Key Takeways:
1) Australian businesses conducting eligible research and development activities will see significant changes to the R&D Tax Incentive from 1 July 2028.
2) The Federal Budget proposes higher R&D tax offsets for core R&D expenditure, broader access for growing companies, and tighter rules around supporting activities and smaller claims.
3) Companies preparing FY26 R&D tax claims should continue focusing on current eligibility requirements while planning early for the future structure of the R&D Tax Incentive.
Australian businesses conducting eligible research and development activities will see significant changes to the R&D Tax Incentive from 1 July 2028.
The Federal Budget proposes higher R&D tax offsets for core R&D expenditure, broader access for growing companies, and tighter rules around supporting activities and smaller claims.
Companies preparing FY26 R&D tax claims should continue focusing on current eligibility requirements while planning early for the future structure of the R&D Tax Incentive.
The morning after the Federal Budget announcement, many Australian business owners woke up asking the same question. What does this mean for our R&D Tax Incentive claim?
For companies investing heavily in innovation, the R&D Tax Incentive remains one of Australia’s most important government programs supporting research and development activities. The proposed changes announced in the 2026-27 Federal Budget signal a major shift in how the program may operate in the years ahead.
While the reforms will not take effect until 1 July 2028, the announcement gives businesses an early opportunity to understand the direction of the program and start considering how future R&D expenditure may be structured.
One of the most significant changes is the proposed increase to the offset for core R&D expenditure. The Government announced a 4.5 percentage point increase in core R&D offset rates, which could improve the value of eligible R&D claims by approximately 25 to 50 per cent depending on a company’s circumstances.
This is particularly important for Australian companies investing directly in experimentation, technical problem solving, software development, engineering, biotechnology, advanced manufacturing and other innovation activities that fall within the definition of core R&D activities.
The Budget also proposed reducing the R&D intensity threshold from 2 per cent to 1.5 per cent. In practical terms, this may allow more businesses with substantial R&D activity to access higher offset rates. For growing technology companies and innovation-focused SMEs, this could create stronger incentives to continue investing in Australian research and development.
At the same time, the Government flagged tighter treatment of supporting R&D activities. Under the proposal, supporting R&D expenditure would no longer qualify for the R&D Tax Incentive. This may significantly change how businesses identify and document eligible expenditure within their R&D projects.
For many companies, supporting activities often form part of the broader commercial and operational environment surrounding core experimentation. If these changes proceed, businesses may need to place greater emphasis on clearly defining core R&D activities and maintaining stronger contemporaneous documentation.
Another major announcement focused on growing businesses accessing refundable tax offsets. The Government proposed increasing the turnover threshold for the highest refundable offset rate from $20 million to $50 million. This may allow more expanding businesses to continue benefiting from refundable R&D tax incentives as they scale.
However, there is an important qualification. While older firms below the $50 million turnover threshold may still retain access to the higher offset rate, refundability may become limited to companies under 10 years old. For established businesses, this distinction could materially affect cash flow planning and future R&D investment decisions.
The Budget also included a proposed increase to the maximum R&D expenditure threshold from $150 million to $200 million. This change may primarily benefit larger organisations undertaking substantial Australian R&D programs.
Smaller claims were also addressed. The Government proposed lifting the minimum R&D expenditure threshold from $20,000 to $50,000. Claims below this threshold would only qualify if the activities were conducted through a registered Research Service Provider or Cooperative Research Centre.
This may have important implications for early-stage businesses, startups and smaller innovators that currently undertake modest levels of eligible R&D activity internally.
Despite the scale of these announcements, it is important to remember that the proposed changes are not immediate. It will take some time for the full details to emerge, however these changes will only take effect from 1 July 2028. This gives businesses time to assess the impact of the reforms, review their R&D processes and plan accordingly.
For now, the focus remains on preparing FY26 R&D Tax Incentive claims ahead of the 1 July 2026 submission period. Businesses should continue documenting eligible activities, recording expenditure correctly and ensuring their claims align with current legislative requirements.
The details of the reforms will continue to emerge through Treasury consultation, guidance from DISR, AusIndustry and updates from the ATO. As with all significant tax and innovation policy changes, the practical application will matter just as much as the headline announcements.
For Australian businesses investing in innovation, the message from the Budget is clear. Research and development remains a priority area for economic growth, but businesses will need to become increasingly precise in how they structure, document and support their R&D Tax Incentive claims. Rimon Advisory will continue monitoring announcements from DISR, AusIndustry and the ATO and keep businesses informed as the proposed changes develop. For many companies, the next two years present an opportunity not only to maximise current R&D tax claims, but also to prepare for a more focused and strategically targeted R&D Tax Incentive system in the future.
