One number decides whether the R&D Tax Incentive pays you cash or hands you a credit you cannot spend yet. That number is aggregated turnover.
Founders check the revenue line, see something well under $20 million, and book the 43.5% refundable offset into the cash flow forecast. Then someone adds in the Delaware parent, the second trading entity, or the founder’s profitable consulting company, and the group clears $20 million. The claim still goes ahead. The cash does not arrive.
The rules that do this are the grouping rules, and they are arithmetic rather than judgement. Here is how they work and where founders get caught.
What aggregated turnover actually is
Aggregated turnover is your annual turnover for the income year, plus the annual turnover of any entity connected with you, plus the annual turnover of any entity affiliated with you. Where an entity was only connected or affiliated for part of the year, only that part of its turnover counts.
Dealings between entities inside the group are excluded, so nothing gets counted twice. If your Australian company bills its UK parent $2 million for development work, that $2 million comes back out of the group total.
The ATO is explicit that foreign entities count. An overseas parent’s revenue sits inside your aggregated turnover even though none of it was earned in Australia and none of it is taxed here.
Annual turnover means ordinary income derived in the ordinary course of carrying on a business, GST excluded. Money raised by issuing shares is not ordinary income. For most startups the turnover figure is close to the revenue line in the accounts, but a company with unusual receipts should check rather than assume.
The $20 million line decides cash or credit
Below $20 million in aggregated turnover, and provided you are not controlled by tax exempt entities, you get the refundable offset. The rate is your company tax rate plus an 18.5% premium. A base rate entity paying 25% company tax lands on 43.5%, and a loss-making company gets it paid out as cash.
At $20 million or more, you get the non-refundable offset instead. That is your company tax rate plus 8.5% on R&D expenditure up to 2% of your total expenditure for the year, and your tax rate plus 16.5% on the portion above that 2% intensity threshold. The company tax rate matters here. A base rate entity on 25% gets 33.5% and 41.5%. A company on the 30% rate gets 38.5% and 46.5%.
At the top intensity tier a 30% taxpayer gets 46.5%, which is higher than the refundable 43.5%. The money still is not cash. It reduces tax payable, and a company with no tax to pay carries it forward until there is some.
For a pre-revenue startup spending $300,000 a year on eligible development, that is the difference between roughly $130,000 landing in the bank and a credit sitting on the balance sheet until the company turns a profit.
There is also a ceiling on the cash. Refundable offsets are capped at $4 million a year. Amounts above the cap become a non-refundable offset and carry forward instead of being paid out. R&D on clinical trials is excluded from the cap. Most startups never get near it. Medtech and biotech groups should know where it sits.
The 40% control test
An entity is connected with you if you control it, it controls you, or the same third entity controls both of you.
Control means at least 40%. You control a company if you and your affiliates hold interests giving the right to exercise or control at least 40% of the voting power, or the right to at least 40% of any distribution of income or capital.
40% is a long way short of a majority. Plenty of founders hold that much of a second business without ever thinking of the two companies as a group.
Where founders get caught
The overseas parent
Flip-up structures are common once US investors are involved. The Australian company keeps doing the development and keeps making the claim, and a new parent sits above it.
If that parent is a holding company with no trading revenue, there is little to add. If it trades, its revenue goes into your aggregated turnover. An Australian subsidiary with $600,000 of local revenue can be pushed past $20 million on income it never touched.
The founder’s other company
You own 100% of a services business turning over $19.8 million and 45% of the startup. You control both, which makes them connected with each other through you.
Their turnovers get added together, which puts the group at $20.2 million. The startup earned $400,000 of its own and loses refundability on the strength of the other company’s sales.
Two companies, one investor
If a single fund, corporate investor or family vehicle controls 40% or more of two entities, those entities are connected with each other. Most priced venture rounds land well under 40% of voting power, so this comes up more often with corporate investors, accelerators taking large stakes, and family investment structures.
Affiliates
Affiliates work differently from connected entities, and there is no percentage test. An individual or company is your affiliate if they act, or could reasonably be expected to act, in accordance with your directions or wishes in relation to their own business affairs.
That turns on how the businesses behave, which makes it harder to rule out from a share register alone. Two companies run by the same person, with the same staff and the same customers, can be affiliates on any shareholding.
Running the numbers on a two-entity group
Say a founder owns 100% of an established services company with $21 million in revenue, and 60% of a software startup that earned $300,000 and spent $400,000 on eligible R&D, out of $700,000 in total expenditure.
Both companies are connected with the founder, so they are connected with each other. On those figures the startup’s aggregated turnover is $21.3 million.
Under $20 million, the startup’s $400,000 of R&D at 43.5% is a $174,000 cash refund. Over the line, R&D intensity is 57%, so almost all of the spend attracts the company tax rate plus 16.5%, which for a base rate entity is 41.5%. None of it is paid out while the startup is loss-making. It reduces tax in some future year when there is tax to reduce.
Now say $1.5 million of the services company’s $21 million was billed to the startup. Dealings between connected entities come out, so the group total is $19.5 million plus the startup’s $300,000, or $19.8 million. Under the line, and the cash refund is back on.
The margin is that thin, which is why this gets calculated rather than eyeballed.
The 40 to 50% grey zone
Where your control percentage is at least 40% but under 50%, the Commissioner can decide that you do not control the entity. It applies only where a different, unrelated entity, not connected with you or your affiliates, actually controls it.
If your co-founder holds 55% and runs the company while you hold 42% and sit on the board, that is the situation the discretion exists for. It is not automatic. You have to ask for it, with evidence.
Grouping does not change whether your work is R&D
Aggregated turnover decides which offset you get. It has no bearing on whether your activities qualify.
You still need an eligible R&D entity, which rules out sole traders and most trusts and partnerships of individuals. You still need at least $20,000 in notional R&D deductions, unless the spend went to a registered Research Service Provider. You still need activities with real technical uncertainty, where the outcome could not have been known in advance.
A group over $20 million claims the same way. The claim lands in tax payable rather than in the bank.
Work it out before you lodge
Registration with AusIndustry closes 10 months after the end of your income year. For a 30 June 2026 year end, that is 30 April 2027. A request for an extension of 14 days or less, made through the portal before the deadline, is approved. Anything longer, or anything asked for after the deadline, is considered case by case. Miss the registration and the whole year is generally gone.
Answer the grouping question earlier than that. Structures move. A round closes in March, a parent company is incorporated overseas in November, a second entity is acquired in February. Connections that exist for part of a year still count for that part, so the number can change mid-year without anyone noticing.
The exercise is short. List every entity you or your co-founders control at 40% or more, every entity that controls one of yours, and every entity under common control. Add their turnover for the periods they were connected. Take out dealings between them. That figure is what gets compared to $20 million.
What changes in 2028, if it passes
The 2026 Budget announced a package of R&D Tax Incentive changes starting 1 July 2028. The refundability threshold would lift from $20 million to $50 million in aggregated turnover, the core rate would move to around 48%, the minimum spend would rise from $20,000 to $50,000, the intensity threshold on the non-refundable side would drop from 2% to 1.5%, the expenditure cap would rise from $150 million to $200 million, supporting activities would be removed as a separate category, and refundability would be limited to companies less than 10 years old.
None of it is law yet. A $50 million threshold would take most of the grouping pain away for venture-backed companies. The 10 year age limit would create a fresh problem for a company that incorporated in 2015 and only started serious development recently. Worth watching, not worth planning around.
Not sure which side of the line you are on
We check aggregated turnover on every claim before taking it on, because it changes what the claim is worth, and it is better said upfront than after someone has counted on the cash.
Granton works on a success fee of 10% of the refund, with nothing upfront. So far that is 55+ clients, more than $7.9 million in R&D refunds, a 100% success rate and no audits.
If you have more than one entity, an overseas parent, or an investor holding a large stake, book a 15 minute eligibility call at granton.io/meet and we will work out where your group sits.
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