A company turning over less than $20 million receives a 43.5 per cent refundable offset on eligible R&D spend. Refundable means it arrives as money, not as a credit against tax you are not yet paying.
For most Australian biotechs this is the largest source of funding that costs no equity, and often the difference between a program continuing and a company running out of runway. Prime Innovation, a specialist division of Prime Partners, works with pharmaceutical, biotech and medtech companies on identifying eligible activity, applying the Clinical Trials Determination properly, managing overseas findings and keeping documentation that survives review. Fixed fee, never a percentage of the refund.
Drug and device development is long, expensive and almost entirely pre-revenue, which is exactly the situation a refundable offset is built for. On top of that, clinical trials in phases 0, I, II and III for a therapeutic good that is not yet approved are taken to be core R&D activities under the Clinical Trials Determination 2022, so the usual eligibility argument does not have to be had for them. What is left is getting the expenditure, the apportionment and the documentation right.
The single biggest 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 just called the Clinical Trials Determination. It commenced on 1 April 2022 and is still in force.
An activity that falls inside it is taken to be a core R&D activity. In practice that means showing the trial is covered, rather than separately proving technical uncertainty, a systematic progression of work and a purpose of generating new knowledge for that activity. It gives certainty and a shorter registration path. It does not give you a different program with different rules.
Phase 0, exploratory first in human microdosing studies.
Phase I, first administration to humans, safety, tolerability and 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 and pre-market pivotal stage trials.
All of them have to relate to an unapproved therapeutic good, meaning a medicine, device, diagnostic or other therapeutic good not yet on the Australian Register of Therapeutic Goods.
Phase IV and other post-market trials.
Trials of generic products and biosimilar medicines.
Marketing, market testing and promotional activity.
Routine bioequivalence testing where there is no technical uncertainty.
A trial outside the determination is not automatically ineligible. It has to be self-assessed against the standard core and supporting tests instead, which is where the work is.
The incentive sits in Division 355 of the Income Tax Assessment Act 1997. Beyond covered trials, a wide range of laboratory and pre-clinical work is core R&D where it involves real technical uncertainty, a systematic progression, and the purpose of generating new knowledge.
New molecular entities, novel formulations or delivery mechanisms where efficacy, stability or bioavailability is genuinely uncertain.
In-vitro assays and animal model studies testing a hypothesis about safety or mechanism of action, where the outcome cannot be known in advance.
Discovering and validating biomarkers, companion diagnostics or assays where sensitivity and specificity are unproven.
Devices and combination products where technical performance against the intended clinical use is uncertain.
Novel synthesis routes, cell line development or fermentation processes where yield, purity or scalability cannot be predicted from what is already known.
Manufacturing trial material for a covered clinical trial, as a supporting activity tied to the core trial.
Data management, biostatistics and trial documentation that directly support a core activity.
Routine testing, commercial scale manufacture and regulatory paperwork are not core R&D on their own, whatever the program around them is doing.
Most biotechs are pre-revenue and in a tax loss position, so an offset held as a credit against future tax is worth very little now. A refundable offset is paid as cash.
| Aggregated turnover | Offset | What it means |
|---|---|---|
| Under $20 million | 43.5%, refundable | Cash from the ATO even while making losses, which is the usual pre-revenue outcome. |
| $20 million or more | Corporate tax rate plus an intensity premium, non-refundable | A credit against tax payable. The premium scales with how R&D intensive the company is. |
Watch the turnover test before you rely on the refund. Aggregated turnover picks up every connected entity and affiliate worldwide, so an Australian biotech owned by a larger overseas parent can be pushed past $20 million on group turnover alone, which turns a cash refund into a credit the company cannot use. We model that before anyone budgets around it.
A biotech developing a novel small molecule therapeutic. No product revenue, aggregated turnover under $20 million including a little grant and interest income. It is running a Phase I trial of an unapproved therapeutic good in Australia, alongside pre-clinical work.
| Category | Total cost | Eligible | Why |
|---|---|---|---|
| Phase I trial, CRO, sites and monitoring | $1,800,000 | $1,800,000 | A 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 per cent apportioned to core R&D on timesheets |
| Biostatistics and data management | $180,000 | $180,000 | Supporting activity tied to the trial |
| Lab consumables and reagents | $220,000 | $160,000 | The R&D portion only |
| Total | $3,500,000 | $3,300,000 |
$3,300,000 of eligible expenditure at 43.5 per cent is a refundable offset of $1,435,500. Turnover is under $20 million and the company is in losses, so that arrives as cash. Roughly eighteen months of extra runway, funded by the ATO rather than by selling more equity.
Illustrative only. What a claim is actually worth depends on your facts, your apportionment, and any feedstock or recoupment adjustments.
Biotech programs often run sites overseas, to reach a patient population or a specialist facility. Overseas expenditure is only claimable where AusIndustry has issued a positive overseas finding before you claim, and the activity has to meet all four of these.
The deadline is the part that catches people. The application has to be lodged before the end of the income year in which the overseas activity is conducted. AusIndustry cannot accept a late application or grant an extension under any circumstances. Miss it and the overseas spend is permanently ineligible, which is one of the most expensive mistakes in this area and one of the easiest to avoid by planning early.
Once a formulation or process is proven, manufacturing it at commercial scale is routine production. The product being innovative does not make the manufacturing experimental.
Offshore trial spend is lost unless the finding is lodged before the end of the income year the activity happens in. There are no extensions.
Worldwide connected entity and affiliate turnover can push an Australian company past $20 million and turn the cash refund into a credit it cannot use.
Where R&D turns inputs into product that is later sold or used, a feedstock adjustment claws part of the benefit back. It catches companies that sell or use trial material.
Post-market trials, and trials of generics and biosimilars, sit outside the determination and are generally not core R&D.
Preparing the dossier, routine TGA submissions and quality assurance are not experimental in themselves. They count only as supporting activity tied to a registered core activity.
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. They are proposed to apply to income years starting on or after 1 July 2028, so they do not touch a current year claim.
| Measure | Proposed change |
|---|---|
| Refundable offset turnover threshold | Up from $20 million to $50 million |
| Supporting R&D activities | Removed from eligibility |
| Core offset rates | Up by 4.5 percentage points |
| Minimum spend | Up from $20,000 to $50,000, with smaller claims still possible through a Research Service Provider or a CRC |
| Expenditure cap | Up from $150 million to $200 million |
| Refundability | Limited to companies in their first ten years |
The ten year limit on refundability is the contentious one for biotech, where a program routinely runs longer than a decade before there is any revenue at all. We are watching the draft legislation and will talk to affected clients well before anything commences.
A pharma or biotech claim sits where all three meet, and a claim that satisfies one of them while ignoring the others does not survive review. Our R&D work is led by Hamish Sinclair, our R&D Manager, who works across software and pharmaceutical clients. We align the AusIndustry technical requirements with the ATO's expenditure rules and document the claim so it holds up if it is looked at.
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 claim that stands up than one that looks larger.
The two things that most often cost a biotech money, an overseas finding and the group turnover test, both have to be dealt with before the income year closes. After that there is nothing anyone can do.
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