What Is the R&D Tax Incentive? A Practical Guide
The R&D Tax Incentive (RDTI) is an Australian government program that provides tax offsets to companies conducting eligible research and development activities. It is designed to encourage innovation by reducing the after-tax cost of R&D. This guide explains how the RDTI works, who qualifies, and how to make a successful claim.
How the R&D Tax Incentive Works
The RDTI is a federal government program jointly administered by AusIndustry (Department of Industry, Science and Resources) and the Australian Taxation Office. AusIndustry assesses whether your R&D activities meet the legislative definition. The ATO calculates and pays the tax offset through your company tax return.
The offset reduces the net cost of your R&D by returning a percentage of eligible expenditure, either as a cash refund (refundable offset) or as a reduction in your tax liability (non-refundable offset). Which type you receive depends on your company's aggregated annual turnover.
R&D Tax Incentive Rates (2024-25 and 2025-26)
| Company type | Aggregated turnover | Offset type | Effective rate |
|---|---|---|---|
| Small or startup | Under $20 million | Refundable (cash) | 43.5% |
| Larger company (low R&D intensity) | $20 million or more | Non-refundable | Tax rate + 8.5% |
| Larger company (R&D intensity above 2%) | $20 million or more | Non-refundable | Tax rate + 16.5% |
R&D intensity is your eligible R&D expenditure as a percentage of total business expenditure. The non-refundable offset premium reduces to zero for R&D expenditure above $150 million.
Who Can Claim the R&D Tax Incentive?
The RDTI is available to Australian incorporated companies and foreign companies operating through an Australian permanent establishment under a double tax agreement. Sole traders, partnerships, and trusts cannot claim directly.
There is no industry or company size restriction. Pre-revenue startups, established manufacturers, software companies, medtech firms, and engineering businesses all access the same program. The only gates are entity type, expenditure threshold, and whether your activities meet the legislative definition of R&D.
Key requirements at a glance
- Entity type: Australian incorporated company or foreign company with an Australian permanent establishment
- Minimum spend: At least $20,000 in eligible R&D expenditure in the income year (exception applies if using a registered Research Service Provider)
- Registration: Activities must be registered with AusIndustry within 10 months of your financial year end. This deadline is absolute
- Eligible activities: At least one core R&D activity conducted in Australia
See our full R&D Tax Incentive eligibility guide for detailed criteria, examples, and a quick eligibility check.
What Qualifies as R&D?
The RDTI uses a specific legislative definition of R&D. It is not the same as general innovation or product development. To qualify, activities must involve genuine technical uncertainty, a systematic experimental approach, and a purpose of generating new knowledge.
The key test is whether a competent professional in your field could readily predict the outcome. If yes, it is probably not eligible. If the outcome is genuinely unknown and you are running experiments to find out, it may qualify.
Commonly eligible activities
- Novel algorithm or ML model development
- Engineering with uncertain material or structural outcomes
- Software solving problems with no known solution
- New drug formulations or biomedical devices
- Industrial processes with unresolved technical challenges
Commonly ineligible activities
- Routine software development using established frameworks
- Market research, feasibility studies, or surveys
- Quality control and routine product testing
- Applying publicly documented or commercially proven methods
- Activities in social sciences, arts, or humanities
For industry-specific examples and the full eligibility criteria, see our eligibility guide. For AI-specific guidance, see AI and the RDTI.
Common Misconceptions About the RDTI
The RDTI is often misunderstood. Here are key clarifications:
- You do NOT need a laboratory or scientists
- Pre-revenue startups CAN claim
- Software development CAN qualify (if there is technical uncertainty)
- You do NOT need patents or IP to claim
- Your claim will be reviewed. Preparation matters
What Expenditure Can You Claim?
Eligible R&D expenditure includes costs directly attributable to your registered R&D activities. The $20,000 minimum applies to the total of these notional deductions across the income year.
Claimable costs
- Salaries and wages: apportioned for time spent on R&D activities
- Contractor and consultancy fees: for work directly related to R&D (with some limitations for associates)
- Materials and consumables: used or transformed in R&D activities
- Depreciation: on plant and equipment used for R&D
- Overhead costs: where directly attributable and supported by records
- Payments to registered RSPs: Research Service Providers conducting R&D on your behalf
Non-claimable costs
- Capital expenditure: the asset itself is not deductible, only depreciation
- Interest and financing costs
- Overseas R&D expenditure: not claimable unless you hold an advance overseas finding from AusIndustry
- Costs for excluded activities: market research, quality control, and other statutorily excluded work
- Entertainment costs
How to Make an R&D Tax Incentive Claim
A successful RDTI claim requires:
Accurate identification of eligible R&D activities
Identify activities that involve genuine technical uncertainty and experimentation.
Clear documentation of technical uncertainty and experimentation
Document the unknowns, hypotheses, and iterative testing that defines your R&D.
Correct allocation of expenditure to R&D activities
Ensure costs are directly linked to eligible R&D work.
Registration with AusIndustry (within 10 months of year-end)
Submit your registration on time to maintain eligibility.
Completion of R&D schedule in your tax return
Ensure accurate completion of all required forms and schedules.
Most claims fail due to poor framing and documentation, not because the R&D was not genuine. See our full RDTI claim process guide for step-by-step detail on registration, deadlines, and ATO lodgement.
Why Work With rdtax.au
We specialise exclusively in the R&D Tax Incentive, not general accounting.
Our approach:
- Honest eligibility assessment before any claim proceeds
- Technical framing aligned to legislation and AusIndustry guidance
- Preparation for review from day one
- Support through ATO and AusIndustry processes
Whether you're a startup, first-time claimant, or AI-led company, we provide clear, risk-aware advice.
Frequently Asked Questions
What is the R&D Tax Incentive in Australia?
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, and is designed to reduce the after-tax cost of R&D for Australian businesses. Companies with under $20 million aggregated turnover receive a 43.5% refundable cash offset. Larger companies receive a non-refundable offset at a premium above their company tax rate.
How much can I claim through the RDTI?
For companies with under $20 million aggregated turnover, the offset is 43.5% of eligible R&D expenditure. On $300,000 of eligible spend, that is $130,500 back as cash. For larger companies, the effective rate is your company tax rate plus 8.5% (for R&D intensity up to 2%) or plus 16.5% (for R&D intensity above 2%). The premium reduces to zero on R&D expenditure above $150 million.
Can a startup claim the R&D Tax Incentive?
Yes. Pre-revenue and early-stage startups can claim the RDTI. Because the offset is refundable for companies under $20 million turnover, startups in tax loss still receive the cash refund. This makes the RDTI one of the most accessible sources of non-dilutive funding for Australian startups investing in technical development. See our RDTI for startups guide for more detail.
What is the difference between a refundable and non-refundable R&D tax offset?
A refundable offset is paid as a cash refund regardless of whether your company has a tax liability. It is available to companies with under $20 million aggregated turnover that are not controlled by exempt entities. A non-refundable offset reduces your company's tax payable but cannot be refunded in cash. Any excess can be carried forward to future income years.
How do I register R&D activities with AusIndustry?
You register through the R&D Tax Incentive customer portal on the AusIndustry website. Registration must be completed within 10 months of the end of your income year. For a 30 June year end, the deadline is 30 April. This deadline is absolute, there are no extensions. Registration requires detailed descriptions of your core R&D activities, including the technical unknowns and experimental approach. See our RDTI claim process guide for step-by-step guidance.
More questions? See our R&D Tax Incentive FAQ →