Australia Research Tax Credit 2026: How to recover up to 43.5% of your R&D expenses thanks to the Australian R&D Tax Incentive

Are you developing software, innovative technologies or new products? Australia can fund part of your R&D.

Quick answer: The Australian R&D Tax Incentive (R&DTI) lets eligible companies — including Australian subsidiaries of foreign businesses — recover up to 43.5% of their R&D expenditure as a cash refund, provided their consolidated turnover is under AUD 20 million. The program is jointly administered by AusIndustry (Department of Industry, Science and Resources) and the Australian Taxation Office (ATO). Activities must be registered with AusIndustry within 10 months of the end of the income year (for example, 30 April for a 30 June year-end), and eligible R&D spend must total at least AUD 20,000.

Building software, developing new technology, or launching innovative products? Australia may help fund part of your R&D — yet few international companies are aware of just how generous this incentive is.

At Expandys, we help international companies set up their Australian subsidiary and prepare a strong R&D Tax Incentive claim to maximise their chances of approval.

What is the Australian R&D Tax Incentive?

The Research & Development Tax Incentive (R&DTI) is an Australian government program designed to encourage companies to invest in innovation, research and technological development.

It is jointly administered by AusIndustry, part of the Department of Industry, Science and Resources, and the Australian Taxation Office (ATO). Its purpose is to lower the cost of innovation and support the creation of new technologies, products, processes or services in Australia.

Unlike some European grant schemes that must be approved before a project starts, the R&DTI works retrospectively: expenses are incurred first, then claimed through the program, allowing the company to recover a significant share of its investment afterwards.

How much can you claim with the Australian R&D Tax Incentive?

Companies with turnover under AUD 20 million

Companies with consolidated turnover below AUD 20 million can access a refundable tax offset of up to 43.5% of eligible R&D expenditure. This means even an early-stage or not-yet-profitable company can receive a cash refund from the Australian government.

Worked example

An Australian company spends:

• AUD 500,000 developing an innovative software solution;
• AUD 300,000 on engineering salaries;
• AUD 200,000 on subcontracting and technical testing.

If total eligible R&D expenditure comes to AUD 500,000, the potential refund is:

AUD 500,000 × 43.5% = AUD 217,500

This represents a powerful funding lever for innovative companies.

Companies with turnover over AUD 20 million

Larger companies can also access the program through a non-refundable tax offset, calculated based on their R&D expenditure intensity relative to turnover.

What R&D activities are eligible in Australia?

Contrary to a common misconception, the program isn't limited to laboratories or pure science companies. To qualify, an activity must aim to resolve a genuine technical uncertainty whose outcome can't be known in advance.

Software and digital technology: artificial intelligence, machine learning, SaaS platforms, cybersecurity, innovative business software, process automation, FinTech.

Industry and engineering: new product development, prototyping, industrial process improvement, production line automation, new materials, advanced manufacturing.

Health and MedTech: medical devices, diagnostic technologies, digital health solutions, biotech innovation.

Cleantech and sustainability: renewable energy, energy storage, waste reduction, industrial decarbonisation.

What expenses can be claimed?

• Salaries of engineers, developers and researchers;
• Certain subcontracting costs;
• Prototyping costs;
• Testing and validation costs;
• Materials used in experimentation;
• Certain overheads directly linked to R&D activities.

A detailed review is still required to determine exactly which expenses can be included in a claim.

Can a foreign company claim the Australian R&D Tax Incentive?

Yes, but with one key condition: only incorporated Australian companies can claim the R&DTI. Sole traders, partnerships and simple representative offices are not eligible.

This is one of the main reasons international companies choose to set up an Australian subsidiary. A company based in France, the UK, Belgium, Switzerland or Canada can establish an Australian subsidiary that carries out all or part of its R&D activity locally, which allows it to:

• access the Australian market;
• hire local talent;
• benefit from a stable economic environment;
• claim the R&D Tax Incentive.

For some companies, the resulting tax offset funds a substantial share of the cost of setting up in Australia.

What is the application timeline for the R&D Tax Incentive?

R&D activities must be registered with AusIndustry within 10 months of the end of the income year. For a company with a 30 June year-end, that means the registration deadline is 30 April the following year. This deadline is strict and cannot be extended.

Once registration is confirmed, the company calculates its eligible expenditure and includes the R&D Tax Incentive schedule with its company tax return to the ATO, which then applies the offset or processes the refund.

Note: the 43.5% rate for companies with turnover under AUD 20 million remains in place for the 2025-26 and 2026-27 income years. Reforms were announced as part of the 2026-27 Budget, but they are not expected to take effect before 1 July 2028.

Why does Australia attract increasing numbers of innovative companies?

Australia offers several key advantages: a stable legal environment, strong intellectual property protection, a fast-growing technology ecosystem, privileged access to Asian markets, an innovation-friendly tax system, and a highly skilled workforce.

For companies looking to expand into the Asia-Pacific region, Australia is often an excellent entry point.

What are the most common mistakes in an R&D Tax Incentive claim?

Every year, many companies underestimate the program's documentation requirements. The most frequent mistakes include:

• insufficient technical documentation, or records created after the fact rather than contemporaneously;
• failing to demonstrate genuine technical uncertainty;
• claiming routine, non-eligible activities;
• poorly allocated expenditure;
• overlooking the AUD 20,000 minimum spend threshold;
• missing the 10-month registration deadline.

A solid claim requires tax, accounting and technical expertise working together.

How can Expandys help?

Setting up your Australian subsidiary: company incorporation, ASIC, ABN, TFN and GST registrations, regulatory compliance, registered office services, and a Resident Director where required.

Accounting, tax and compliance: bookkeeping, tax filings, payroll management, statutory obligations, and annual financial statements.

R&D Tax Incentive eligibility review: identifying eligible activities, estimating the potential value of the offset, structuring your R&D operations correctly, and preparing the required documentation.

Claim preparation and management: gathering technical information, preparing supporting evidence, calculating eligible expenditure, coordinating with specialist advisers, and supporting you through to lodgement.

FAQ — Frequently Asked Questions about the Australian R&D Tax Incentive

Is the Australian R&D Tax Incentive refundable even if the company isn't yet profitable? Yes. For companies with consolidated turnover under AUD 20 million, the R&D Tax Incentive is a refundable tax offset, meaning the company can receive a cash payment even if it isn't yet profitable.

What is the deadline to apply for the R&D Tax Incentive? Activities must be registered with AusIndustry within 10 months of the end of the income year — typically 30 April for companies with a 30 June year-end.

Is there a minimum spend requirement to be eligible? Yes, notional R&D deductions must total at least AUD 20,000, except for expenditure paid to a registered Research Service Provider.

Can a foreign company without an Australian subsidiary claim the incentive? No. Only incorporated Australian companies can claim the R&D Tax Incentive, which generally requires setting up a local subsidiary.

Will the 43.5% rate change in the coming years? The current rate remains in place for the 2025-26 and 2026-27 income years. Reforms were announced in the 2026-27 Budget, but they aren't expected to take effect until 1 July 2028.

Can the R&D Tax Incentive be combined with other Australian grants? This depends on the specific programs involved and needs to be assessed case by case. Our team can review your project's compatibility with other funding schemes.

Want to claim the Australian R&D Tax Incentive?

Expandys supports you from setting up your Australian subsidiary through to receiving your tax offset. Take our 3-minute readiness assessment to map out your entry strategy and unlock your funding potential.

Talk to us about your project