While these changes represent some of the most significant shifts in innovation policy in a decade, there is one very important thing to keep in mind: nothing changes immediately. These measures are not scheduled to kick in until financial years commencing 1 July 2028, giving you a full two-year runway to plan your R&D strategy accordingly.
Here is the breakdown of what is changing and how it affects your business.
1. 2026 Budget’s Massive Boost for “Core” R&D
To further encourage breakthrough innovation, they are increasing the tax offset for core R&D expenditure by a 4.5 percentage point margin. In real terms, this means the actual benefit to your bottom line for core activities could increase by 25% to 50% depending on your company’s aggregated turnover. If you are doing the heavy lifting that comes with research and development, the reward is getting much bigger. For a base rate entity with an eligible R&D spend of $100,000, this translates to an additional $4,500 refunded.
2. The End of “Supporting” R&D Claims
The 2026 Federal Budget states that “The Government will … remove eligibility for R&D supporting expenditure. This will simplify and better target R&D support for businesses.”
This is perhaps the biggest give-and-take in the budget. To pay for the increased core offset, the government is removing eligibility for supporting R&D expenditure. Currently, you can claim activities that are simply directly-related to core R&D. While the exact format this change takes once it passes through parliament may change, it sounds like the intent is that from FY2028, only the Core R&D Activities themselves will count. This may mean documentation will become even more critical to prove your work meets the “core” definition.
3. More Room to Grow (The $50m Threshold)
Increase the turnover cut off for refundable R&D Tax Offsets from $20m to $50m.
For many startups, hitting the $20 million turnover mark was a “success cliff” where they lost access to the generous refundable tax offset. The budget lifts this turnover threshold to $50 million. This allows scaling firms to keep that vital cash flow coming in for longer as they transition from a startup to a major employer.
4. New Age Limits on Refunds Through the R&D Tax Incentive
There is a catch for older companies. While the turnover threshold is increasing, the refundability (the ability to get cash back rather than just a tax credit) will be limited to firms under 10 years of age. If your company is older than 10 years and has a turnover under $50 million, you can still get the higher offset rate to reduce your tax bill, but you won’t get it as a cash refund.
5. Bigger Caps for Bigger Projects
The maximum amount of R&D expenditure you can claim in a year is being lifted from $150 million to $200 million. While this primarily affects larger enterprises or heavily funded deep-tech startups, it signals that Australia wants to be the home for massive, world-changing research projects. It is worth noting here that, based on the FY2023 transparency report, this benefit only relates to 2 out of the 13,135 companies that applied for the R&D Tax Incentive.
6. Changes to Small Claims ($50k Minimum)
To reduce the administrative burden on the ATO and AusIndustry, the minimum expenditure threshold is rising from $20,000 to $50,000.
- If your claim is under $50k: You can still claim, but only if the work is done through a registered Research Service Provider (RSP) or a Cooperative Research Centre (CRC).
- This is designed to ensure that even small claims are backed by professional oversight and high-quality research standards.
Again, worth mentioning is that, based on the FY2023 transparency report, this would likely exclude 778 companies that applied for the R&D Tax Incentive (or 5.9% of total applicants).
7. Lowering the Bar for “High Intensity”
Under the current rules, Australian companies with $20 million+ turnover use a two-tiered, 2% intensity threshold to calculate R&D tax offset premiums. Effective FY2028, budget reforms will lower this threshold to 1.5% and raise the turnover boundary to $50 million.
The Bottom Line
The FY2028 changes are a clear signal: the government wants to reward higher spending on core innovation and give successful startups more room to scale. While adjustments like the removal of R&D Supporting Activities will require claims to be tighter and more focused than ever, it is important to recognise that implementing these changes will necessitate legislative amendments, which will require squeezing through complex Senate negotiations, hunting for crossbench support, ducking and weaving industry pushback, and the mind-wrangling legal redrafting required to avoid unintended consequences.
Navigating the R&D Tax Incentive process can be complex, but you don’t have to do it alone. Fullstack Advisory specialises in helping startups and entrepreneurs secure funding and scale impact. Book a free consultation today with our R&D Tax & Grants consultants to get expert guidance on your R&D Tax application and maximise your chances of success.
