R&D TAX INCENTIVE ELIGIBILITY & CLAIMS
Understand and access the R&D Tax Incentive
HCPA helps Australian companies identify eligible R&D activities, prepare their registration and calculate the expenditure that can form part of an R&D claim.
The R&D Tax Incentive can provide a valuable tax benefit to companies investing in genuine research and development, including businesses developing new or improved products, processes, software and technologies.
Eligibility depends on what the company actually did, why the outcome could not be known in advance and how the experimental work was conducted. Getting that assessment right can help businesses identify legitimate R&D opportunities without assuming every development project will qualify.
Still deciding whether the R&D Tax Incentive is worth pursuing?
If your company is already investing in technical experimentation, the R&D Tax Incentive can reduce the effective cost of eligible research and development.
Under the current R&D Tax Incentive rates, eligible companies with aggregated turnover below $20 million generally receive a refundable offset equal to their corporate tax rate plus an 18.5% premium, provided they are not controlled by tax-exempt entities. For a base-rate company taxed at 25%, this produces a 43.5% offset rate. Larger eligible entities generally receive a non-refundable offset based on their R&D intensity.
The important first step is determining whether your entity, activities and expenditure qualify. HCPA can assess the potential claim before significant time is spent preparing the registration.
Who could benefit from the R&D Tax Incentive?
What does the R&D Tax Incentive claim process involve?
The R&D Tax Incentive is jointly administered by the Department of Industry, Science and Resources and the Australian Taxation Office. The Department registers R&D activities and considers activity eligibility, while the ATO administers eligible expenditure and the tax offset claim. The Australian Government’s R&D Tax Incentive overview explains how the two stages work together.
1. Assess R&D eligibility
Start by determining whether the company is an eligible R&D entity and whether its activities satisfy the legislative tests.
Eligibility is assessed at the activity level, not simply because an overall project is new, difficult or commercially innovative. The Australian Government’s R&D eligibility guidance explains the distinction between eligible core and supporting activities and ordinary project work.
Businesses generally need at least $20,000 of eligible R&D expenditure for the income year, although exceptions apply where a registered Research Service Provider or the Cooperative Research Centres Program is involved.
2. Build supporting evidence
A strong R&D claim starts with records created while the work is being undertaken.
Depending on the industry, evidence may include experimental plans, laboratory notes, test reports, technical documentation, Jira tickets, development records, project plans, emails, clinical trial documentation and other records showing how the R&D progressed.
The Australian Government’s R&D Tax Incentive record-keeping guidance emphasises records showing the technical uncertainty, systematic progression of work, people involved, timing of activities and the expenditure connected to each eligible activity.
This makes contemporaneous evidence particularly important. Trying to reconstruct the experimental process and expenditure after the income year can make a legitimate claim harder to substantiate
3. Complete R&D registration
The registration explains the eligible core and supporting R&D activities undertaken during the completed income year.
Companies generally need to apply within 10 months after the end of the relevant income year. For a standard 30 June year end, that normally means applying by 30 April of the following year. The R&D Tax Incentive application process also requires applicants to confirm that records were kept while the activities were being conducted.
Once registered, the Department provides a registration number that can be used for the tax claim.
Registration confirms that the activities have been registered, not that they have been found eligible. The company remains responsible for self-assessing and substantiating its R&D activities and expenditure.
4. Calculate the R&D claim
The next step is identifying the expenditure properly attributable to eligible R&D activities.
HCPA reviews financial information such as the general ledger, profit and loss statement, invoices and payroll records and connects those costs back to the R&D activities being claimed.
The registration number and eligible expenditure are then used in the R&D Tax Incentive schedule lodged with the company’s income tax return. The ATO administers the expenditure claim and applicable refundable or non-refundable tax offset. ATO guidance on getting R&D claims right also emphasises using reasonable apportionment methods where costs relate partly to R&D and partly to ordinary business activities.
Why work with HCPA on your R&D claim?
The value in an R&D Tax Incentive application is not simply describing a project as innovative.
The activities need to be assessed against the legislative definition of R&D, while the expenditure needs to be connected accurately to those eligible activities. HCPA’s experience is that businesses can otherwise miss legitimate expenditure or include activities and costs that do not satisfy the program requirements.
The distinction can be particularly important in areas such as software and product development, where technically difficult work is not automatically eligible R&D. HCPA helps identify the specific experimental activities within the wider project and connect those activities to the evidence and expenditure supporting the claim.
Backed by HCPA’s Compliance Guarantee
Eligible HCPA registration services are backed by the Compliance Guarantee. If approval is not achieved due to HCPA’s compliance work following three attempts, HCPA provides a full refund and you keep the work completed.
How HCPA helps you prepare an R&D Tax Incentive claim
Assess eligibility
Review the company structure, R&D activities and expenditure to identify what may qualify under the program.
Map the evidence
Identify the technical and financial records available and where additional substantiation may be needed.
Prepare registration
Draft the core and supporting R&D activities against the legislative requirements and prepare the registration application.
Calculate the claim
Review eligible expenditure, prepare the R&D calculation and support the information needed for the company's tax offset claim.
Our experience helping businesses enter regulated markets
industry consultants
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HCPA works with businesses undertaking R&D across areas including software, manufacturing, pharmaceuticals, clinical research and other technical industries.
That experience helps distinguish genuine experimental R&D from routine development work and identify the records that can demonstrate how an activity was actually conducted.
HCPA also reviews the financial side of the claim, connecting eligible activities with the expenditure incurred rather than treating the technical registration and tax calculation as separate exercises.
Frequently asked questions about the R&D Tax Incentive
Is my business eligible for the Australian R&D Tax Incentive?
Eligibility starts with the entity and the activities.
Under the Australian Government’s R&D Tax Incentive eligibility rules, the applicant generally needs to be an eligible corporation and must have conducted at least one eligible core R&D activity.
The activity itself needs to involve an outcome that could not be known in advance and a systematic experimental process undertaken to generate new knowledge.
Eligibility therefore depends on the activities actually conducted, rather than whether the business considers the wider project innovative.
Does every software or product development project qualify as R&D?
No, but businesses sometimes overlook activities that could qualify.
Simply building a new product, improving software or solving a difficult commercial problem is not enough on its own. The relevant activity needs to satisfy the R&D tests around technical uncertainty, experimentation and new knowledge.
The Australian Government’s software development R&D guide explains that routine development using established techniques generally does not qualify as core R&D, even where the work is technically complex. The stronger question is whether a technical uncertainty could only be resolved through hypothesis-driven experimentation.
How much could my business claim through the R&D Tax Incentive?
The amount depends on company turnover, tax rate and eligible R&D expenditure.
Under the current R&D Tax Incentive offset rates, eligible companies with aggregated turnover below $20 million generally receive a refundable offset equal to their corporate tax rate plus an 18.5% premium, unless they are controlled by tax-exempt entities. Larger eligible entities generally receive a non-refundable offset using R&D-intensity-based premiums.
The potential benefit should therefore be modelled using eligible R&D expenditure, rather than the total budget of the project.
Can a trust claim the R&D Tax Incentive?
A trust itself is generally not an eligible R&D entity.
The ATO’s R&D entity eligibility guidance states that eligible R&D entities are generally corporations. Trusts are not usually eligible, apart from the specific exception for a body corporate acting as trustee for a public trading trust.
This is why business structure can matter when R&D is being planned. HCPA can help identify whether the entity conducting the activities is positioned to access the incentive.
What records should I keep for an R&D claim?
Keep records that show both what experimental work occurred and what the company spent on it.
Technical evidence can include hypotheses, experimental plans, test results, laboratory records, development tickets, technical reports, emails and project documentation. Financial evidence may include payroll records, timesheets, invoices, general ledger entries and cost allocations.
Good R&D record keeping should also demonstrate when the activities occurred, who performed them and how expenditure was connected or apportioned to eligible R&D.
The best records are created while the R&D is happening rather than reconstructed at claim time.
Can employee salaries form part of an R&D claim?
Potentially, where employees spend time on eligible R&D activities and the expenditure satisfies the applicable tax rules.
Where an employee performs both R&D and non-R&D work, the company needs a reasonable basis for allocating the relevant salary cost. The ATO’s guidance on R&D claims and apportionment emphasises that the methodology should reflect the extent to which expenditure was actually incurred on eligible R&D activities and should be documented.
A practical issue arises when companies know staff were involved in R&D but cannot demonstrate how much time was actually spent on eligible activities.
HCPA has seen businesses miss potential expenditure because R&D time was not recorded well enough to support a reasonable allocation of salaries and wages.
Can I claim R&D activities conducted overseas?
Sometimes, but additional requirements apply.
Companies intending to claim expenditure for overseas R&D activities need a positive overseas finding before claiming that expenditure. The Australian Government R&D application guidance specifically asks companies claiming overseas expenditure to confirm they have this finding.
Businesses planning international development work should therefore assess the R&D structure before deciding where activities will be conducted.
Can I get certainty about R&D eligibility before making a claim?
Yes. Companies can apply for an advance finding from the Department of Industry, Science and Resources on whether proposed or current activities satisfy the R&D activity requirements.
A positive advance finding can provide assurance about activity eligibility for up to three years, provided the activities remain as described. It does not determine whether the related expenditure is eligible, and the company must still register its activities and make the tax claim through the usual process.
Is it worth getting advice before the financial year ends?
Yes, particularly if the company expects to claim R&D regularly.
Although registration occurs after the income year, planning earlier gives the business time to establish better project records, R&D time tracking and expenditure processes while the activities are underway.
Early advice can be particularly useful where the company wants an advance finding or expects to conduct R&D overseas, because those applications need to be made before the end of the relevant income year.
HCPA can also help identify activities that may or may not satisfy the eligibility requirements before the company reaches claim time.
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