Research & Development Tax Incentive (R&DTI): What you really need to know

Answers to the most common questions from business owners about Australia’s R&DTI program

The R&DTI can be a valuable tool for Australian businesses investing in innovation, but it’s not always easy to navigate. To help business owners, founders, and finance teams get clear on how it works and who can benefit, we’ve answered the most common and relevant questions about the program.

 

Whether you’re just starting your first claim or fine-tuning your process this financial year, this guide brings together key information in one place, broken down by topic.

 

General Overview

1. What is the Research and Development Tax Incentive (R&DTI)?

The R&DTI is an Australian Government program designed to encourage companies to engage in research and development activities that benefit Australia. It provides tax offsets for eligible R&D activities, helping businesses recover some of the costs associated with innovation. The program is jointly administered by the ATO and the Department of Industry, Science and Resources (DISR).

 

Eligibility

2. Who is eligible for the R&DTI?

Eligible entities, known as R&D entities, include:

• Corporations incorporated under Australian law
• Corporations incorporated under foreign law but an Australian resident for income tax purposes, or
• Corporations incorporated under foreign law and a resident of a country with which Australia has a double tax agreement, carrying out business in Australia through a permanent establishment.

 

Entities must also be liable to pay income tax in Australia and must engage in eligible R&D activities.

 

In addition, you must be:

• Operating without a trust in your business structure
• Attempting to develop new/improved materials, products, devices, processes or services
• Conducting systematic experimentation for the purpose of creating new knowledge
• Have spent at least AU$20,000 on R&D projects
• Conducting the activities in Australia.

 

Activities and structure

3. What are eligible R&D activities and how are they defined?

Eligible R&D activities are classified as:

• Core R&D activities. These are experimental activities where the outcome cannot be known or determined in advance, They’re conducted through a systematic progression of work involving hypothesis, experiment, observation, evaluation, and drawing conclusions.
• Supporting R&D activities. These are activities directly related to core R&D activities or undertaken for the dominant purpose of supporting core R&D activities.

 

Certain routine or excluded activities are not eligible as core R&D.

 

4. How can I structure and track my R&D activities to maximise eligibility?

To ensure your activities are eligible and make the most of your R&D claim:

• Identify the innovative, experimental parts of your project (core R&D).
• Separate routine development from genuine experimentation.
• Maintain detailed records: hypotheses, experiments, iterations, and results.
• Track costs in real-time, including salaries, materials, contractors, and overheads.
• Collaborate with your accountant or R&D advisor to make sure your project structure supports a compliant claim.

 

Application process and deadlines

5. How do I apply for the R&DTI?

To apply:

1. Register your R&D activities with AusIndustry within 10 months after the end of your company’s income year.
2. Once registered, claim the tax offset by completing the R&D tax incentive schedule and relevant labels in your company tax return and lodging them with the ATO.

 

However, the best time to start your application is when you’re preparing your tax return, because you’ll have all your information to hand, so you can make the process more efficient and effective, meaning you have more time to spend on your core business.

 

Book a FREE consultation to find out how we can help you through the application process.

 

6. What is the deadline for registration?

You must register your R&D activities with AusIndustry within 10 months after the end of your company’s income year. For example, if your income year ends on 30 June, the deadline is 30 April of the following year.

 

Financial benefits and rates

7. How much can I claim through the R&DTI?

Typically, companies can claim up to 43.5% of their R&D spend. However, the amount you can claim depends on your company’s aggregated turnover.

 

For companies with annual turnover of less than $20 million, it’s the refundable tax offset equal to the company’s corporate tax rate plus an 18.5% premium.

 

For companies with annual turnover of $20 million or more, it’s the non-refundable tax offset equal to the corporate tax rate plus:

• 8.5% premium for R&D expenditure up to 2% of total expenditure (R&D intensity).
• 16.5% premium for R&D expenditure above 2% of total expenditure.
• Note: The rate is reduced to the company tax rate for notional R&D deductions exceeding $150 million.

 

8. What’s the difference between refundable and non-refundable tax offsets?

• Refundable tax offset is when the offset exceeds your tax liability, the excess is refunded. This is especially helpful for startups or loss-making businesses.
• Non-refundable tax offset is when the excess offset can be carried forward to future income years but is not refunded.

 

Overseas and non-Australian activities

9. Can I claim R&D activities performed overseas?

Generally, only R&D activities conducted in Australia qualify. However, you can claim overseas activities if you obtain an Advanced Overseas Finding from AusIndustry before conducting the activities and are able to demonstrate that:

• The overseas activity is eligible R&D;
• There is a scientific link to Australian core R&D;
• It cannot be done in Australia for specific reasons; and
• The cost of overseas activities is less than related Australian R&D activities.

 

Eligible expenses

10. What expenses can I claim under the R&DTI?

Eligible expenditure includes:

• Salaries and wages of employees engaged in R&D;
• Contractor fees for R&D work;
• Materials used in R&D;
• Depreciation of R&D assets;
• Overheads directly related to R&D;
• Payments to Research Service Providers (RSPs).

 

Expenses must be incurred during the income year and directly related to eligible R&D activities.

 

11. Can founders and startups claim R&D activities?

Yes you can. Startups can claim if they meet eligibility criteria, and founders who are paid wages (not unpaid or equity-only, also known as “sweat equity”) can claim those wages as R&D expenditure. Make sure wages are paid by the company by 30 June to be eligible for that year.

 

12. Some of our expenses were paid personally. Can we claim them through the R&DTI?

R&D claims must be for expenses paid by the company. Personally paid expenses or those paid outside a corporate structure generally aren’t eligible. To claim R&D, ensure the company incurs and pays for eligible expenses.

 

Documentation and compliance

13. What documentation should I keep?

Robust documentation is essential for compliance and audits. Maintain contemporaneous records that clearly show:

• The nature and scope of your R&D activities;
• Evidence of technical uncertainty and experimentation;
• Expenditure records;
• How costs are apportioned between R&D and non-R&D work.

 

14. What happens if I get audited?

If you’re audited and your documentation isn’t robust, you may have to repay the R&D offset plus penalties.

 

You can avoid this by aligning your workflows with ATO and AusIndustry requirements and maintaining audit-ready records from the outset. It’s important to work closely with your accountant or R&D consultant to make sure your documentation is fully robust.

 

Miscellaneous

15. What is the R&DTI Registration Number?

After registering your R&D activities with AusIndustry, you’ll receive a unique registration number. You must include this in your company’s R&D Tax Incentive schedule when lodging your tax return. This will link the two and help avoid any unnecessary delays.

 

16. Can I claim R&D expenses from previous years?

Unfortunately not. R&D tax offsets can only be claimed for eligible activities and expenditure incurred in the current income year. Each year’s activities must be registered separately within the 10-month timeframe. That’s another reason not to delay. When applications close, they are closed for that year.

 

17. What are common mistakes or risks in claiming the R&DTI?

Some common mistakes or challenges include:

• Claiming routine or ineligible activities.
• Poor documentation or tracking of activities.
• Incorrectly allocating overhead costs.
• Failing to register on time.
• Not meeting the legislative definitions of core or supporting R&D activities.

 

It is critical to make sure you submit accurate, complete and well-documented claims to avoid delays, inefficiencies and even rejection.

 

Check out our R&DTI Blueprint for more details on making sure your application is accurate and complete.

 

18. What’s the difference between a project, a core R&D activity, and a supporting activity?

This simple summary outlines the differences between the three.

1. A Project is the overall effort to create or improve a product or process.
2. Core R&D Activity is the experimental work undertaken to resolve technical uncertainty.
3. Supporting Activity is any activity directly supporting core R&D (e.g., testing, data analysis).

 

Understanding these differences helps ensure your claim aligns with the program’s intent.

 

19. How do I know if my technology is innovative enough?

For it to qualify, your technology must involve experimentation and technical uncertainty. It needs to be something that hasn’t been proven or done before. Even if your product looks similar to others, it’s the underlying technology or algorithms that determine eligibility.

 

20. What are the most common industries that typically apply for the R&DTI?

A broad mix of sectors take advantage of the R&DTI, but some appear more often than others. Technology and software businesses regularly use the program to support digital development work that improves tools, processes, or user outcomes.

 

We frequently see submissions from engineering and manufacturing firms. These businesses are often developing new systems or refining how things are made, which aligns well with the incentive’s criteria.

 

However, it’s not just for well-established companies; from startups to established small-to-medium sized companies in tech, manufacturing, pharma, agriculture and other industries can all benefit.

 

General fund finding tip

How can I secure government grants?

Securing a government grant requires strategy and precision. Our top tips include:

• Answer the question directly. Provide clear, straightforward answers. Have someone unfamiliar with the project review your response for clarity. Do they understand it?
• Keep it simple and concise. Be thorough and avoid over-explaining. Aim for directness.
• Use visuals. If you can, incorporate diagrams to clarify complex points without exhausting your word count.
• Showcase your team. Make the track record of your team a highlight; show assessors why you’re a safe investment.
• Matched funding. Be prepared with evidence of matched funding, such as bank statements, credit or loan agreements.
• Speak with experts about your application.

 

Check out our article How to Maximise Grant Opportunities for Your Business for more simple steps you can take.

 

Don’t leave money on the table

While self-assessment is possible, it’s easy to miss opportunities or make simple mistakes that delay or reduce your claim. Working with specialists like FundFindrs can help you get it right first time and save hours of unnecessary admin. If your work is eligible, the R&DTI allows you to offset a portion of those expenses. If you do not claim it when you’re able to, it’s like leaving money on the table.

 

Are ready to see how much you could claim or if your business is eligible?

Book a FREE consultation with our team today.