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

Last reviewed: July 17, 2026

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.

Key takeaways 

• Eligible R&D activities must address a technical uncertainty through a structured process of experimentation.

• Not all innovative work qualifies for the R&D Tax Incentive. Activities must satisfy specific legislative requirements.

• Core R&D activities require an unknown outcome, a systematic progression of work, and the generation of new knowledge.

• Supporting R&D activities may also be claimable when they are directly related to eligible core R&D activities.

• Correct classification is critical, helping businesses maximise eligible claims while reducing compliance risk.

• Good documentation is essential, including evidence of hypotheses, testing, results and conclusions.

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.

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