R&D Tax Incentive for Biotech & Life Sciences
From Phase I clinical trials to novel drug formulation and bioprocess development, biotech and life sciences companies are among the most active RDTI claimants in Australia. We help you identify what qualifies, navigate the clinical trial determination, and build a claim that holds up at review.
Does Biotech and Life Sciences R&D Qualify for the RDTI?
Yes, and the sector is one of the most explicitly supported in Australian R&D tax law.
The Clinical Trials Determination 2022 created a specific deemed eligibility pathway: Phase 0, I, II, and III clinical trials for therapeutic goods not yet listed on the Australian Register of Therapeutic Goods (ARTG) are treated as core R&D activities by law. For companies in clinical development, this removes the burden of arguing technical uncertainty on a trial-by-trial basis, with the legislative determination doing that work for you.
Beyond clinical trials, the broader RDTI framework applies through three core tests:
- Technical uncertainty: would a competent researcher in your discipline know the outcome before running the experiment? If a drug candidate's binding affinity, toxicity profile, or bioavailability cannot be determined from existing literature, uncertainty is likely present
- Systematic experimentation: are you forming a hypothesis, designing a controlled experiment, and drawing conclusions from the results? Running iterative synthesis cycles or bioprocess trials with documented rationale qualifies; repeating a validated protocol does not
- New knowledge: are you generating findings about compound behaviour, biological mechanisms, or manufacturing processes that are not already in the public domain?
The challenge in biotech is not usually whether R&D occurred. The real difficulty is separating genuine experimental work from regulatory compliance activities, and managing the structural risks that come with overseas CRO arrangements, grant co-funding, and sponsored research agreements.
For the full eligibility framework, see our RDTI eligibility guide.
Biotech R&D: What Qualifies and What Doesn't
The distinction between qualifying and non-qualifying activity is about experimental uncertainty and the generation of new knowledge, not the complexity, cost, or regulatory significance of the work.
✅ LIKELY QUALIFIES:
- Phase 0, I, II, and III clinical trials for unapproved therapeutic goods, deemed core R&D under the Clinical Trials Determination 2022, including CRO fees, protocol design, site management, IMP manufacturing for the trial, biostatistics, and monitoring costs
- Drug candidate synthesis and lead optimisation: iterative medicinal chemistry cycles testing structural analogues to improve binding affinity, selectivity, or ADMET profile, where outcomes cannot be predicted from existing literature
- Preclinical IND-enabling studies: dose-range finding studies, genotoxicity assays, safety pharmacology battery studies, and PK/PD modelling to characterise a new drug candidate before first-in-human use
- Cell line development and bioprocess optimisation: engineering a stable, high-expressing CHO or HEK293 cell line, or optimising fermentation parameters (pH, dissolved oxygen, temperature, feed strategy) where yield and quality outcomes are genuinely uncertain
- Novel formulation and drug delivery development: lipid nanoparticle (LNP) formulations for mRNA delivery, polymeric nanoparticles for targeted oncology, or extended-release platforms where encapsulation efficiency and stability outcomes require experimental determination
- Genomics, CRISPR-based research, and gene or cell therapy vector development: guide RNA optimisation, off-target characterisation by next-generation sequencing, AAV or lentiviral vector tropism studies, and cell therapy manufacturing processes with uncertain efficacy outcomes
❌ DOES NOT QUALIFY:
- Phase IV clinical trials and post-market surveillance studies. The Clinical Trials Determination 2022 explicitly excludes post-approval trials; the therapeutic is already known to be safe and effective for its approved indication
- TGA registration activities: preparing or submitting a Common Technical Document (CTD), responding to TGA questions, implementing GMP compliance requirements, and facility qualification work (IQ/OQ/PQ) are regulatory activities, not experimental ones
- Routine batch release testing. HPLC purity, sterility, endotoxin, and identity testing on commercial batches applying validated methods with predictable outcomes does not involve technical uncertainty
- Manufacturing API or drug product using a validated, locked process. Even first commercial-scale batches following a confirmed process specification do not constitute R&D
For expenditure rules, including how to treat CRO payments, contractor costs, and overseas findings, see the R&D Tax Incentive overview.
What's Different About Biotech and Life Sciences RDTI Claims
Biotech claims involve structural and compliance risks that rarely arise in other sectors. These are the areas the ATO scrutinises most closely, and where expert guidance makes the largest difference.
The Clinical Trials Determination: Phases 0-III vs Phase IV
The Clinical Trials Determination 2022 is the most important legislative change for Australian biotech in a generation. For Phases 0 through III involving therapeutic goods not yet approved in Australia, the deemed eligibility pathway removes the need to argue technical uncertainty case by case. Phase IV is a hard exclusion: post-approval studies, pharmacovigilance activities, and registry studies do not qualify. A grey area exists for label extension trials, where an approved drug is being trialled for a new, unapproved indication, which may qualify under the Determination but requires specific structuring advice before the trial commences. Companies should not assume all Phase III-equivalent work on approved products qualifies.
Overseas CRO work and the overseas findings requirement
Australian biotech companies routinely outsource preclinical toxicology studies and clinical work to overseas CROs, or manufacture investigational medicinal product at overseas CMOs. This expenditure only qualifies if an overseas finding is obtained from the Department of Industry, Science and Resources (DISR) before the end of the income year, not retrospectively. The application must demonstrate a significant scientific link to Australian core R&D and that conducting the work in Australia would not be reasonable, typically due to specialised capability, cost, or patient access. Overseas CRO expenditure without an overseas finding in place is ineligible regardless of technical merit. This deadline is the most common reason overseas costs are excluded from biotech claims.
Grant stacking and the clawback risk
Biotech and life sciences companies frequently receive government research funding, including MRFF grants, NHMRC project grants, CRC Program contributions, and state biomedical research grants, alongside RDTI claims. The clawback provisions under s.355-480 of the ITAA 1997 reduce your R&D tax offset dollar-for-dollar for any expenditure also covered by a government grant. This is a routine ATO audit focus in life sciences. Grant receipts and R&D expenditure often do not align neatly in the same income year, creating reconciliation complexity. Grant receipts must be mapped to specific expenditure items and excluded from the RDTI claim. Retroactive coordination is difficult and typically leaves money on the table.
The feedstock adjustment for R&D production runs
When an R&D activity produces tangible output that is sold or used commercially, the feedstock adjustment rules under s.355-465 reduce eligible R&D expenditure by the commercial value of that output. Common examples include a fermentation campaign that yields product partially sold to a collaborator, or a clinical-grade IMP batch supplied commercially. Biotech companies must carefully apportion costs between the R&D and commercial portions, with contemporaneous batch records documenting exactly what proportion of output was consumed in experimental work versus used commercially.
Sponsored research structures and the "for own benefit" test
Many Australian biotech entities conduct R&D under a sponsored research agreement with an overseas parent, US venture-backed company, or large pharma partner. The RDTI requires the claimant to bear the financial risk, maintain control of the experimental program, and own or have the right to exploit the IP generated. Where an overseas sponsor owns all IP, directs all experimental decisions, and reimburses 100% of costs regardless of outcomes, the Australian entity may not satisfy the "at risk" or "conducting for own benefit" tests. These arrangements are scrutinised closely by the ATO and are one of the most common reasons biotech claims are partially or fully disallowed at review.
How We Help Biotech and Life Sciences Companies
Clinical Trial Expenditure Review
We map your clinical trial budget to the Clinical Trials Determination 2022, distinguishing eligible CRO fees, IMP costs, site management, and data analysis from non-qualifying Phase IV or regulatory submission expenditure. For companies in active trials, this is often the highest-value part of the RDTI claim.
Overseas Findings Coordination
We prepare and submit overseas finding applications to DISR for international CRO and CMO expenditure, ensuring applications are lodged before year-end and correctly establish the scientific link to Australian R&D. Missing this deadline is the most common reason overseas costs are excluded from biotech claims.
Grant and RDTI Expenditure Planning
We reconcile your MRFF, NHMRC, and other government grant receipts against eligible RDTI expenditure to maximise combined government support without triggering clawback. The optimal approach directs grant funds toward ineligible costs, but this requires planning before expenditure is committed, not after.
Sponsored Research Structure Review
We review sponsored research agreements, intercompany IP arrangements, and cost-reimbursement structures to assess whether your Australian entity satisfies the "conducting for own benefit" and "at risk" tests before lodgement. Structural issues identified early can often be remedied; those identified during an ATO review cannot.
Biotech & Life Sciences RDTI: Frequently Asked Questions
Do our Phase I, II, or III clinical trials automatically qualify for the RDTI?
Yes. Phase 0, I, II, and III trials for therapeutic goods not yet approved on the ARTG are deemed core R&D activities under the Clinical Trials Determination 2022. You do not need to separately argue technical uncertainty. You must still register with AusIndustry within 10 months of year-end, and eligible expenditure, including CRO fees, IMP manufacturing, site management, and biostatistics, must be contemporaneously documented. Phase IV trials are explicitly excluded. See our eligibility guide for the core activity criteria.
We use US-based CROs for preclinical toxicology. Can we claim those costs?
Yes, but overseas CRO costs require an overseas finding from DISR before the end of the income year, not retrospectively. You must demonstrate a significant scientific link to your Australian R&D and that conducting the work in Australia would not be reasonable. Contracts must clearly specify which activities involve hypothesis-driven experimentation rather than routine service delivery. If the CRO is a related party, transfer pricing documentation consistent with ATO guidance is also required. See our R&D Tax Incentive overview for the overseas expenditure rules.
Our company received an MRFF grant for our Phase II trial. Can we still claim the RDTI?
Yes, but only on expenditure not funded by the grant. The clawback provisions under s.355-480 reduce your R&D tax offset dollar-for-dollar for any trial costs reimbursed by the MRFF. If your trial budget exceeds the grant, the unreimbursed eligible expenditure still generates an RDTI offset. You must map grant receipts to specific line items and exclude those items from your claim. This is one of the most common ATO audit triggers for life sciences companies. Planning the split before costs are incurred typically results in a materially larger combined claim. See our claim process guide for how we structure this.
We are a US biotech running an Australian clinical trial through a local subsidiary. Can the subsidiary claim the RDTI?
Yes, if the structure is correct. The Australian entity must contract directly with CROs, trial sites, and investigators, and must bear the financial risk of those costs. It must own or hold an exclusive licence to exploit the IP the trial generates. Where a US parent reimburses all costs regardless of outcome, directs experimental decisions, and retains all IP, the Australian subsidiary may not satisfy the "conducting for own benefit" or "at risk" tests. These sponsored research structures are among the most common reasons biotech claims are disallowed at review, and independent legal advice on the structure before the trial commences is essential.
Biotech & Life Sciences RDTI Assessment
If your company is running clinical trials, developing novel therapeutics, or working on bioprocess innovation and hasn't fully assessed its RDTI position, it's worth finding out what you may have missed.