Australia’s R&D Tax Incentive is heading towards a significant reset.
Under reforms announced in the 2026–27 Federal Budget, expenditure on supporting R&D activities will no longer be eligible for the incentive from 1 July 2028. At the same time, the offset rates for core R&D expenditure will increase by 4.5 percentage points.
The current rules remain in place until the reforms commence. Businesses do not need to change their existing claims overnight, but the direction of policy is clear: future support will focus more sharply on genuine experimental work that creates new knowledge.
This makes it important for businesses to review how they identify, document and financially track R&D now, not when the new rules arrive.
Under the current R&D Tax Incentive, supporting activities may qualify when they directly relate to an eligible core R&D activity. Some supporting activities must also be undertaken for the dominant purpose of supporting the core experiment.
From 1 July 2028, the announced reforms will remove eligibility for expenditure on those supporting activities.
That does not mean businesses will stop performing them. Preparation, testing, data collection and project support may still be necessary to complete an experiment. The difference is that those costs may no longer attract the R&D tax offset.
For business leaders, this changes the commercial value of identifying the core experiment accurately. It will become even more important to understand which costs relate to the generation of new knowledge and which costs simply help deliver the broader project.
Consider a business developing a new software platform.
The team may encounter a technical problem that cannot be resolved using available methods. It develops a hypothesis, tests several approaches and evaluates whether an original architecture can operate at an unproven scale.
The same project may also involve standard feature development, bug fixing, data migration, user acceptance testing and commercial implementation.
These activities all contribute to the finished platform, but they do not receive the same R&D treatment.
The experiments addressing the technical uncertainty may constitute core R&D. Some directly connected work may qualify as supporting R&D under the current rules. Routine development and commercial implementation generally sit outside the claim.
R&D eligibility is assessed at the activity level rather than by applying one label to the entire project.
This distinction protects businesses in both directions. It reduces the risk of claiming an entire project too broadly, while also helping management identify eligible experimental work that may otherwise remain hidden inside normal operations.
A system or process may be new to one organisation but already widely understood within the industry. Core R&D generally requires an outcome that cannot be determined in advance and can only be resolved through a systematic process of hypothesis, experimentation, observation and evaluation.
The final product does not need to succeed for an experiment to generate new knowledge. A failed approach may show why a proposed solution does not work and provide the basis for the next hypothesis. The conclusion may support or reject the original hypothesis.
Technical evidence becomes less reliable when teams attempt to reconstruct it months after the work occurred. Records should follow the project as it develops, showing the uncertainty, hypothesis, experiments, results and conclusions. Clear records must also connect employee time and expenditure with the relevant activities.
Good R&D documentation should read like a project diary, not a story rewritten at tax time.
For FY2025–26, businesses should review potential R&D projects while the work remains fresh. Management should separate core, supporting and routine activities, locate the available technical evidence and reconcile the expenditure connected with each activity.
For FY2026–27, the stronger approach is to build R&D compliance into the project from the beginning. This may include clear activity codes, hypothesis and experiment records, staff timesheets, regular technical reviews and structured cost tracking.
Purpose-built technology can reduce the reliance on spreadsheets, email chains and staff memory. Synnch, for example, supports experiment records, project evidence and R&D timesheets, while its Xero integration can connect payroll and operating expenditure with relevant R&D projects.
Technology cannot determine whether an activity is eligible. It can, however, reduce manual allocation errors and make the technical and financial evidence easier to review.
Tailored Accounts supports businesses across the R&D process—from initial business case analysis and eligibility assessment through to project planning, documentation, expenditure calculations, Xero configuration and final submission. As a Synnch partner, we also assist management teams in implementing structured, ongoing systems for recording R&D activities and tracking related expenditure.
Based on our internal records, 100% of the R&D claims supported by Tailored Accounts to date have been successfully completed, with no R&D audits raised.
An initial R&D business case analysis helps management evaluate the potential financial benefit against the compliance, documentation and administrative requirements. This allows the business to determine whether proceeding with a detailed eligibility review is commercially worthwhile.
Disclaimer: This article provides general information only. R&D eligibility depends on each company’s structure, circumstances, activities, expenditure and supporting documentation. Announced budget reforms remain subject to final legislation and implementation details. Past performance does not guarantee future outcomes.
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