Federal Budget 2026-27: Proposed Changes to the R&D Tax Incentive
The Federal Budget 2026–27 has announced a series of reforms to the R&D Tax Incentive (R&DTI), forming part of the Government’s response to the Ambitious Australia: Strategic Examination of Research and Development Final Report. These changes are scheduled to take effect from 1 July 2028 (FY2029), subject to the passage of legislation. This has represented a notable shift in how R&D support is structured in Australia.
Overall, the reforms signal a stronger focus on core experimental R&D activities, with the removal of supporting R&D expenditure expected to narrow claims toward clearly demonstrable experimentation. Accordingly, businesses may need to strengthen their internal processes and documentation to ensure core R&D activities are properly captured, evidenced, and defensible within their R&D claims.
Key Proposed Changes
Refundable R&D Tax Offset
Increase the aggregated turnover eligibility threshold for access to the refundable R&D tax offset from $20 million to $50 million.
Limit refundability to companies that have been operating for less than 10 years.
Removing Supporting R&D Activities
Remove eligibility for expenditure on supporting R&D activities.
Increase offset rates for expenditure on core R&D activities by 4.5 percentage points.
The Government has stated that these measures are intended to simplify and better target R&D support.
R&D Intensity Threshold
Reduce the R&D intensity threshold from 2.0% to 1.5% for companies claiming the non-refundable R&D tax offset.
Expenditure Thresholds
Increase the maximum eligible R&D expenditure cap from $150 million to $200 million.
Increase the minimum R&D spending from $20,000 to $50,000.
Activities below the minimum threshold would need to be undertaken through the registered Research Service Providers to qualify for the R&DTI.
What Businesses Should Do Next
Continue preparing and lodging R&D claims under the current R&DTI rules. Note that the proposed changes are intended to commence from 1 July 2028, subject to the passage of legislation.
Continue maintaining contemporaneous records to support eligible R&D activities and expenditure.
Continue monitoring the development, the release of draft legislation and any consultation papers relating to the proposed reforms
Evaluate the potential impact of a core-activities-only framework and ensure supporting documentation clearly demonstrates alignment with the requirements for core R&D activities. Accordingly, businesses may need to strengthen their internal processes and documentation to ensure core R&D activities are properly captured, evidenced, and defensible within their R&D claims.
