The incentive is a tax offset, not a deduction or a credit against expenditure, and it comes in two forms decided by size. Companies with aggregated turnover under A$20 million receive a refundable offset of the corporate tax rate plus an 18.5% premium. Companies at or above A$20 million receive a non-refundable offset of the corporate tax rate plus 8.5% where R&D intensity is up to 2%, or plus 16.5% above 2%. Both apply to R&D expenditure of up to A$150 million a year. This page explains how each is calculated and what the difference is worth.
Proposed changes from 1 July 2028, not yet law. Proposed from 1 July 2028, announced in the 2026-27 Budget (12 May 2026) and not yet legislated: a 4.5 percentage point increase in offset rates for core R&D; removal of supporting R&D activities from eligibility; intensity threshold reduced from 2 percent to 1.5 percent; refundable offset turnover threshold raised to A$50 million; minimum notional deductions raised from A$20,000 to A$50,000; maximum expenditure threshold raised from A$150 million to A$200 million; companies more than 10 years old no longer eligible for the refundable offset. Current rules apply until then.
What it is
| Feature | Refundable offset | Non-refundable offset |
|---|---|---|
| Who | Aggregated turnover under A$20 million, and not controlled by tax-exempt entities | Aggregated turnover of A$20 million or more, or controlled by exempt entities |
| Rate | Corporate tax rate plus 18.5 percentage points | Corporate tax rate plus 8.5 points (intensity up to 2%) or 16.5 points (above 2%) |
| Typical rate | 43.5% for a company taxed at 25% | 38.5% or 46.5% for a company taxed at 30% |
| Net benefit | Premium of 18.5 points over the deduction forgone | Premium of 8.5 or 16.5 points over the deduction forgone |
| If offset exceeds tax | Excess refunded in cash | Excess carried forward to later years, subject to continuity tests |
| Above A$150 million | Offset equal to the corporate tax rate only, so no net benefit | |
Who it applies to
Aggregated turnover is the test. It is the company's annual turnover plus the turnover of entities connected with it and its affiliates, worldwide, so a small Australian subsidiary of a large foreign group is a non-refundable claimant. The test is applied for the income year of the claim, so a company can move between offsets as it grows.
Control by exempt entities also matters. A company controlled by tax-exempt bodies, such as a university spin-out majority owned by the university, receives the non-refundable offset even with turnover under A$20 million. Control is tested at the end of the income year, and start-ups raising money from exempt investors should check the position before relying on a refund.
The corporate tax rate used is the company's own rate for the year: 25% for a base rate entity, which broadly means aggregated turnover under A$50 million with no more than 80% passive income, and 30% otherwise. Because the premium is added to the rate, two companies with the same turnover band can have different offset percentages.
How it works
- Total the notional deductions for the registered activities.
- Decide the offset: aggregated turnover under A$20 million gives the refundable offset; otherwise calculate R&D intensity and pick the premium.
- Multiply notional deductions up to A$150 million by the rate; multiply any excess by the corporate tax rate alone.
- Because the expenditure is notionally deducted rather than deducted, add it back to taxable income; the offset then replaces the tax saving the deduction would have given.
- Apply the offset against income tax payable. A refundable excess is paid; a non-refundable excess is carried forward.
The economics are simpler than the mechanics: whatever the company's tax position, the net value of the incentive is the premium multiplied by the notional deductions, 18.5 cents in the dollar for small companies and 8.5 or 16.5 cents for large ones. For a loss-making small company the refund also brings forward the value of the deduction itself, which is why the refundable offset is worth so much to early-stage companies.
Worked example
Illustrative example. Two hypothetical companies each spend A$1,000,000 on registered R&D activities.
| Flinders Biotech (turnover A$5 million, tax rate 25%, taxable loss) | Gawler Mining Tech (turnover A$80 million, tax rate 30%, intensity 1.5%, tax payable A$2 million) | |
|---|---|---|
| Offset rate | 25% plus 18.5% = 43.5% | 30% plus 8.5% = 38.5% |
| Offset | A$435,000 | A$385,000 |
| Tax payable before offset | Nil | A$2,000,000 |
| Result | A$435,000 refunded in cash | Tax reduced to A$1,615,000 |
| Net value over an ordinary deduction | A$185,000, plus the cash value of the deduction received now rather than when profitable | A$85,000 |
Had Gawler's intensity been 2.5%, its rate would have been 46.5% and the offset A$465,000, a net value of A$165,000. Had Flinders been a subsidiary of a group with A$30 million of aggregated turnover, it would have fallen into the non-refundable offset and, being in a loss, carried the whole offset forward.
Common questions
Is the refundable offset taxable? No. The offset is not assessable income; the mechanism is that the expenditure is not deducted and the offset replaces the deduction.
We are loss-making and large. Do we get anything now? No cash. The non-refundable offset is carried forward until there is tax to absorb it.
Can the refundable offset be reduced? The ATO can apply it against other tax debts before refunding, and may hold it during a review.
Can a refundable offset be carried forward instead? No. The refundable offset is applied against tax and the excess refunded in the year; only the non-refundable offset carries forward.
What changes are coming? The 2026-27 Budget proposed changes from 1 July 2028, listed in the box at the top of this page. They are not yet legislated, and current rules apply until then.
Related pages
Official sources
Educational content only, not tax advice. See the disclaimer.