R&D Tax Incentive FAQ
Answers to the most common questions about the R&D Tax Incentive: what it is, who qualifies, what counts as eligible R&D, key deadlines, and why claims fail.
The Basics
What is the R&D Tax Incentive?
The R&D Tax Incentive (RDTI) is an Australian federal government program that provides a tax offset to companies for expenditure on eligible research and development activities. It is jointly administered by AusIndustry and the ATO. Companies with aggregated turnover under $20 million receive a 43.5% refundable cash offset, meaning cash back even if your company is in tax loss. Larger companies receive a non-refundable offset at a premium above their company tax rate.
How much can I claim?
For companies with aggregated turnover under $20 million, the offset is 43.5% of eligible R&D expenditure, so $300,000 in eligible spend returns $130,500 in cash. For larger companies, the effective rate is your company tax rate plus 8.5% (R&D intensity up to 2%) or plus 16.5% (R&D intensity above 2%). The premium reduces to zero on R&D expenditure above $150 million.
What is the difference between a refundable and non-refundable offset?
A refundable offset is paid as cash regardless of whether your company has a tax liability. It applies to companies with aggregated turnover under $20 million, even loss-making companies receive the payment. A non-refundable offset reduces your company's tax payable but cannot be refunded as cash; any excess is carried forward to future income years.
Who is eligible to claim?
Australian incorporated companies and foreign companies operating through an Australian permanent establishment under a double tax agreement. Sole traders, partnerships, and trusts are not eligible. There is no industry restriction and no minimum company size: the gates are entity type, at least $20,000 in eligible R&D expenditure, and whether your activities meet the legislative definition of R&D.
Can a startup claim if we are pre-revenue or in tax loss?
Yes. Pre-revenue and loss-making startups can claim the RDTI. Because the offset is refundable for companies under $20 million turnover, startups receive the cash refund regardless of their tax position. This makes the RDTI one of the most accessible sources of non-dilutive funding for early-stage Australian companies investing in technical development.
What is the minimum spend required to claim?
Your total eligible R&D expenditure must reach at least $20,000 in the income year. One exception applies: if your R&D is conducted through a registered Research Service Provider (RSP), the minimum does not apply. Note that from 1 July 2028, the minimum threshold increases to $50,000.
What Qualifies as R&D
What makes an activity eligible for the RDTI?
Eligible core R&D activities must involve three things: genuine technical uncertainty, an outcome that a competent professional in your field could not readily predict; systematic experimentation to resolve that uncertainty; and a purpose of generating new knowledge. All three must be present. Innovation or product novelty alone is not enough, the legislative test is specifically about resolving technical uncertainty through experimentation.
Does software development qualify?
Software development qualifies only when it involves genuine technical uncertainty that a competent professional could not readily resolve. Developing novel algorithms, solving performance or scalability problems with no known solution, or building systems where the technical approach is genuinely unknown can qualify. Building a standard application using established frameworks, libraries, or documented methods does not. The most common disqualifying scenario is routine development described in R&D terms.
Does AI or machine learning development qualify?
AI and machine learning R&D can qualify when it involves genuine technical uncertainty and experimentation, developing or modifying models to overcome performance limits, experimenting with architectures or training approaches, or fine-tuning LLMs for domain-specific applications where the outcome is genuinely uncertain. It does not qualify for straightforward API integration, off-the-shelf model deployment, or business process automation with no measurable technical uncertainty. AI claims fail more often than traditional software claims because the work is described as implementation rather than experimentation.
Can I claim for a project that failed?
Yes, and a failed project can be stronger evidence of eligibility. The RDTI requires genuine technical uncertainty, and failure demonstrates that the outcome was not known in advance. What the ATO looks for is that you ran systematic experiments to find out. The commercial outcome is irrelevant to eligibility; the experimental process is what matters. Records of failure, iteration, and refinement are exactly what reviewers want to see.
What activities are specifically excluded?
Excluded activities include: market research, feasibility studies, and consumer surveys (excluded by statute regardless of technical sophistication); routine software development using established frameworks; quality control and routine testing against known specifications; applying commercially proven or publicly documented methods; and activities in social sciences, arts, or humanities. Overseas R&D is also not claimable unless you hold an advance overseas finding from AusIndustry.
Process and Deadlines
When do I need to register with AusIndustry?
You must register through the AusIndustry R&D Tax Incentive portal within 10 months of the end of your income year. For a standard 30 June financial year, this means by 30 April the following year. This deadline is statutory, and missing it means your claim for that year is rejected entirely regardless of how eligible your R&D was.
What happens if I miss the registration deadline?
You lose access to the R&D Tax Incentive for that income year entirely. There are no extensions and no exceptions, regardless of how eligible your R&D was. This is the single most common reason claims fail completely. Set reminders well in advance, the registration takes time to prepare properly, and rushing it near the deadline also increases the risk of errors.
How long does it take to receive my R&D tax refund?
For companies receiving a refundable offset, the cash refund is typically paid within 2 to 4 weeks of your tax return being assessed. The total timeline from starting your claim to cash in hand is typically 2 to 4 months minimum. Delays occur if your claim is selected for compliance review, if there are inconsistencies between your AusIndustry registration and ATO schedule, or if you have outstanding tax debts. If cash flow is urgent, plan around realistic timelines.
Can I claim retrospectively for previous financial years?
Yes, in some circumstances. You may be able to claim for R&D conducted in previous financial years, provided you still have records to substantiate the activities and expenditure, you can register with AusIndustry within 10 months of the relevant year-end, and the claim remains valid under current legislation. Many first-time claimants successfully recover prior years. If you think you have missed previous claims, seek advice sooner rather than later as time limits apply.
Costs and Expenditure
What costs can I claim as eligible R&D expenditure?
Eligible expenditure includes: salaries and wages apportioned for time spent on R&D activities; contractor and consultancy fees for work directly related to R&D; materials and consumables used or transformed in R&D; depreciation on equipment used for R&D; and overhead costs where directly attributable and supported by records. Capital expenditure (the asset itself), interest costs, entertainment, and overseas R&D without an advance finding are not claimable.
Can I claim overseas R&D expenditure?
Generally no. R&D activities conducted outside Australia cannot be claimed unless you hold an advance overseas finding from AusIndustry. Obtaining this requires demonstrating that the overseas activities are essential and could not reasonably be conducted in Australia, for example, accessing a specific population, specialised facility, or expertise unavailable here. There must also be at least one core R&D activity conducted solely in Australia.
Can I receive the RDTI alongside government grants?
Yes, but you cannot claim the same expenditure through both programs. If you receive a government grant for R&D activities, the grant amount must be deducted from your eligible R&D expenditure before calculating your RDTI offset. The programs are complementary, many companies use both, but the overlap must be managed carefully to avoid double-claiming the same costs.
Risk, Reviews, and Why Claims Fail
What percentage of RDTI claims are reviewed by the ATO?
The ATO reviews approximately 20 to 30% of all RDTI claims, with higher rates for first-time claimants, large claims, and software or AI-related R&D. A review is not an accusation, it is a compliance check. Claims built with strong documentation and clear technical framing from the outset are far better positioned to survive review with their full value intact. We design every claim as if it will be reviewed, even when it never is.
Why do R&D Tax Incentive claims fail or get reduced?
Most failed or reduced claims fail not because the R&D was not genuine, but because of how it was framed and documented. Common failure points include: activities described in business or commercial terms rather than technical terms; weak or absent connection between claimed expenditure and R&D activities; no evidence of hypothesis-driven experimentation; vague or generic AusIndustry registration descriptions; and documentation assembled after the fact rather than created contemporaneously. These are all preventable with specialist input from the start.
What documentation do I need if my claim is reviewed?
Reviewers look for: evidence of hypothesis-driven experimentation created at the time of the work (not retrospectively); technical documentation such as project plans, test results, commit logs, and meeting notes; timesheets or records clearly showing time allocation to R&D; a clear link between expenditure and registered activities; and evidence that outcomes were genuinely uncertain at the outset, including records of failure, iteration, and refinement. Claims without contemporaneous documentation are the most common reason for reductions at review.
Working with an R&D Consultant
Do I need an R&D tax consultant to make a claim?
You are not required to use one, but most companies benefit significantly from specialist advice. The most common reason claims are reduced is poor framing, not ineligible R&D. A specialist consultant identifies activities you may have overlooked, writes AusIndustry registrations that articulate technical uncertainty clearly, calculates expenditure accurately, and builds documentation that holds up under ATO scrutiny. The difference between a generalist and a specialist often determines both the size and defensibility of your claim.
How are R&D consultant fees typically structured?
Fees are typically structured as: fixed fee (a set price for a defined scope, best for well-documented claims); percentage-based (a percentage of the tax offset received, aligning the consultant's incentive with your outcome); or hybrid (a smaller upfront fee combined with a success component). When comparing consultants, ask whether the fee structure creates an incentive to maximise the claim regardless of defensibility, overreaching increases your review risk and potential liability.
Still Have Questions?
We offer a free initial eligibility assessment, no obligation, no generic advice. We will tell you honestly whether your activities qualify and what a successful claim would look like.