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If your business relies on innovation, the Research and Development Tax Incentive (R&DTI) can help you grow. However, some aspects of the program are changing. From August 2025, new reforms aim to enhance transparency, align with relevant legislation and simplify the system for Australian businesses.
Here's what you need to know.
Understanding the R&D Tax Incentive
The R&D Tax Incentive is Australia's key innovation funding program, jointly administered by the Australian Taxation Office (ATO) and the Department of Industry, Science and Resources (DISR). It encourages businesses to pursue research and development that may not otherwise take place by offering tax offsets.
Its three objectives are to:
- Stimulate otherwise unlikely R&D activities.
- Support smaller firms.
- Simplify innovation support for businesses.
Are You Eligible for the R&DTI?
Entities that are incorporated under Australian law, or incorporated under foreign law but considered resident in Australia for income tax purposes, are eligible for the R&DTI. Certain members of a multiple entry consolidated group or R&D partnerships can also participate.
You must undertake activities that support R&D as defined in the ITAA 1997. During each registered year, you must undertake at least one activity that constitutes core R&D work.
If your turnover is under $20 million, you're eligible for a refundable tax offset equal to the corporate tax rate plus an 18.5% premium.
If your turnover is $20 million or more, you are eligible for a non-refundable tax offset equal to the corporate tax rate plus an incremental premium based on R&D intensity.
Changes Coming to R&DTI in 2025
A New Application Process Is Arriving
The most immediate change is a new online application form, launching on 15 August 2025. This should make the application and processing easier, with dropdown menus, tick boxes and higher character limits, allowing businesses to provide additional information.
The new form also places greater emphasis on accurately describing your R&D projects, particularly in evidencing that outcomes are unknown and the technical challenges involved.
If you've already started an application using the old system, it's recommended that you submit it before the deadline, as drafts will not carry over.
This change should reduce the time to apply, especially for smaller businesses managing their own tax. It's also a chance to get ahead by refining your documentation.
No More Tax Offsets for Gambling or Tobacco R&D
From 1 July 2025, any R&D related to gambling or tobacco is excluded from the tax incentive.
This shift reflects broader health and social outcomes. If you operate in these industries, now's the time to review your projects and adjust accordingly.
Expect More Compliance Checks
The ATO and DISR are increasing scrutiny on R&D claims, following an uptick in funding allocated to the ATO in the Federal Budget. That means businesses need to provide more substantial evidence that their work meets the legal definition of eligible R&D, including:
- The outcome is unknown.
- The work follows a scientific process.
- The goal is to generate new knowledge.
Use digital tools to track your costs, test results, problems and solutions. Keep clear documentation records of all activities, investments and outcomes.
Transparency Reports Are Now Public
From October 2024, the ATO began publishing a Transparency Report, which shows which businesses have claimed the R&D incentive. This change is about public trust, but it also gives you a window into how other companies are taking advantage of the scheme.
How To Stay Ahead
Small and medium businesses can still benefit. The threshold for claims is low, and the government wants innovation to thrive. However, companies will need to be organised to stay on top of new changes.
WMC Accounting helps you make the most of R&DTI. Whether it's keeping compliance-ready or preparing for your application, our team is here to help you take advantage of the program. Contact us today to set your business on the path to success.
