Australia’s R&D Tax Incentive: 2026 Budget Overhaul
TL;DR
- Effective Date: 1 July 2028.
- Cash Refund Change: The turnover limit for refundable offsets rises to $50M, but cash refunds are now restricted to companies under 10 years old.
- Definition Shift: Eligibility for “supporting activities” is scrapped; all focus moves to “core” R&D (which receives a 4.5% rate increase).
- Intensity Bar Lowered: The threshold for the non-refundable premium drops from 2% to 1.5%.
- Spend Limits: Minimum expenditure to claim rises to $50,000, while the maximum cap increases to $200M.
Following the landmark Ambitious Australia report released in December 2025, the Federal Government has unveiled a sweeping set of reforms to the Research and Development (R&D) Tax Incentive. These changes, set to take effect from 1 July 2028, aim to streamline the application process while refocusing financial support toward high-growth, younger enterprises.
While the reforms align with several recommendations from the Strategic Examination, the Government has charted its own course on certain technical thresholds to manage the budget bottom line.
Expansion of the Refundable Offset
In a significant win for mid-sized innovators, the aggregated turnover threshold for the refundable R&D tax offset will jump from AUD 20 million to AUD 50 million.
- The Goal: This alignment with the “base rate entity” threshold allows more medium-sized businesses to access cash refunds rather than just tax offsets.
- The Catch: Refundability is becoming a “young company” benefit. Under the new rules, only businesses less than 10 years old can claim the refund. Older companies will transition to an equivalent non-refundable offset, a move designed to prioritize “fast-growing” startups.
Adjustments to Intensity and Expenditure Caps
The Government is tweaking the “intensity” formula used to calculate benefits for larger claimants:
- Intensity Threshold: The threshold to trigger the premium uplift in the non-refundable offset will drop from 2% to 1.5% of total expenditure. This makes it easier for firms with substantial core R&D to access higher rates.
- Expenditure Ceiling: The maximum R&D expenditure cap will rise from AUD 150 million to AUD 200 million, providing more “headroom” for large-scale projects.
- Minimum Spend: To reduce administrative bloat, the minimum expenditure threshold will rise to $50,000 (up from $20,000), unless the work is performed via a recognized research organization.
Core vs. Supporting Activities: A Major Pivot
The most structural change involves what qualifies as R&D:
- Removal of Supporting Activities: Eligibility for “supporting” R&D activities will be scrapped entirely.
- Increased Core Offset: To compensate for the loss of supporting activities, the offset rate for core R&D will increase by 4.5%.
The Government argues this refocusing on core activities removes the ambiguity often found in self-assessment, though it differs from the report’s suggestion of a “deemed rate” for supporting work.
Summary of Key Changes (Effective 1 July 2028)
| Feature | Current Rule | New Rule (2028) |
|---|---|---|
| Turnover Threshold (Refundable) | AUD 20 Million | AUD 50 Million |
| Refundability Age Limit | No Limit | < 10 Years Old |
| Intensity Threshold | 2% | 1.5% |
| Max Expenditure Cap | AUD 150 Million | AUD 200 Million |
| Min Expenditure Threshold | AUD 20,000 | AUD 50,000 |
| Supporting Activities | Eligible | Ineligible |
The Economic Impact
These measures are projected to reduce payments by AUD 1.6 billion over five years. The Government has signaled that these savings will be recycled into broader tax reforms aimed at fueling innovation and investment across the small business sector.
While the reforms simplify the landscape, businesses—particularly those over a decade old or those relying heavily on “supporting” activities—will need to reassess their R&D strategies well ahead of the 2028 start date.