Supporting R&D Activities Explained
Many R&D Tax Incentive claims capture core experimental work but miss the supporting activities that can significantly expand the claimable amount. Understanding where supporting activities begin and end, and applying the dominant purpose test correctly, is one of the areas where claims most commonly go wrong.
Core vs Supporting R&D Activities
The RDTI distinguishes between two types of eligible activities: core R&D activities and supporting R&D activities. Both can generate claimable expenditure, but they operate under different rules.
Core R&D activities are the experimental activities at the heart of your claim. They must satisfy all three tests: genuine technical uncertainty, systematic experimentation, and a purpose of generating new knowledge. These tests are rigorous and applied strictly. See our eligibility guide for a full breakdown of each test.
Supporting R&D activities are different. They do not need to meet the three core activity tests. Instead, they must satisfy two conditions under s355-25 of the Income Tax Assessment Act 1997:
- The activity is directly related to a specific core R&D activity
- The activity is carried out for the dominant purpose of supporting that core R&D activity
This structure creates an important opportunity: activities that enable or facilitate your core experiments can be claimed, even if the activities themselves do not involve technical uncertainty. A prototype build, a pilot run, or technical safety testing might not independently satisfy the core activity tests, but each can qualify as a supporting activity if the conditions above are met.
However, supporting activities cannot exist without core R&D. You cannot claim supporting activities if there is no corresponding registered core R&D activity they are supporting. This is one of the more common mistakes in poorly prepared claims.
What Qualifies as a Supporting R&D Activity
The following examples illustrate common supporting activities across industries. In each case, the activity must be directly linked to a specific core R&D activity and conducted with the dominant purpose of supporting that activity. For details on expenditure types that can be claimed against these activities, see our RDTI expenditure guide.
✅ LIKELY QUALIFIES:
- Constructing a prototype to test whether a design hypothesis formulated in the core R&D activity is viable
- Operating a pilot plant to test whether a new process developed in core R&D performs as expected at scale
- Conducting safety testing required before experimental equipment can be operated in core R&D trials
- Collecting technical data sets specifically required as inputs for core R&D experimentation
- Running a limited trial production batch to assess process parameters that remain technically uncertain
- Computational modelling or simulation work conducted to narrow the hypothesis space before physical experiments
- Engineering validation testing on an R&D prototype to determine whether its structural properties meet the experimental requirements
❌ DOES NOT QUALIFY:
- Market research and consumer surveys (excluded by statute, regardless of any link to core R&D)
- Commercial production runs, even if some data is collected during the run
- Routine quality assurance testing on products already in production
- Activities that would proceed regardless of whether the core R&D activity was being conducted
- Supporting activities claimed without a registered core R&D activity to which they are directly linked
- General project management or administration activities not directly tied to experimental work
The Dominant Purpose Test
The dominant purpose test is the most scrutinised aspect of supporting activity claims, and the point at which many claims are challenged by AusIndustry or the ATO.
"Dominant" means the main or prevailing purpose. An activity can have multiple purposes and still qualify, provided the R&D support purpose is the overriding one. If an activity would proceed for commercial reasons regardless of the core R&D, it is very difficult to argue that R&D support is its dominant purpose.
Where the test is most commonly applied
Trial production runs
A production run that generates saleable goods can still qualify if its dominant purpose is to test a process that remains technically uncertain. Once the technical questions are resolved and the process is established, further runs are ineligible. The commercial value of the output does not by itself disqualify the activity, but it is a factor AusIndustry will consider.
Activities with dual outcomes
When an activity produces both R&D knowledge and a commercial result, the dominant purpose test applies to the activity as a whole, not to individual outcomes. Documenting why the R&D purpose drove the decision to conduct the activity is essential. If the commercial outcome was the primary motivation, the activity is unlikely to qualify.
Prototyping and pilot plants
Prototype construction and pilot plant operation are the most straightforward supporting activities to justify, because their purpose is typically unambiguous: they exist to test whether something works. The difficulty arises when prototype output is sold or when the pilot plant transitions to commercial operation without a clear documented boundary.
Data collection activities
Data collection qualifies only if the data is specifically required for the core R&D experiments, not collected for general operational or commercial purposes. Routine monitoring of production processes does not become a supporting activity simply because some of the data might be useful for R&D analysis.
ATO focus area: apportionment
When a supporting activity serves both R&D and commercial purposes and qualifies on the dominant purpose test, costs must still be apportioned. Only the proportion attributable to the R&D purpose is claimable. A reasonable, consistently applied apportionment methodology must be documented and retained. Claims that treat dual-purpose activities as 100% R&D are a common trigger for compliance reviews.
What Costs Can Be Claimed for Supporting Activities
The types of expenditure claimable for supporting R&D activities are the same as for core R&D activities. The challenge is ensuring costs are directly attributable to the qualifying supporting activity and, where applicable, correctly apportioned.
Claimable expenditure types
- Salaries and wages for staff whose time was spent on supporting activities, apportioned using timesheets or time records
- Contractor and consultancy fees for work directly attributable to the supporting activity
- Materials and consumables used or transformed in the supporting activity
- Depreciation on plant and equipment used for supporting R&D (not the capital cost itself)
- Overhead costs directly attributable and supported by records
Costs that cannot be included
- Capital expenditure on assets (only depreciation is claimable)
- Costs for activities that fail the dominant purpose or directly related tests
- Expenditure funded by a government grant covering the same activities
- Costs for excluded activities such as market research or routine quality control
- Overseas expenditure without an advance overseas finding from AusIndustry
Frequently Asked Questions
What is the dominant purpose test and how is it applied?
The dominant purpose test requires that the main reason for conducting a supporting activity is to support the core R&D activity. An activity can also generate commercial output and still qualify, but only if R&D support is the overriding purpose. The test is applied to each activity individually, not to the project as a whole. If the commercial benefit is the primary driver and R&D support is incidental, the activity will not qualify regardless of how closely related it is to the core R&D work.
Can trial production runs qualify as supporting R&D activities?
Yes, in limited circumstances. A trial production run can qualify when its dominant purpose is to test whether a process under development in the core R&D actually works at scale, and when genuine technical uncertainty about the process remains. Once the technical questions are resolved and the process is established, further production runs are ineligible. The boundary between R&D and production must be clearly documented, including batch records, project milestones, and a record of the technical questions that existed at the time the trial began. See the manufacturing and RDTI guide for pilot plant examples.
Can I claim supporting activities if my core R&D activity was unsuccessful?
Yes. The RDTI does not require a successful outcome. If you conducted genuine core R&D and supporting activities in connection with it, both remain eligible regardless of whether the experiment failed. A negative result is often evidence of genuine technical uncertainty, which can actually strengthen the claim. What matters is that the work was genuinely experimental at the time it was conducted, not that it produced a commercially useful result.
How do I apportion costs when a supporting activity also generates commercial output?
When a qualifying supporting activity also produces saleable goods or commercial value, the expenditure must be apportioned. Only the proportion attributable to the R&D purpose can be claimed. A reasonable apportionment method must be applied consistently and documented. Common approaches include time-based apportionment, volume-based apportionment for production runs, or a cost-by-cost analysis. The ATO expects the methodology to be defensible and to genuinely reflect the relative contribution of R&D versus commercial purposes.
More questions? See our R&D Tax Incentive FAQ or our eligibility guide for a full breakdown of core activity requirements.
Are Your Supporting Activities Being Claimed?
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