Australia’s Treasury has released draft legislation proposing higher R&D tax offset rates, expanded turnover and expenditure thresholds, and tighter eligibility rules that would remove benefits for supporting R&D activities.
The Australian Treasury has released draft legislation to overhaul the nation’s tax framework for emerging businesses and research ventures. The Treasury Laws Amendment (Tax Reform No. 5) Bill 2026: Better targeting the Research and Development Tax Incentive implements key elements of the tax reform package announced in the 2026–27 Budget, following recommendations from DISR’s Ambitious Australia Report (March 2026).
Applying to income years commencing on or after 1 July 2028, these amendments seek to balance broader access for growing firms with tighter focus and simplified administrative rules.
The reform also aims to focus government support on high-impact R&D by increasing expenditure and turnover thresholds while narrowing the scope of eligible activities. Specifically, the new laws eliminate tax offsets for supporting activities, restricting benefits solely to primary research and development projects.
The Treasury opened consultation on the exposure draft materials on 11 September 2026, with feedback due by 28 September 2026.
The key aspects of the draft legislation are:
Increased offset rates and adjusted incentive thresholds
Australia’s proposed R&D tax incentive changes would increase all offset rates by 4.5%, raising the highest rate to 23%, the lower non-refundable rate to 13%, and the higher non-refundable rate to 21%.
The R&D intensity threshold for the higher premium rate would fall from 2% to 1.5%, while the aggregated turnover threshold for the refundable offset would rise from AUD 20 million to AUD 50 million.
The minimum eligible expenditure threshold would increase from AUD 20,000 to AUD 50,000, with Cooperative Research Centres and Research Service Providers exempt, and the maximum expenditure cap would rise from AUD 150 million to AUD 200 million.
Restricting the refundable offset to early-stage entities (with medtech extension)
- 10-year age limit for general entities: Entities can access the refundable offset only if the income year falls on or before the 10th anniversary of the earlier of starting an enterprise or first registering for the R&DTI.
- 15-year extension for therapeutic goods: Biotech and medtech companies undertaking R&D where the dominant purpose is generating new knowledge regarding therapeutic goods or therapeutic use can access the refundable offset for up to 15 years, provided they registered for R&D activities within their first 10 income years.
- Role of Industry Innovation and Science Australia (the Board): The Board can issue binding findings on whether R&D activities meet the dominant purpose test for therapeutic goods [10, 22, 24–28].
- Transition for mature entities: Companies older than 10 years (or 15 years for therapeutic goods) with aggregated turnover under AUD 50 million are transitioned to a non-refundable offset at the highest tax offset rate (23% above the corporate tax rate).
Focus on core activities and removal of supporting R&D
Supporting R&D expenditure that does not independently meet the substantive criteria for an R&D activity would no longer qualify for the tax offset. The term “core R&D activities” would also be replaced with “R&D activities,” requiring previously supporting activities to satisfy the relevant criteria in their own right.
