Australian companies with an aggregated annual turnover under $20 million that spend at least $20,000 on eligible R&D activities may qualify for a 43.5% refundable tax offset — paid in cash by the ATO, even if your company made no profit.
This guide covers who qualifies, what you can claim, and the deadlines you cannot afford to miss.
Table of Contents
What Is the R&D Tax Incentive?
The Research and Development Tax Incentive (R&DTI) is a federal government program jointly administered by the Australian Taxation Office (ATO) and the Department of Industry, Science and Resources (DISR) — previously known as AusIndustry. It rewards eligible companies for investing in genuine R&D activities conducted within Australia.
The R&DTI operates as a tax offset — not a grant or a tax deduction. The offset rate is calculated as your corporate tax rate plus a premium set by the government. For most eligible small companies on a 25% corporate tax rate, this produces the headline 43.5% rate (25% + 18.5% premium).
There are two tiers, determined by your aggregated annual turnover:
| Refundable Tax Offset | Refundable Tax Offset | |
|---|---|---|
| Who it applies to | Companies with aggregated turnover < $20M | Companies with aggregated turnover ≥ $20M |
| Rate | 43.5% (at 25% corporate tax rate) 48.5% in limited cases where corporate tax rate is 30% | Corporate tax rate + 8.5% premium (R&D intensity up to 2%) Corporate tax rate + 16.5% premium (R&D intensity above 2%) |
| How it works | If your offset exceeds what you owe in tax, the ATO pays you the difference in cash | Applied against your tax bill; unused amounts carry forward to future income years |
| Best for | Startups, loss-making companies, and SMEs investing heavily in innovation | Larger companies with ongoing tax liabilities and high R&D intensity |
How the 43.5% Rate Is Calculated? The 43.5% is not a flat government rate — it is the sum of your corporate tax rate (25%) plus the government’s 18.5% premium for eligible SMEs. The 48.5% rate only applies in limited circumstances where a company under $20M turnover has a 30% corporate tax rate. For the vast majority of eligible businesses, 43.5% is the applicable rate.
Who Qualifies for the 43.5% Refundable Offset?
To meet R&D tax incentive eligibility for the refundable offset, your business must:
- Have an aggregated turnover of less than $20 million (this includes connected and affiliated entities, including any overseas parent — see FAQ below)
- Be an Australian-incorporated company — sole traders, trusts, and partnerships are not eligible
- Conduct eligible R&D activities within Australia
- Spend at least $20,000 on eligible R&D activities — unless you engage a registered Research Service Provider (RSP), in which case this minimum threshold does not apply
If you tick these boxes, you could access one of the most generous innovation tax offsets available to Australian businesses.
What Does the 43.5% Refund Actually Look Like?
Here is a simple example, assuming a corporate tax rate of 25%:
| Item | Amount |
|---|---|
| Eligible R&D expenditure | $1,000,000 |
| Company’s taxable income | $0 (or at a loss) |
| Corporate tax rate | 25% |
| R&D offset rate (25% + 18.5% premium) | 43.5% refundable |
| Cash refund received from ATO | $435,000 |
Important – Your exact offset rate depends on your corporate tax rate. At 25% (the rate for most base rate entities), you receive a 43.5% offset. At 30% (which applies only in limited circumstances for companies under $20M turnover), it rises to 48.5%. Always confirm your applicable corporate tax rate with your registered tax agent before calculating expected returns.
Core R&D Activities vs Supporting R&D Activities
The R&DTI distinguishes between two types of eligible activities. Understanding this distinction is critical — it determines both what qualifies and what expenses you can claim.
Core R&D Activities
These are experimental activities where the outcome cannot be known or determined in advance based on current knowledge. They must be conducted for the purpose of generating new knowledge — such as new or improved materials, products, devices, processes, or services — using a systematic progression of work based on established scientific principles.
In practical terms: you must have a hypothesis, run experiments, observe outcomes, and evaluate results. If you knew the answer before you started, it likely does not qualify.
Supporting R&D Activities
These are activities that directly enable or support the core R&D work — but do not themselves involve experimentation or the generation of new knowledge. To qualify, they must have a direct link to a registered core R&D activity.
Examples include: building infrastructure to run experiments, producing prototypes for testing, and data collection that directly feeds core experimental analysis.
What Does Not Qualify? The following are explicitly excluded: routine software development, bug fixes and maintenance, market research, cosmetic UI changes, quality assurance testing on completed products, standard configuration of off-the-shelf software, and activities undertaken for the purpose of developing tools for internal administration. If an activity would have been carried out regardless of whether R&D was being conducted, it is unlikely to qualify.
What Expenses Can You Claim?
Eligible companies can claim a range of costs directly associated with registered R&D activities:
- Salaries and wages for employees whose time was spent on eligible R&D activities (time-tracked and apportioned)
- Contractor and consultant costs for external specialists engaged to support R&D work
- Software and platform costs used directly in R&D processes
- Consumables used in testing, trials, or prototyping
- Decline in value of assets used for R&D purposes
Common Overclaiming Error – Only the portion of time an employee or contractor spent on eligible R&D activities can be claimed — not their total salary. For example, a software engineer who spent 40% of their time on eligible experimental work can have 40% of their salary included in the claim. Time records created contemporaneously — not estimated retrospectively — are required to support this.
How to Register and Claim the R&D Tax Offset
The R&DTI is not automatic. You must actively register and claim every year you wish to access the offset. Missing any step — particularly the registration deadline — means losing the claim entirely for that year.
- Register your R&D activities with DISR – Submit your registration application to the Department of Industry, Science and Resources (DISR) via the Business Registration Service. You must describe your core and supporting R&D activities and link them to the eligible expenditure incurred.
- Receive your registration number – DISR will issue a unique registration number for your approved R&D activities. You will need this to complete your tax return.
- Lodge your company income tax return with the ATO – Include the R&D Tax Incentive schedule (Schedule B) in your company tax return, entering your registration number and claiming your eligible expenditure. The offset is calculated and applied at this stage.
- Receive your cash refund or offset – For refundable claimants, any amount exceeding your tax liability is typically paid by the ATO within 8 to 12 weeks of lodgement.
Critical Deadline — Do Not Miss This – Your registration application must be filed with DISR within 10 months of the end of your company’s income year and before you lodge your income tax return. For companies with a standard 30 June year-end — the most common Australian financial year — this means the registration deadline is 30 April of the following year (e.g., 30 April 2026 for the year ended 30 June 2025). For companies with a December 31 year-end, the deadline is 31 October. There are no extensions. Missing this deadline means losing the claim for that year, with no recourse.
Not sure if your activities qualify? Identifying eligible core and supporting R&D activities — and linking them correctly to your expenditure — is where most first-time claims go wrong. Infinity22 is a registered tax agent with the TPB, and we help Australian businesses across software, manufacturing, life sciences, and agribusiness build compliant, maximised R&D claims.
Common Mistakes That Can Affect Your Claim
Many businesses miss out, receive reduced refunds, or face ATO compliance reviews due to avoidable errors:
Claiming routine or commercial activities as R&D
Activities must involve genuine technical uncertainty. If you knew the outcome before you started, or if the work would have been carried out regardless of any experimental purpose, the ATO will likely reject it. Standard software development, feature rollouts, and process improvements based on existing knowledge do not qualify.
Poor or retrospective documentation
The ATO expects contemporaneous records — created as the R&D happens, not reconstructed at year-end. This includes technical notes, hypothesis statements, experiment logs, test results, time records, and financial records tied to the work. A compliance review can go back seven years; records that appear to have been created after the fact are a significant red flag.
Missing the DISR registration deadline
The 10-month registration window is a hard deadline with no exceptions. Calendar the date the moment your financial year begins and treat it as a non-negotiable.
Failing to link expenses to eligible R&D activities
Each expense line must be traceable to a registered core or supporting R&D activity. A salary claim without time records, or a contractor cost without a clear link to experimental work, will not survive scrutiny.
Overclaiming hours on employee salaries
Only time directly spent on eligible experimental work can be claimed. Project management, internal meetings, non-R&D engineering, and administrative tasks do not qualify — even if the employee is part of the R&D team.
Already filed a claim that you’re not confident in?
Infinity22 reviews existing R&D claims for completeness, compliance, and missed opportunities. As a registered tax agent, we can also manage ATO correspondence and compliance reviews on your behalf.
How to Maximise Your R&D Tax Offset Claim
To get the most value from the program, treat it as a year-round discipline — not a year-end task.
- Document in real time. Record experiments, hypotheses, failures, and iterations as they happen. Notes created six months later are not contemporaneous and carry significant compliance risk.
- Register early. Don’t wait until the deadline to begin your DISR registration. Start preparing activity descriptions and expenditure records from the beginning of the financial year.
- Align technical and financial records. Ensure your R&D activity logs and expense records are consistent and cross-referenced. Mismatches between what DISR has registered and what the ATO sees in your tax schedule are a common trigger for review.
- Look beyond the obvious. Companies often identify only the most visible R&D — a software feature or a lab project — and miss eligible experimental work happening in other areas of the business, such as new manufacturing processes, materials testing, or novel data architecture.
- Work with a specialist. The R&DTI has specific documentation standards, eligibility boundaries, and intensity calculations. Expert guidance typically generates significantly higher claims and avoids costly rejections.
Ready to claim what you are entitled to?
If your business is solving tough technical problems — in software, manufacturing, life sciences, agribusiness, or any field involving genuine innovation — you may be leaving significant money unclaimed.
Infinity22 is a registered tax agent with the TPB. We help Australian businesses identify eligible R&D activities, prepare contemporaneous documentation, manage DISR registration, and build the strongest possible claim.
