The May 2026 Federal Budget delivered the biggest overhaul of the R&D Tax Incentive since 2021. If your startup claims the R&D offset (or plans to), the rules are changing in ways that reward some companies and penalise others.
Here’s what actually changed, who wins, who loses, and what to do before 30 June.
What changed: old rules vs new rules
The reforms take effect from 1 July 2028, giving companies two more years under the current system. But the direction is clear.
| Element | Current rules | New rules (from 1 July 2028) |
|---|---|---|
| Refundable offset threshold | Turnover under $20M | Turnover under $50M (but company must be under 10 years old) |
| Refundable offset rate | 43.5% | Increasing 25-50% for core R&D activities |
| Non-refundable offset rate | Company tax rate + 8.5% (33.5%) | Increasing for core R&D |
| R&D intensity threshold | 2% of total expenditure | 1.5% of total expenditure |
| Maximum expenditure cap | $150 million | $200 million |
| Minimum R&D spend | $20,000 | $50,000 (unless using a registered Research Service Provider) |
| Supporting R&D activities | Eligible | Removed from eligibility |
Source: Treasury media release, May 2026.
Who benefits most
Startups under 10 years old with turnover between $20M and $50M. Under the current rules, these companies get the non-refundable offset (33.5%). Under the new rules, they’ll qualify for the refundable offset (cash back from the ATO). That’s a significant cash flow improvement for scale-ups burning through R&D capital.
Companies doing intensive core R&D. The intensity threshold drops from 2% to 1.5%, meaning more companies qualify for the premium offset rate. If your R&D spend exceeds 1.5% of total expenditure, you’ll get a higher offset on the portion above that threshold.
Mid-sized companies approaching the cap. The expenditure cap rising from $150M to $200M benefits larger R&D spenders who were previously capped.
Who loses out
Companies over 10 years old. The new refundability rule is age-gated. If your company is older than 10 years, you won’t qualify for the refundable offset regardless of turnover. This is a deliberate policy choice to target early-stage innovation.
Low-spend claimants. The minimum threshold jumping from $20,000 to $50,000 locks out companies with smaller R&D programs. If your annual R&D spend is between $20,000 and $50,000, you’ll need to either increase your R&D investment or engage a registered Research Service Provider to remain eligible.
Companies relying on supporting R&D activities. The removal of supporting activities from eligibility narrows what you can claim. Only core R&D activities (those with genuine technical uncertainty and systematic investigation) will qualify.
What to do before 30 June 2026
The current rules still apply for FY2025-26. If you’re preparing your R&D claim this year, three things matter:
1. Claim under the current $20,000 minimum while you can. If your R&D spend is between $20,000 and $50,000, this may be your last year of eligibility under the lower threshold. Lodge your registration with AusIndustry before the 10-month deadline.
2. Separate your R&D expenditure now. The ATO requires contemporaneous records proving expenditure was incurred on eligible activities. If your R&D costs are mixed with operational expenses across the same bank account, you’re paying your consultant to reconstruct what should have been tracked from day one.
3. Use the R&D tax incentive calculator to estimate your offset. Enter your eligible expenditure by category (wages, contractors, cloud, other) and see what you’re entitled to claim.
The record-keeping problem gets harder
Higher thresholds and the removal of supporting activities mean AusIndustry will scrutinise claims more closely. The companies that sail through audits are the ones with clean, contemporaneous records showing exactly which dollars went to which R&D activities.
The companies that struggle are the ones reconstructing 12 months of R&D spend from bank statements in June, paying $5,000 to $15,000 to an R&D consultant for forensic accounting.
The fix is structural: track R&D expenditure in a dedicated budget throughout the year. Every transaction coded to the right project, receipted at point of purchase, with a full audit trail showing who approved what and when. When claim time arrives, you export the budget report and hand it to your consultant. Hours of work instead of weeks.
What this means for FY2026-27 planning
If you’re planning your R&D program for the year starting 1 July 2026, consider:
- Set up dedicated R&D budgets per project so eligible spend is isolated from operational costs from day one
- Track contractor and cloud costs separately as these are the categories most often missed or misallocated
- Document the technical uncertainty for each activity as you go, not retrospectively at claim time
- Review your intensity ratio to determine whether you’ll qualify for the premium offset under the new 1.5% threshold
The business income tax calculator can help you estimate your overall tax position alongside the R&D offset.
