What the 2026 budget means for Australia’s R&D tax incentive.
Australia’s 2026 Federal Budget has introduced significant reforms to the Research and Development Tax Incentive (RDTI), with changes set to take effect from 1 July 2028. While some measures expand support under the programme, others reshape eligibility requirements in ways that may affect how businesses structure and prepare future R&D claims.
With implementation still two years away, businesses have an opportunity to review existing arrangements and assess the potential impact of the proposed changes.
What is changing
The reforms introduce several updates to key elements of the RDTI programme. The core R&D offset rate will increase by 4.5 percentage points, while the refundable offset threshold will rise from AUD 20 million to AUD 50 million in aggregated annual turnover. The maximum expenditure threshold will also increase from AUD 150 million to AUD 200 million.
One of the most significant changes is the removal of eligibility for supporting R&D activities. Under the current framework, expenditure relating to activities that support core R&D can be included in a claim. The proposed reforms remove this category entirely, changing how businesses may identify and classify eligible activities in future claims.
The removal of supporting R&D activities is expected to narrow the scope of qualifying expenditure under the programme. Some industry stakeholders have raised concerns that removing supporting activities could move the RDTI away from broader definitions of research and development adopted across OECD jurisdictions, with potential implications for future investment considerations.
Considerations for businesses
The impact of the reforms is expected to vary across different business types, particularly for early-stage and research-intensive businesses that may be more affected by the narrowing of eligibility requirements.
The reforms have also raised discussion around refundability requirements. The proposed limit on refundability to companies less than ten years old has attracted attention, as some research programmes may extend beyond this timeframe or commence at different stages of a company’s lifecycle. For businesses affected by the proposed age restriction, the loss carryback rules may provide an alternative pathway.
Eligibility may also be affected through the higher minimum expenditure threshold, with approximately six per cent of current claimants expected to become ineligible. The changes may also have implications for the Early-Stage Innovation Company (ESIC) regime.
Looking ahead
The 2026 RDTI reforms present a mixed picture. The increased offset rate, higher refundable threshold and expanded expenditure cap may provide additional support for some claimants. At the same time, changes to eligibility may alter how businesses assess and prepare future claims.
With the changes scheduled to commence from 1 July 2028, businesses have time to review existing R&D strategies and assess how the proposed changes may affect future claims under the revised framework.
