Eligible R&D Activities: What It Means for the R&D Tax Incentive in Australia

The R&D Tax Incentive (R&DTI) is one of Australia’s most valuable programs for innovative businesses, but many companies still struggle with one core question: “What actually counts as eligible R&D activities?” 

Understanding what the legislation means by eligible R&D activities, and how to distinguish core from supporting activities, is essential for maximising your claim and reducing compliance risk. This guide breaks it down in clear, practical terms to help you assess eligibility with confidence.  

• What “eligible R&D activities” means
• Core R&D activities. Definition and requirements
• Supporting R&D activities. What qualifies?
• Assess your activities
• Evidence requirements. What documentation should you keep?
• Why correct classification matters
• Thinking about your R&D eligibility? FundFindrs can help.

 

What “eligible R&D activities” means 

 

Under Australian law (Income Tax Assessment Act 1997), eligible R&D activities are activities that involve experimentation, carried out for the purpose of creating new knowledge or developing new or improved products, processes, materials or services. 

To be eligible, activities must meet specific legal criteria, not simply feel “innovative” or “new to your business”. 

In simple terms: Eligible R&D must try to solve a technical uncertainty using a structured, experimental approach. 

 

 

Core R&D activities. Definition and requirements 

 

Core R&D activities are the heart of your claim. According to business.gov.au and the legislation, a core R&D activity must meet all of the following: 

 

1. The Outcome cannot be known in advance

There must be technological or scientific uncertainty, and you genuinely do not know whether something will work until you test it. 

 

Example: 

• Developing a new process to convert agricultural waste into a stable biofuel where no proven methodology exists. 

• Attempting to improve battery performance beyond known industry baselines using a novel electrolyte formula. 

 

2. Conducted using a systematic progression of work

This means you must follow an experimental method, such as: 

• Defining a hypothesis 

• Designing an experiment 

• Observing results 

• Evaluating findings 

• Drawing conclusions 

 

Example: 

• A robotics startup documents assumptions, test parameters, failure modes, modifications, and retesting cycles while prototyping a new autonomous navigation system. 

 

3. Based on established principles of science, engineering or computer science

You don’t need to be developing a world-first invention, but your work must use a recognised technical discipline. 

 

4. For the purpose of generating new knowledge

This includes new or improved materials, products, devices, processes or services.

 

Not sure if you’re eligible for the R&D Tax Incentive?
Our FREE R&DTI Blueprint breaks it down with an eligibility checklist, examples, and expert tips from the FundFindrs team.

 

 

Supporting R&D activities. What qualifies? 

 

Supporting R&D activities are activities that directly relate to a core R&D activity or, in some cases, are undertaken for the main purpose of supporting core R&D. 

Key requirement: 

 Supporting activities must not stand alone. They only become eligible because they enable, assist or provide necessary input into the core experiments. 

Examples of supporting R&D activities:

• Designing prototypes required for testing 

• Software coding that implements the algorithm being experimentally tested 

• Data cleaning or dataset preparation for machine learning model experiments 

• Engineering drawings for test rigs 

• Technical research to inform experiment design 

• Testing materials, components, or code modules to isolate variables 

Activities requiring the “dominant purpose” test 

 Some tasks could be everyday business activities unless they exist solely to support R&D. These must pass the dominant purpose test. 

 

Examples include: 

• Project management of an R&D project 

• Feasibility studies 

• Compliance testing required to characterise experimental outcomes (not regulatory approval testing) 

• Technical analysis outside of normal production work 

 

What is NOT considered eligible R&D (common exclusions) 

Many activities feel innovative but do not meet legislative requirements for eligible R&D. 

 Here are some of the most common exclusions: 

 

Routine activities

• Routine testing or quality assurance 

• Debugging that follows known solutions 

• Cosmetic changes to products 

 

Market-focused or business activities

• Market research 

• Consumer testing for preferences 

• Branding, UI/UX work that isn’t technically experimental 

• Sales activities or customer discovery interviews 

 

Software exclusions 

• Software developed for internal administration, such as: 

• Payroll systems 

• CRMs 

• Inventory management 

• Scheduling systems 

 

Commercial or regulatory tasks 

• Product certification 

• Compliance testing for approval 

• Beta testing by customers 

 

Replicating known technology

If the method, solution or approach is publicly available or already proven, it cannot be claimed as core R&D. 

 

 

Assess your activities

 

Here’s your FundFindrs handy checklist to help you more easily decide which activities are eligible R&D activities and which are not. Note, this advice is general in nature. 

 

Core R&D eligibility checklist 

 Your activity likely qualifies as core R&D if: 

• You faced a technical problem with no known solution 

• Your team could not predict the outcome using existing knowledge 

• You ran structured experiments (hypothesis → test → evaluate → iterate) 

• You recorded observations, failures, data, and conclusions 

• The work involved scientific/engineering/computer science principles 

• The purpose was to create new knowledge or capability 

 

Supporting R&D eligibility checklist 

Your activity may qualify as supporting R&D if: 

• It enabled, assisted or directly related to a core R&D experiment 

• The activity would not have been undertaken if the R&D project didn’t exist 

• Technical staff or engineers were required to perform it 

• Documentation exists linking the activity to the core R&D timeline 

• If the “dominant purpose” test is necessary, it’s established that the dominant purpose was to support experimentation 

 

Exclusion red flags

If any of these apply, you may need to rethink your activities’ eligibility: 

• The work was commercially focused, not experimentally focused 

• The outcome was known before testing 

• The work followed standard testing or debugging processes 

• Activities were administrative, operational or design-only without experimentation

 

 

Evidence requirements. What documentation should you keep? 

 

Good record-keeping is essential for demonstrating eligible R&D activities in Australia. 

Required evidence includes: 

• Technical project plans and hypotheses 

• Experiment logs, test plans and test results 

• Version control logs (Git, JIRA, Confluence, etc.) 

• Data sets and analysis outputs 

• Photographs or videos of prototypes 

• Lab notes or engineering notebooks 

• Time tracking for R&D personnel 

• Invoices for materials, prototypes and contractors 

• Minutes from technical meetings 

• Failure analysis and iteration notes 

 

FundFindrs’ tip

 Store documents by project, activity type, and year. Clear structuring makes R&D reviews smoother and protects your claim. 

 

 

Why correct classification matters

Incorrectly claiming activities as R&D can lead to: 

• Claims being denied 

• Audits 

• Repayment of offsets 

• Penalties 

 

Correctly identifying core vs supporting R&D activities is the foundation of an eligible, defensible R&D Tax Incentive claim. 

  

Thinking about your R&D eligibility? FundFindrs can help.

Assessing eligible R&D activities in Australia can be complex, especially when innovation overlaps with day-to-day operations.  

Our team specialises in helping founders, business leaders and technical teams: 

• Identify eligible core and supporting R&D activities 

• Build defendable documentation 

• Align financials and technical work 

• Maximise R&D returns while reducing compliance risk 

 

If you’d like clarity on how to assess R&D eligibility or you need support with preparing your claim, book a FREE consultation with FundFindrs today.