With consultation on the exposure draft now underway, businesses should review their R&D strategies and ensure they are well positioned to maximise future funding opportunities under the evolving framework.
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.
We have already seen some updates to the proposed changes, with the release of the exposure draft for the new legislation on 11 September 2026 – better targeting the Research and Development Tax Incentive. We would encourage anyone interested in the future of the R&D Tax Incentive to review the changes and provide feedback to the exposure draft by 28 September 2026.
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, the Government has said they will increas the tax offset for core R&D expenditure by a 4.5 percentage point margin. For most SMEs with a company tax rate of 25%, this will increase the Refundable R&D Tax Offset to 48%. For example, a pre-revenue SME that spends $100,000 on R&D in a year could expect to obtain an additional $4,500 in tax refunds.
Larger companies or groups who are eligible for the Non-Refundable R&D Tax Offset will also enjoy a 4.5% increase on their offset rates, along with a reduction of 0.5% to the intensity premium threshold.
2. The End of “Supporting” R&D Claims
In a significant blow, the Government has proposed to remove eligibility for Supporting R&D Activities expenditure in an effort to ‘”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 R&D premium, the Government will removing eligibility for Supporting R&D Activities. Currently, companies are able to claim expenditure on activities that support experimental R&D activities on the basis that they are directly-related to those activities. Whilst the Government has signaled this change will simplify the claim process, there may be unintended consequences that increase complexity for some companies. As always, documentation is the key, and we encourage all companies to carefully scrutinise how they are tracking their R&D activities to ensure a disctinction between activities can be made.
3. More Room to Grow (The $50m Threshold)
The new exposure draft shows the Government will increase the aggregated turnover threshold 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 R&D Tax Offset. The increase will allow scaling firms to improve their 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 obtain the higher offset rate to reduce your tax bill, but you won’t get it as a cash refund.
Due to significant pushback by the biotech community, the exposure draft includes a specific provision to allow companies that are conducting R&D activities related to therapeutic goods to obtain refundable offsets for 15 years (i.e. instead of the 10 years for companies in other sectors).
Advocates have welcomed the proposed policy update, but caution that this may still lead to biotech companies deciding to move R&D operations out of Australia. Critics say that it also reinforces that the Government is willing to pick and choose specific sectors for positive or negative targeting in a program that was built on the concept of being broad-based and industry agnostic.
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 two 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.
Based on the FY2023 transparency report, this would have excluded 778 companies that obtained the R&D Tax Incentive (or 5.9% of total applicants). If companies were aware of the threshold, they may have increased their spending and therefore boosted the overall amount of R&D that was being done in Australia, but the changes will mean that very small companies with limited funds will be even more unlikely to conduct R&D.
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. At this point it is important to recognise that implementing these changes will necessitate the succesful passing of the legislative amendments, which will require squeezing through complex Senate negotiations, hunting for crossbench support and considering industry pushback which has already started and will continue to intensify.
Navigating the R&D Tax Incentive process can be complex, but you don’t have to do it alone. Fullstack specialises in helping startups and entrepreneurs secure funding and scale impact. Book a free consultation today with our R&D Tax & Grant consultants to get expert guidance on your R&D Tax claim and ensure that you are set up for success.
