The Government has announced proposed reforms to the Research and Development Tax Incentive (RDTI). Broadly, the measures are intended to focus support more directly on core experimental R&D, while reshaping eligibility settings and refundability outcomes for some businesses.
6 key changes to the R&D Tax Incentive
1. Supporting R&D activities removed
From 1 July 2028, supporting R&D activities will no longer be eligible for the RDTI. Supporting activities are those undertaken to support core experimental activities.
2. Increase to core R&D offset rates
To offset the removal of supporting activities, the Government has proposed a 4.5 percentage point increase in the offset rates for eligible core R&D expenditure.
3. R&D intensity premium threshold reduced (non‑refundable offset):
For entities eligible for the non‑refundable R&D tax offset that are subject to the R&D intensity premium, the threshold is proposed to reduce from 2.0% to 1.5%.
4. Refundability changes and higher turnover threshold
The turnover threshold for the highest refundable offset rate is proposed to increase from $20 million to $50 million. However, refundable R&D tax offsets would be limited to eligible entities that have been incorporated for less than 10 years. Other entities below the $50 million threshold would generally continue to access the incentive on a non‑refundable basis.
5. Maximum eligible expenditure cap increased
The maximum eligible R&D expenditure threshold is proposed to increase from $150 million to $200 million.
6. Minimum expenditure threshold increased
The minimum eligible expenditure threshold is proposed to increase from $20,000 to $50,000, unless activities are undertaken through a registered Research Service Provider or Cooperative Research Centre.
Indicative impact on offset rates
The proposed 4.5 percentage point uplift could materially increase effective R&D offset rates. Based on the current framework:
- refundable offset claimants currently receiving a 43.5% offset could potentially receive an effective offset rate of approximately 48%;
- non-refundable offset claimants subject to the intensity premium structure could potentially access effective rates exceeding 50% for eligible core R&D expenditure, depending on company tax rate and R&D intensity.
However, the final rates and mechanics will depend on how the Government implements the proposed “core R&D” framework and whether separate rate structures are introduced for refundable and non-refundable claimants.
What this means for business
The distinction between core and supporting activities will be critical
Businesses currently claiming both core and supporting activities should expect the allocation of costs to become more important under the revised framework. From 1 July 2028, claims will need to be more clearly supported by evidence that the expenditure relates to core experimental activities.
Net outcomes may vary depending on your cost mix
While the proposed 4.5 percentage point increase in core offset rates improves the benefit on eligible core expenditure, businesses with material supporting activity costs may still see a reduction in overall claims once supporting activities are excluded.
Refundability is proposed to be more limited for established businesses
Restricting refundable offsets to entities that have been incorporated for less than 10 years of age is a significant change for businesses that currently receive cash refunds. Other entities below the $50 million turnover threshold may increasingly receive the benefit as a non‑refundable offset (reducing tax payable, rather than generating a refund).
More businesses may access higher intensity premium rates
Reducing the R&D intensity threshold to 1.5% should enable more businesses undertaking substantial core R&D to access higher non‑refundable offset rates, particularly where R&D investment is meaningful but falls just below the current 2% threshold.
Threshold changes may affect both smaller and larger programs
The higher $50,000 minimum expenditure threshold may exclude smaller R&D programs (unless undertaken through a registered Research Service Provider or CRC). Conversely, increasing the cap to $200 million increases the maximum level of eligible expenditure for larger R&D programs.
Actions to consider now
- Review current activity classifications: Consider how your existing RDTI claims are allocated between core and supporting activities, and what proportion may be affected from 1 July 2028.
- Engage earlier in the project lifecycle: The proposed reforms are likely to increase the importance of early-stage eligibility assessment and contemporaneous evidence collection. Ensure project records clearly support the experimental nature of the work (including hypotheses, testing, results and conclusions) and the basis for identifying core activities.
- Consider refundability impacts: Review whether the proposed “under 10 years” limitation and the increased $50 million turnover threshold could change whether you receive a refundable offset or a non‑refundable outcome.
- Update forecasts and budgets: Model the expected benefit under the proposed settings, including the higher core rates and the exclusion of supporting activities.
- For smaller programs, consider delivery pathways: If your spend is likely to be near the proposed $50,000 minimum threshold, consider whether an arrangement through a registered Research Service Provider or CRC is relevant (noting commercial and practical considerations).
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