The 2026–27 Federal Budget delivers the most significant restructure of the R&D Tax Incentive (RDTI) in years. Following the Government's comprehensive review of R&D policy — Ambitious Australia — the Budget confirms a series of major changes that will take effect from 1 July 2028. Businesses with active R&D programs need to understand what's changing and start planning now.
What's changing
Higher offset rates for all claimants
Both the refundable and non-refundable R&D tax offset rates will increase by 4.5 percentage points — equivalent to an increase of around 25 to 50 per cent in the value of the offset. This applies regardless of company size or turnover — a straightforward improvement in the cash value of every dollar of eligible R&D expenditure.
Increased turnover threshold for the refundable offset
The aggregated annual turnover threshold for the refundable tax offset will increase from $20 million to $50 million. More medium-sized businesses will qualify for a cash refund rather than a non-refundable credit against future taxable income. The new threshold also aligns with the base rate entity threshold for the lower corporate income tax rate.
Refundable offset restricted to companies under 10 years old
Access to the refundable offset will be limited to companies in their first 10 years of operation. Companies older than 10 years will still receive the same uplift in offset rates, but only as a non-refundable credit — not a cash refund. This is a significant structural change for established businesses that currently rely on refundable offsets in loss or low-profit years.
Supporting R&D activities no longer eligible
Expenditure on supporting R&D activities — including administrative tasks, literature reviews, and routine equipment maintenance — will no longer be eligible for the offset. From 1 July 2028, only core R&D expenditure qualifies. Businesses that have historically included significant supporting activity costs in their claims will need to reassess their eligible spend ahead of that date.
Minimum R&D expenditure threshold raised from $20,000 to $50,000
The minimum annual R&D expenditure required to access the RDTI will increase from $20,000 to $50,000. An exception applies where R&D is conducted through an approved Research Service Provider (RSP) or Cooperative Research Centre (CRC), which continues to allow smaller projects to claim.
Increased maximum expenditure cap
The annual cap on eligible R&D expenditure will increase from $150 million to $200 million per company per year. Expenditure above $200 million remains ineligible. This change benefits large, R&D-intensive businesses seeking to offset a greater proportion of their total spend.
Reduced R&D intensity threshold
The R&D intensity threshold — which determines eligibility for the higher premium offset rate based on the proportion of total expenditure directed to core R&D — will be reduced from 2 per cent to 1.5 per cent. This makes the premium rate accessible to a broader range of firms that engage in substantial core R&D but where R&D is not the dominant activity.
What stays the same
The fundamental structure of the program remains unchanged. The core R&D activities test — requiring experimental activities whose outcomes cannot be known or determined in advance, conducted for the purpose of generating new knowledge — is unaffected. AusIndustry registration, the 10-month registration deadline, ATO schedule lodgement, and record-keeping obligations all continue as before. The reforms address who can access refundable benefits, what expenditure qualifies, and how much the offset is worth — not the underlying activity eligibility framework.
A separate measure already in effect
Independent of the 2028 reforms, activities related to gambling, tobacco, and vaping are excluded from the RDTI for income years commencing on or after 1 July 2025. This followed the 2024–25 MYEFO announcement and subsequent exposure draft legislation. R&D undertaken solely for harm minimisation purposes — such as addiction reduction tools or self-exclusion technology — may still qualify.
What this means for your business
- Changes take effect 1 July 2028 — current rules apply in full for FY26 and FY27 claims. No immediate action is required for claims being prepared now, but planning should begin.
- If your turnover is between $20 million and $50 million and your company is under 10 years old, you may qualify for the refundable offset for the first time under the new threshold.
- If your business is over 10 years old and currently receives cash refunds through the RDTI, plan now for the transition to a non-refundable credit structure from FY29 onwards.
- All claimants should review their supporting activity expenditure now — from 1 July 2028 this spend is ineligible, and understanding the impact on your claim value ahead of time is essential.
- The higher offset rates make it even more important to identify and rigorously document all eligible core R&D activities.
Our view
These changes represent a genuine improvement to the RDTI — particularly for younger, growing businesses. The 4.5 percentage point rate increase and the expanded refundable threshold are both welcome developments. However, the restriction of refundable offsets to sub-10-year companies and the removal of supporting activity eligibility will reduce the value of the program for a meaningful cohort of established claimants who have built their claims on that basis.
The complexity of the program is not diminishing. The structural differentiation between company types — combined with a narrower definition of eligible expenditure — makes robust scoping and documentation more important than ever. AHL Advisory is monitoring the detail of these changes closely as further consultation and legislation progresses. If you want to understand how the reforms affect your specific situation, we'd encourage you to get in touch sooner rather than later.
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