The Founder's Guide to the R&D Tax Incentive (RDTI) in Australia

The R&D Tax Incentive (RDTI) is the Australian Government's primary mechanism for encouraging private sector investment in research and development. It works as a tax offset — a direct reduction in your tax liability (or a cash refund if you're pre-profit) — based on eligible R&D expenditure you incur during the income year.

The program is jointly administered by two government agencies, each with a distinct role:

• Department of Industry, Science and Resources (DISR) / AusIndustry — registers your R&D activities and makes eligibility findings. You deal with DISR first.
• Australian Taxation Office (ATO) — assesses your claim and pays the offset (or applies it against your tax) via your annual company tax return. You deal with the ATO second.

As the ATO puts it: "The ATO and the Department of Industry, Science and Resources (DISR) jointly administer the R&D tax incentive. Your R&D activities must be registered with DISR before claiming the tax offset."

Critically, this is a self-assessment regime. You are responsible for determining your own eligibility before you apply. Receiving a registration number from DISR confirms your application was received and complete — it does not mean your activities have been pre-approved as eligible. Compliance reviews can occur before or after the offset is paid.

For pre-revenue or early-revenue startups, the RDTI can be a significant source of non-dilutive cash. If your company's aggregated turnover is under A$20 million, your offset is refundable — meaning if the offset exceeds your tax bill, the ATO pays you the difference as a cash refund. This is real money back into the company without giving up equity.

Consider a startup that spends A$200,000 on eligible R&D in its first year and pays 25% company tax (base rate entity). The refundable offset rate works out to 43.5% (more on how this is derived in the next section). That is A$87,000 back from the ATO — enough to fund several months of runway.

The RDTI is not a grant and it is not a loan. It is a tax concession you earn by doing genuine experimental R&D and documenting it properly. The reward is substantial; the compliance requirements are real. This guide walks you through both sides of the equation.

On 12 May 2026, the Government announced material reforms to the RDTI taking effect from 1 July 2028. The current rules described throughout this guide continue to apply until that date. See Section 6 of this guide (the checklist) and the FAQ for a summary of the changes. The headline reforms include raising the minimum spend to A$50,000, expanding the refundable offset turnover threshold to A$50 million, and removing supporting R&D activities from the offset entirely — partially compensated by a higher core-activity offset rate.

The key message: the current regime is fully in force until 30 June 2028. Founders building their 2025–2027 R&D programmes should claim under the existing rules and plan for a transition. Source: ATO — Better Targeting the RDTI.

The 43.5% figure you will see quoted for early-stage startups is not a flat statutory rate — it is a derived figure. Under the current rules (income years commencing on or after 1 July 2021), the refundable offset is calculated as:

Refundable offset = Your company's tax rate + 18.5 percentage point premium

For a base rate entity — a company with aggregated turnover below A$50 million, which pays the 25% corporate tax rate — the maths is:

25% + 18.5% = 43.5% refundable tax offset

For a company paying the standard 30% corporate tax rate, the offset would be 48.5%. The 43.5% figure is correct for most Australian startups, but understanding it is derived from your tax rate plus the 18.5% premium matters — because if your tax rate changes, so does your offset rate.

This structure replaced the old flat 43.5% rate that applied before 1 July 2021, as confirmed by the ATO, which states: "The refundable offset rate of 43.5% was replaced with a rate of 18.5% above the company's tax rate."

The offset is refundable — if the offset exceeds your tax liability, the ATO pays the excess as cash. This is the core reason pre-profit startups value the RDTI so highly. See the full rate table at ATO — R&D Tax Incentive.

There is a cap: the premium rate (the 18.5% uplift) applies only on eligible R&D expenditure up to A$150 million per income year. Above that threshold, the offset equals your corporate tax rate only, with no premium.

If your company's aggregated turnover is A$20 million or more, the offset is non-refundable — it reduces your tax payable but any excess is carried forward, not refunded as cash. The rate you receive depends on your company's R&D intensity: the ratio of your eligible R&D expenditure to your total company expenditure for the year.

The two intensity tiers are:

• R&D intensity 0–2% of total expenditure: Company tax rate + 8.5% premium
• R&D intensity greater than 2% of total expenditure: Company tax rate + 16.5% premium

Using the standard 30% tax rate as an example: a company spending proportionally little on R&D (under 2% intensity) gets a 38.5% offset, while a company investing heavily in R&D (above 2% intensity) gets 46.5%. The tiered structure is designed to reward companies that commit proportionally more of their resources to R&D. Confirmed via ATO — R&D Tax Incentive.

For most early-stage founders reading this guide, the non-refundable tiers are a future consideration — you're more likely to be in the refundable (sub-$20M turnover) regime right now. But understanding the intensity concept matters even early on, because keeping detailed expenditure records from day one makes the intensity calculation straightforward when you grow.

The RDTI is available only to corporations — not sole traders, partnerships, or trusts. Specifically, you qualify if you are a company that is:

• Incorporated under an Australian law; or
• Incorporated under a foreign law but an Australian resident for income tax purposes; or
• Incorporated under a foreign law, resident in a country with which Australia has a double tax agreement (including a definition of 'permanent establishment'), and carrying on business in Australia through that permanent establishment.

The practical implication: if you are operating as a sole trader or through a family trust, you are not eligible. You will need to incorporate (register as a Pty Ltd) before you can access the RDTI. If you're serious about R&D claims, this is a strong structural reason to incorporate early. Source: business.gov.au — Check if you are eligible.

To access the offset, your company must have incurred notional deductions of at least A$20,000 on eligible R&D activities during the income year. "Notional deductions" is the technical term for expenditure that would otherwise be deductible and which you are now counting as R&D expenditure for the purposes of the offset calculation.

There is one exception to the $20,000 minimum: if a registered Research Service Provider (RSP) conducted the R&D activities on your behalf, the minimum spend threshold does not apply.

At the upper end, the premium rate (the 18.5% uplift above your tax rate) applies only on eligible R&D expenditure up to A$150 million per income year. Expenditure above that ceiling attracts only the corporate tax rate, with no premium. Both thresholds are confirmed via business.gov.au and ATO — Eligibility for the R&D Tax Incentive.

The A$20,000 minimum is achievable for most product-building startups, but it is a real threshold. If your total R&D spend for the year is A$18,000, you do not qualify — and partial years are not credited across income years.

Core R&D activities are the heart of any RDTI claim. They are experimental activities that satisfy all three of the following tests:

1. The outcome cannot be known or determined in advance on the basis of current knowledge, information, or experience;
2. The outcome can only be determined by applying a systematic progression of work that is based on principles of established science and proceeds from hypothesis → experiment → observation → evaluation → logical conclusions;
3. The activities are conducted for the purpose of generating new knowledge (including new or improved materials, products, devices, processes, or services).

The key concept here is genuine experimental uncertainty. You must not already know — based on existing knowledge — what the outcome will be. Ordinary product feature development, debugging known bugs with known solutions, or implementing a well-documented API does not qualify. What qualifies is work where you are genuinely uncertain whether a novel technical approach will work, and you are running structured experiments to find out.

Regardless of how technically sophisticated your work is, certain activities are always excluded from core R&D activities:

• Market research, market testing, market development, or sales promotion (including consumer surveys)
• Management studies or efficiency surveys
• Research in social sciences, arts, or humanities
• Activities to comply with statutory requirements or standards, including routine testing and analysis
• Developing, modifying, or customising software where the dominant purpose is internal administration of your company (e.g., building your own internal CRM, HR system, or finance tool)
• Reproduction of a commercial product or process from publicly available information, plans, or blueprints

Sources: business.gov.au — Check if you are eligible; ATO — Eligibility for the R&D Tax Incentive.

Supporting R&D activities are activities that are directly related to your core R&D activities. They are broader than core activities — they can include production-related work, data collection, and logistics that feed into the experimental process.

However, there is an important gatekeeping test. If a supporting activity either:

• produces (or is directly related to producing) goods or services, or
• falls into a category excluded from core R&D activities,

...then it must have been conducted for the dominant purpose of supporting a core R&D activity. "Dominant purpose" means the prevailing or primary reason for conducting the activity — not merely one of several purposes.

Activities most likely to satisfy the dominant purpose test include those that:

• have no commercial purpose other than supporting the core R&D experiment
• produce items consumed in the experiment (reagents, prototype components, test data)
• create a component used in a core R&D activity that has no other use

Supporting activities matter because they can add significant expenditure to your claim. A software startup running a large-scale data collection process to feed a machine learning model (core R&D) may be able to include the data pipeline costs as supporting activities.

Important note for 2028 planning: Under the upcoming reforms, supporting activities will be removed from the offset from 1 July 2028. Claims lodged under the current rules (for income years up to 30 June 2028) still include supporting activities. Sources: business.gov.au; ATO — Better Targeting the RDTI.

Software is by far the most common area of RDTI claims for Australian tech startups — and by far the most frequently challenged. Here is a practical framework for assessing your software work:

Likely eligible (core R&D):

• Novel algorithm development where the correct approach is genuinely uncertain — you are experimenting with different methods and evaluating outcomes
• Machine learning or AI model development where the architecture, training methodology, or performance outcome is experimentally unknown
• Developing a new protocol, compression method, or data processing technique that does not already exist
• Security or cryptographic research investigating previously unknown attack surfaces

Not eligible (excluded):

• Building features using known frameworks, languages, and documented techniques — even if the feature is novel for your product
• Bug fixing, performance tuning, or code refactoring using established methods
• Integration work (connecting your product to third-party APIs) where the outcome is deterministic
• Developing internal tools (your own CRM, billing system, admin dashboard) — these are explicitly excluded as 'internal administration' software
• Market testing your software or conducting user acceptance testing (UAT)

The ATO has published extensive guidance on software R&D and conducts targeted compliance activity in this area. If your software claim rests on activities that are routine development dressed up as R&D, the risk of a compliance review — and the associated penalties — is real. When in doubt, engage a registered R&D tax adviser before lodging.

Registration is your first step and has a hard statutory deadline. You must submit your registration application to DISR within 10 months of the end of your company's income year in which the R&D activities took place.

As business.gov.au confirms: "The statutory deadline to register your eligible R&D activities for the R&DTI is 10 months after the end of your company's income year in which the activities took place."

For most Australian companies with a 30 June financial year-end, this means:

• Income year ends: 30 June
• DISR registration deadline: 30 April of the following year
• ATO tax return (R&D schedule) typically due: around 15 May

You register via the R&DTI Customer Portal — DISR's secure online platform. Your registration must include:

• Descriptions of each eligible R&D activity (project descriptions for core and supporting activities)
• Confirmation of your eligibility as an R&D entity
• Your aggregated turnover figure and total R&D expenditure details

Registration portal details at business.gov.au — Apply for the R&D Tax Incentive. The DISR registration number you receive confirms receipt — it does not pre-approve eligibility. Compliance review may still follow.

Once you have your DISR registration number, claiming the offset is done through your company's annual income tax return. You complete the R&D Tax Incentive schedule, which is an attachment to your standard company tax return lodged with the ATO.

In the schedule you will:

• Enter your DISR registration number
• Report total eligible R&D expenditure (both core and supporting activities)
• Confirm your aggregated turnover (to determine refundable vs non-refundable offset)
• Calculate the offset amount (using the applicable rate: your tax rate + 18.5%)

For refundable offset recipients (turnover < A$20M), the ATO will pay the excess offset as a cash refund if it exceeds your tax liability. For non-refundable offset recipients, the excess is carried forward. The claim process is described at business.gov.au — Program Charter.

Timing matters: do not lodge your tax return before you have your DISR registration number. The ATO requires the registration number to process the R&D schedule.

The RDTI is a self-assessment regime — which means the burden of proof sits with you, not with the ATO. Both DISR and the ATO conduct compliance reviews and audits, and the central question they ask is: can you demonstrate that your activities actually happened as described, in the way described, and cost what you say they cost?

The single most important concept in RDTI record-keeping is contemporaneous records: records created at the time the activities were conducted, not reconstructed afterwards. Retrospective records carry significantly less weight in audits and are a common audit trigger. If your documentation was assembled weeks or months after the R&D work was done, expect scrutiny.

Your records must demonstrate, for each R&D activity:

• Background research showing the outcome could not be known in advance (evidence of the knowledge gap)
• What was done — the steps, test protocols, development activities, and experimental process
• How the work was performed — methods, approaches, technical rationale
• When the work occurred — dates, timelines, and milestones
• Who carried out the work — staff names and roles; contractor identities
• Resources used — equipment, facilities, materials, software tools
• Related expenditure — what was spent, on what, by whom, linked to which specific R&D activity, including your apportionment methodology for mixed-use costs

Source: business.gov.au — Record Keeping for the R&D Tax Incentive.

Based on ATO and AusIndustry published guidance, these are the compliance traps that catch founders most often:

• No contemporaneous records: Records created after the fact carry little weight. Start your documentation from day one of each R&D project — experimental logs, GitHub commit messages describing the hypothesis being tested, meeting notes, and progress reports all count.
• Failing the 'unknown outcome' test: Claiming activities where the outcome was routine or predictable — ordinary debugging, incremental improvements using known techniques, or implementing documented third-party libraries. The ATO specifically targets software R&D claims in this area.
• Internal admin software: Developing software for your own internal use — your CRM, finance system, HR platform — is explicitly excluded. Many founders inadvertently include this.
• Weak nexus between expenditure and activities: You must be able to trace each dollar claimed to a specific registered R&D activity. Generic overhead allocations or undifferentiated costs are challenged.
• Inadequate contractor documentation: Lump-sum contractor invoices are a major red flag. Invoices must itemise R&D work versus non-R&D work separately. If you use contractors for R&D, agree on invoice format upfront.
• Claiming market research or sales activities: Market testing, consumer surveys, and sales promotion are explicitly excluded. They cannot be dressed up as core R&D.
• Routine testing and QA: Standard quality assurance processes that follow a fixed protocol (not a genuinely experimental process) are excluded.
• Part IVA anti-avoidance: Since 1 July 2021, the general anti-avoidance rule applies to RDTI claims. Arrangements entered into with the dominant purpose of accessing the offset (rather than genuinely conducting R&D) can be cancelled by the ATO. The penalties for ineligible claims can reach 75% of the refunded or foregone tax, and both the ATO and AusIndustry can look back up to 4 years.

Sources: business.gov.au — Record Keeping; ATO — About the R&DTI Program; PwC Australia — Substantiation for R&D Activities.

You must keep your R&D records for 5 years after claiming the expenditure. AusIndustry has the power to conduct compliance reviews going back up to 4 prior income years, which is why the 5-year retention period is the minimum safe standard.

Practical examples of acceptable records include:

• For core R&D activities: Experimental plans and test protocols; records of trial runs and results; email correspondence showing the knowledge gap at project start; background research reports demonstrating no prior solution existed; meeting minutes and project plans; photographs or videos of experiments or prototypes.
• For supporting R&D activities: Meeting records linking the supporting activity to a specific core activity; experimental plans showing why the supporting activity was necessary.
• For expenditure: Staff timesheets with narration of R&D tasks performed; employment contracts with detailed position descriptions; contractor invoices itemising R&D vs non-R&D work separately; tax invoices and asset usage logs.

Source: business.gov.au — Record Keeping for the R&D Tax Incentive.

Use this checklist to get your RDTI programme set up correctly from the start. Tick off each item before you lodge your first claim.

• ☐ Incorporate as a Pty Ltd — confirm you are operating as a corporation, not as a sole trader, partnership, or trust. Only companies are eligible R&D entities.
• ☐ Confirm your aggregated turnover — determine whether you are below A$20M (refundable offset at 43.5% for base rate entities) or above (non-refundable intensity-based offset). Source: ATO — R&D Tax Incentive.
• ☐ Map your R&D activities to the core/supporting framework — for each activity you intend to claim, write out the hypothesis, the unknown outcome, the experimental method, and the knowledge sought. If you cannot articulate the knowledge gap, the activity is likely not core R&D.
• ☐ Start contemporaneous record-keeping immediately — do not wait until the end of the financial year. Implement a simple R&D log: dates, who worked, what they did, what was discovered. Even a shared Google Doc updated weekly is better than reconstructed records later.
• ☐ Set up expense tracking by R&D activity — tag staff time, contractor invoices, and materials costs to specific R&D project codes from day one. Use timesheet software that allows narration of tasks.
• ☐ Confirm your financial year-end and calculate the DISR registration deadline — for a 30 June year-end, your deadline is 30 April of the following year. Diarise it now. Source: business.gov.au — Request an extension or variation.
• ☐ Register with the R&DTI Customer Portal before the 10-month deadline — visit business.gov.au — Apply for the R&D Tax Incentive for the portal link and submission guide.
• ☐ Brief your accountant or R&D tax adviser early — ideally at the start of the income year, not at tax time. Engage a registered R&D tax adviser if your claim is significant (>A$50,000 in R&D expenditure). The investment in good advice pays for itself.
• ☐ Do not conflate R&D activities with excluded activities — flag any activities involving market research, internal admin software, routine testing, or sales promotion and confirm they are out of scope before building your claim.
• ☐ Review contractor invoice formats now — if you use contractors for R&D work, ask them to itemise R&D time and non-R&D time on invoices. A lump-sum invoice is not sufficient documentation for a compliance review.
• ☐ Plan for the 2028 reforms — if your R&D programme includes significant supporting activities, model the impact of their removal from the offset from 1 July 2028. Source: ATO — Better Targeting the RDTI.
• ☐ Retain all records for at least 5 years after claiming — set up a document retention system (cloud storage with folder structure by income year and R&D project) and make it someone's job to maintain it.

Yes — and this is one of the most important features of the RDTI for early-stage founders. If your company's aggregated turnover is less than A$20 million, the offset is refundable. That means if the offset exceeds your tax liability (which it will if you have low income or are making a loss), the ATO pays you the difference as a cash refund.

A pre-profit startup with A$200,000 of eligible R&D expenditure and a 25% company tax rate (base rate entity) would be entitled to a 43.5% offset — A$87,000 — even if it owes no income tax that year. The full A$87,000 would be refunded. This makes the RDTI genuinely transformative for pre-revenue deep tech, biotech, or software startups burning cash on product development.

The refundable nature of the offset is confirmed by ATO — About the R&D Tax Incentive Program.

These are two separate steps with two separate agencies, and both are required:

• DISR registration comes first — you submit descriptions of your R&D activities via the R&DTI Customer Portal within 10 months of your income year end. DISR processes this and issues a registration number. This does not mean your activities are pre-approved as eligible; it means your application has been accepted as complete.
• ATO claim comes second — you include the DISR registration number in the R&D Tax Incentive schedule attached to your company tax return. The ATO calculates the offset based on your expenditure and tax position, and either reduces your tax payable or issues a cash refund.

Neither step is optional. You cannot claim through the ATO without first registering with DISR. The joint administration structure is set out at ATO — About the R&D Tax Incentive Program.

The 2026–27 Federal Budget (announced 12 May 2026) legislated the following changes, all effective from 1 July 2028. Current rules remain fully in force until then.

• Supporting R&D activities removed: Only core R&D activities will be eligible for the offset from 1 July 2028. Supporting activities will no longer attract the premium.
• Core R&D offset rate increased: To partially compensate, the premium on core activities will increase by 4.5 percentage points.
• Intensity threshold lowered: The threshold for the higher intensity tier drops from >2% to >1.5% of total expenditure.
• Refundable offset access restricted: From 1 July 2028, the refundable offset will be available only to companies in their first 10 years of operation (currently available to any eligible company under A$20M turnover).
• Minimum spend raised: The minimum eligible R&D expenditure rises from A$20,000 to A$50,000.
• Turnover threshold for refundable offset raised: From A$20 million to A$50 million.
• Maximum expenditure raised: The cap on eligible expenditure (for the premium rate) rises from A$150 million to A$200 million.

Source: ATO — Better Targeting the Research and Development Tax Incentive.

The RDTI is technically accessible as a self-lodged claim — you do not legally need a consultant. However, in practice, most founders with meaningful R&D expenditure (above A$50,000) engage a registered R&D tax adviser for two reasons.

First, the eligibility assessment — particularly for software and digital products — is genuinely complex. The line between eligible R&D and ordinary product development is frequently challenged by the ATO, and an experienced adviser knows how to structure activity descriptions and expenditure apportionment to withstand scrutiny.

Second, the compliance risk is significant. Penalties for ineligible claims can reach 75% of the tax offset amount, and the ATO can review claims going back four years. Good advice upfront is substantially cheaper than defending an audit.

For smaller claims (A$20,000–A$50,000 in eligible spend), the fee-to-benefit ratio of a consultant may be marginal. In that range, working through the business.gov.au RDTI guidance carefully with your accountant is a reasonable approach. Always verify any claim against the official ATO and DISR guidance before lodging.

R&D expenditure incurred on activities conducted overseas is generally not eligible for the RDTI unless you have obtained an Overseas Finding from DISR. An Overseas Finding is granted only where the overseas R&D activity cannot be conducted in Australia (e.g., unique facilities, equipment, or expertise available only offshore), and only if the activity is a genuine extension of your Australian core R&D activities.

The test is strict: overseas activities must be directly related to Australian core R&D, must meet the overseas conditions, and must be separately registered and approved. You cannot simply shift R&D work offshore to reduce costs and still claim the RDTI on it.

For R&D conducted by Australian-resident contractors (individuals or companies), the expenditure is generally claimable — provided it meets all the usual eligibility tests and the contractor's invoices correctly itemise the R&D work. Engage your R&D tax adviser before structuring any offshore or contractor R&D arrangements to ensure they qualify.

Because the RDTI is a self-assessment regime, the ATO and DISR can conduct compliance reviews at any time — before or after the offset has been paid. If, after review, they determine that some or all of your claimed activities were not eligible, they will seek to recover the offset amount, potentially with interest.

Penalties can apply where the ineligibility results from a false or misleading claim. As noted earlier, penalties can reach up to 75% of the refunded or foregone tax depending on the circumstances. Both agencies can look back up to 4 years.

The best protection is a well-documented, genuinely experimental R&D programme supported by contemporaneous records. If you receive a compliance query from either DISR or the ATO, engage professional representation immediately — do not respond without advice. The compliance review process is described in the ATO's R&D Tax Incentive Program guidance.

Understanding the cash timeline is essential for startup financial planning. The following example uses a software startup with a 30 June year-end spending $500,000 on eligible R&D in FY2024-25.

Expected refund: For companies with aggregated turnover < $20M, the refundable offset equals the company tax rate plus an 18.5% premium. At the 25% base rate: 43.5% × $500,000 = $217,500 cash refund. Source: business.gov.au — RDTI overview.

The total wait from first R&D dollar spent to receiving the cash refund is approximately 12–20 months. Records must be retained for 5 years after the relevant income year. Source: Bulletpoint — R&D Tax Incentive deadlines 2025.

Yes — a specialist category of lenders provides R&D advance financing (also called RDTI advance funding), secured against the expected refund. The company draws down funds during the financial year and repays the lender when the ATO processes the refund, typically with no monthly repayments required during the year. This converts a 12-20 month wait into working capital available within days of approval.

Key providers (not endorsements):

• Radium Capital — Perth-based, over 8 years operating, has advanced more than $1 billion to over 1,000 businesses via their “Radium Advance” product. Source: Radium Capital.
• Kashcade — Australian lender offering up to 100% of accrued refund, claims funds available within 24–48 hours of approval. Source: Kashcade — R&D loans.
• GetAdvanced — Australian provider with approvals in 48 hours and funds within 24 hours of signing. Source: GetAdvanced.com.au.
• Swanson Reed — R&D tax consultancy that facilitates referrals to unaffiliated finance providers. Source: Swanson Reed — R&D tax refund financing.

Lenders typically advance 70–90% of the projected refund (some up to 100%). Interest rates are significantly higher than bank rates — typically 10–20% per annum effective — but the non-dilutive capital benefit often outweighs the cost for cash-constrained startups. Source: West Tech Fest — Innovators guide to RDTI.

The RDTI is one of Australia's largest business support programs. According to the second R&D Tax Incentive Transparency Report (covering 2022-23), 12,956 companies claimed a total of $16.2 billion in eligible R&D expenditure — up from 11,545 companies claiming $11.2 billion in 2021-22. Source: RSF Consulting — R&D software 2025.

Software dominates: Software-related R&D claims now constitute over 45% of all R&D claimants, surpassing manufacturing as the largest sector. In May 2024, AusIndustry updated its guidance on software R&D, clarifying the distinction between core activities (which must involve genuine technical uncertainty and experimental process) and supporting activities (which can only be claimed if they are directly related to core activities). The ATO is also developing new guidance to replace the outdated Taxation Ruling TR 93/12, addressing modern software distribution via cloud and SaaS.

The Australian Government initiated a Strategic Examination of Research & Development in February 2025, assessing program alignment with national priorities including sustainability and advanced manufacturing. Results were expected later in 2025, potentially informing post-2028 changes. Startups should monitor developments.

Two rules can reduce your effective RDTI benefit after the fact.

Feedstock adjustment: When R&D activities produce a marketable product (e.g., a prototype that is sold or materials used in production), a feedstock adjustment is required. The formula: take the lesser of feedstock input costs or feedstock output revenue, multiply by 1/3, then apply the company tax rate — that amount is added to assessable income, reducing the effective refund.

Example: R&D produces prototypes sold for $120,000. Raw material cost was $100,000. Lesser = $100,000 × 1/3 = $33,333. Tax effect = $33,333 × 25% = $8,333 added to assessable income. Source: Bulletpoint — Feedstock adjustment.

Clawback events — three scenarios bring the R&D offset back into assessable income:

1. Recoupment: You receive a government grant for expenditure on which you previously claimed RDTI. Claiming both the grant and RDTI on the same expense is prohibited.
2. Feedstock adjustment: As above.
3. Balancing adjustment: You stop holding an R&D asset (e.g., sell it) and the termination value exceeds the adjustable value.

Importantly, clawback does not reduce the original offset received — instead, a grossed-up additional amount is included in assessable income in the year the clawback event occurs. Source: ATO — Clawback of R&D tax incentive offset.

The ATO and AusIndustry have ramped up compliance activity over 2023–2025. Key audit triggers include:

• Related-party expenditure: Payments to associated entities are high-risk. You need contracts and invoices clearly detailing what was provided, at what cost, and demonstrably linked to registered R&D activities.
• Sweat equity / non-cash contractor payments: Paying suppliers in shares rather than cash may mean those expenses are not claimable under the RDTI — and may not even be tax-deductible. Source: William Buck — Rough seas ahead for R&D.
• Expenditure not at risk: The ATO's “at risk” rule (TR 2021/5) prevents claiming R&D expenses where the company is recompensed regardless of the R&D outcome — common in fixed-fee B2B project delivery. Source: ATO — RDTI eligibility.
• Buildings and fixtures: Expenditure on buildings and fixtures is ineligible for RDTI regardless of whether R&D is conducted there.
• Inadequate documentation: The ATO now requires detailed records including how specific equipment is used in R&D vs ordinary business operations, supported by machinery usage reports, photos, and timesheets. Records must be retained for 5 years.

Given that software claims now exceed 45% of all claimants, any software startup claiming RDTI should ensure its registered activities clearly describe the technical uncertainty being resolved, not merely the functional outcome being built.

These hand-picked videos and podcast episodes go deeper on the topics in this guide. We've favoured Australian creators, advisers and founders, with a few standout global explainers where the concept is universal. Each link was checked to confirm it is live at the time of publishing; treat any figures, tax rates or thresholds mentioned in older clips as point-in-time and cross-check against the current rules above.

Watch

• R&D Tax Incentive — William Buck (2023). Major AU advisory firm's CPE explainer covering the 43.5% refundable offset, eligible vs supporting activities, AusIndustry registration, common misconceptions, and documentation requirements — ideal for startup founders navigating RDTI for the first time.
• Unlocking the R&D Tax Incentive | RSM Australia — RSM Australia (2025). RSM (top-ten AU advisory firm) frames RDTI as non-dilutive capital for startups and explains the innovation-funding angle, making it useful for founders evaluating R&D spend as part of their capital stack.

Listen

• Tax Records - What to consider when claiming the R&D tax incentive in Australia — Smarter Lawcast with Hall & Wilcox (2026). 28-minute deep-dive by Hall & Wilcox lawyers on ATO audit risk, governance obligations, commercial arrangements that affect claims, and why legal oversight matters — essential listening before lodging.