includes the turnover of all worldwide connected entities and affiliates. An Australian biotech subsidiary of a larger overseas parent can be pushed over the $20 million threshold by group turnover – converting a cash refund into a non-refundable offset. We model this before you rely on the refund.

Worked Example – Pre-Revenue Biotech Cash Refund

Company profile: a clinical-stage biotech developing a novel small-molecule therapeutic. No product revenue. Aggregated turnover (including a small amount of grant and interest income) under $20 million. Running a Phase I trial of an unapproved therapeutic good in Australia, plus pre-clinical work.

Category Total Cost R&D Eligible Notes
Phase I clinical trial (CRO, sites, monitoring) $1,800,000 $1,800,000 Covered core activity under the determination
Investigational drug manufacture (trial batches) $600,000 $600,000 Supporting activity – material for the covered trial
Pre-clinical and assay development (in-house scientists) $700,000 $560,000 80% apportioned to core R&D on timesheets
Biostatistics & data management $180,000 $180,000 Supporting activity tied to the trial
Lab consumables and reagents $220,000 $160,000 R&D portion only
Total $3,500,000 $3,300,000

R&D Tax Incentive offset: eligible expenditure of $3,300,000 at 43.5% = $1,435,500 refundable tax offset. Because turnover is under $20 million and the company is in a tax-loss position, this is paid as a cash refund – roughly 18 months of additional runway funded by the ATO rather than by dilutive equity.

Illustrative only. Actual eligibility and benefit depend on your facts, apportionment and any feedstock or recoupment adjustments.

Offshore Trials – The Overseas Finding Trap

Biotech programs often run trial sites overseas to reach patient populations or specialist facilities. Overseas R&D expenditure is only claimable if AusIndustry has issued a positive Overseas Finding before you claim, and the overseas activity must meet all four conditions:

  • It has a significant scientific link to a core R&D activity conducted solely in Australia, and is essential to completing that Australian activity.
  • It cannot be conducted in Australia – because the facilities, expertise or equipment are not available here; it would breach a quarantine law; it needs a population of living things not available here; or it needs geographical or geological features not available here.
  • Financial reasons are not enough – “cheaper overseas” does not qualify.
  • The total cost of the overseas activities is less than the related Australian activities.

The deadline is unforgiving. An Overseas Finding application must be lodged before the end of the income year in which the overseas activity is conducted. AusIndustry cannot accept late applications or grant extensions under any circumstances. Miss it and the overseas spend is permanently ineligible. This is one of the most common and most expensive mistakes we see – and it is entirely avoidable with early planning.

Common Mistakes Biotech Companies Make

1. Treating Manufacturing Scale-Up as R&D

Once a formulation or process is proven, commercial-scale manufacturing is routine production, not experimentation. Scale-up costs are generally not eligible just because the product itself is innovative.

2. Missing the Overseas Finding Deadline

Offshore trial spend is lost unless an Overseas Finding is lodged before the end of the income year in which the activity is conducted. There are no extensions.

3. Overlooking the Group Turnover Test

Worldwide connected-entity and affiliate turnover can push an Australian biotech over $20 million and turn the cash refund into a non-refundable offset.

4. Ignoring Feedstock Adjustments

Where R&D transforms inputs into products that are later sold or applied to your own use, a feedstock adjustment claws back part of the benefit. It catches biotechs that sell or use trial-produced material.

5. Claiming Phase IV or Generic Trials

Post-market (phase IV) trials and trials of generic products and biosimilars are excluded from the determination and generally are not core R&D.

6. Claiming Regulatory and Admin Work as Core R&D

Preparing the regulatory dossier, routine TGA submissions and quality assurance are not experimental in themselves. They only qualify where they are genuine supporting activities tied to a core activity.

Changes Announced for 2028 – What Biotech Should Watch

The 2026-27 Federal Budget announced reforms to the R&D Tax Incentive as the first stage of the Government’s response to the Ambitious Australia strategic examination of R&D. These are announced, not yet legislated, and are proposed to apply to income years starting on or after 1 July 2028 – so they do not affect current-year claims. The headline measures are: the refundable offset turnover threshold rising from $20 million to $50 million; supporting R&D activities being removed from eligibility; core offset rates rising by 4.5 percentage points; the minimum spend rising from $20,000 to $50,000 (with claims below that still possible through a Research Service Provider or CRC); the expenditure cap rising from $150 million to $200 million; and refundability being limited to companies in their first 10 years of operation.

The 10-year refundability limit is contentious for biotech, where programs routinely run beyond a decade before any revenue. We are monitoring the draft legislation and will advise affected clients well ahead of any commencement.

Frequently Asked Questions

Are clinical trials eligible for the R&D Tax Incentive?
Yes. Phase 0, I, II and III clinical trials, plus pre-market pilot and pre-market pivotal stage trials, for an unapproved therapeutic good are accepted as core R&D activities under the Industry Research and Development (Clinical Trials) Determination 2022. Activities covered by the determination are taken to be core R&D, so you only need to show the trial is covered rather than separately proving the full core R&D test. Phase IV (post-market) trials and trials of generic products and biosimilar medicines are not covered.
How much is the R&D Tax Incentive worth to a pre-revenue biotech?
Companies with aggregated turnover under $20 million receive a 43.5% refundable tax offset on eligible R&D expenditure. Because it is refundable, a pre-revenue, loss-making biotech receives the offset as a cash refund from the ATO. On $3.3 million of eligible spend that is roughly $1.43 million in cash. Companies with turnover of $20 million or more receive a non-refundable offset at their corporate tax rate plus an intensity premium.
What is the Clinical Trials Determination 2022?
It is a legislative determination made under the Industry Research and Development Act 1986 that lists certain clinical trial stages – phase 0, I, II, III, pre-market pilot and pre-market pivotal – for an unapproved therapeutic good as core R&D activities. It commenced on 1 April 2022 and remains in force. It gives biotech and medtech companies greater certainty and a streamlined registration path, because they do not have to argue the technical-uncertainty test for a covered trial.
Can we claim R&D expenditure for trials conducted overseas?
Only if AusIndustry has issued a positive Overseas Finding before you claim. The overseas activity must have a significant scientific link to a core R&D activity conducted solely in Australia, must be unable to be conducted in Australia for a permitted reason (facilities, expertise or equipment, quarantine law, a population not available here, or geographical or geological features), and the overseas activities must cost less than the related Australian activities. The application must be lodged before the end of the income year in which the overseas activity is conducted, and no late applications or extensions are allowed.
Is manufacturing scale-up eligible for the R&D Tax Incentive?
Generally no. Once a product, formulation or process is proven, commercial-scale manufacturing is routine production, not experimentation, and is not eligible. Manufacturing investigational or trial batches for use in a covered clinical trial can qualify as a supporting activity. Where R&D produces tangible product that is later sold or used, a feedstock adjustment may also reduce the benefit.
Is regulatory and TGA documentation work eligible?
Preparing a regulatory dossier, making routine TGA submissions and performing quality assurance are not experimental activities in their own right and are not core R&D. They may qualify as supporting activities where they have a direct, close and relatively immediate connection to a registered core R&D activity. The distinction matters and is a frequent area of AusIndustry review.
When do we need to register our R&D activities?
R&D activities must be registered with AusIndustry within 10 months of the end of your company’s income year – for example, by 30 April 2026 for a 30 June 2025 year end. Registration is annual and must be completed before you claim the offset in your company tax return. Missing the deadline means the claim is lost for that year.
What records does AusIndustry expect for a biotech R&D claim?
AusIndustry expects contemporaneous documentation that shows technical uncertainty existed, a systematic progression of work was followed and new knowledge was generated. For biotech this includes trial protocols and ethics approvals, lab notebooks, batch and manufacturing records, statistical analysis plans, study reports and dated experimental data. Records should be created during the R&D, not assembled retrospectively at claim time.
Are the 2028 R&D Tax Incentive changes in effect yet?
No. The measures announced in the 2026-27 Federal Budget – including the refundable offset turnover threshold rising to $50 million, supporting R&D activities losing eligibility, the minimum spend rising to $50,000, the cap rising to $200 million and refundability being limited to companies in their first 10 years of operation – are announced but not yet legislated, and are proposed to start for income years beginning on or after 1 July 2028. They do not affect current-year claims. We monitor the draft legislation and advise affected clients ahead of any commencement.

Why Biotech Companies Choose Prime Innovation

R&D claims for pharma and biotech sit at the intersection of clinical science, regulatory pathways and tax law. Our R&D specialists – led by Hamish Sinclair, R&D Manager, who works with both software and pharmaceutical clients – prepare claims that align the AusIndustry technical requirements with the ATO’s expenditure rules, and that are documented to survive review.

We charge a fixed fee – never a percentage of your refund. As chartered accountants we are accountable for the position we sign, and we would rather build a defensible claim than an inflated one.

R&D Tax Incentive by Industry

Get Expert R&D Tax Advice for Your Biotech

Identifying eligible activities, applying the Clinical Trials Determination, managing overseas-trial findings and maintaining defensible documentation requires specialist expertise. Prime Innovation works with pharmaceutical, biotech and medtech companies across Australia for a fixed fee.

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About Prime Innovation

Prime Innovation is the R&D Tax Incentive advisory division of Prime Partners Chartered Accountants. We provide fixed fee R&D claim support – no contingency fees, no percentage of your refund. Our chartered accountants prepare defensible claims that withstand ATO and AusIndustry review.

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