Understanding the Proposed R&D Tax Incentive Reforms 

The Australian Government announced proposed reforms to the Research and Development Tax Incentive (RDTI) in the 2026 Federal Budget that may materially affect eligibility, claim value and compliance requirements for many businesses.

While the measures are not yet law and remain subject to consultation, they indicate a clear policy direction toward core R&D activities, tighter eligibility settings and increased compliance oversight. 

Proposed changes as of 1 July 2028: 

1. Entitlement to refundable R&D tax offset:  
   • $20 million to $50 million aggregate turnover threshold.  
   • Operating for <10 years.  
2. Minimum expenditure threshold: $20k to $50k. 
3. Increased tax offset for experimental ‘core’ R&D activities of approximately 25-50%. For companies claiming the refundable R&D tax offset, this reflects an increase in the tax offset from 43.5% to around 48% – 52% for core R&D activities. 
4. Removing eligibility of R&D expenditure relating to supporting R&D activities. 
5. Intensity threshold (for non-refundable R&D tax offset): reduced from 2% to 1.5%. 
6. Maximum expenditure cap: $150m to $200m. 

Additional considerations: The ATO was allocated additional funding specifically to expand compliance including review of RDTI claims and has publicly indicated an expectation of recoveries. As such, there is expected to be an increase in ATO reviews and audits of RDTI claims. 

What you can do now (practical next steps): 

1. Review the activities and costs you currently classify as supporting R&D and assess how your claim would change if these costs became ineligible. We can help refine the project scope to ensure all eligible R&D activities and related expenditure are captured. 
2. Strengthen contemporaneous documentation considering increased RDTI compliance. This includes documentation evidencing R&D activity eligibility, and the incurrence of expenditure on these R&D activities.  
3. Ensure all R&D expenditure is clearly linked to eligible R&D activities using a defensible allocation method. Any costs apportioned between R&D and non-R&D activities should be supported by an appropriate methodology and contemporaneous source documentation. 
4. Assess how the proposed $50 million turnover threshold and <10‑year operating requirement could affect your future eligibility for the refundable R&D tax offset and reflect this in business planning. 

Bottom Line 

These measures are proposed and we expect further consultation with industry, companies and advisors before anything is finalised. However, the compliance environment is already active, so the safest move is to ensure your R&D documentation and cost methodology are robust today. If you’d like us to run a quick R&DTI documentation health-check or talk through how these proposals may impact your business, reach out to the Vincents Research and Development Experts.