R&D tax incentive reform — demystified

Does this affect me?

Direct hit? Only if you run a company doing genuine R&D. For everyone else it's indirect:

Work for an Aussie startup? This is good news for your employer's runway — more cash refund coming in means more chance the business survives long enough to pay you next year.
Thinking of starting a small business with a technical / experimental angle? You'll have more generous offsets to draw on from 2028.
Sole trader / tradie? Doesn't really touch you — this is structured for companies (Pty Ltd). Your tax cuts and write-offs sit in other articles.
PAYG worker with no startup link? Indirect impact only — the policy aims to grow the Aussie innovation base over time.

TL;DR

From 1 July 2028, the R&D Tax Incentive is reformed: refundable offsets (the kind young, loss-making startups need) are preserved specifically for firms under 10 years old. The refundable-offset turnover threshold rises to $50 million (up from $20M). The intensity threshold drops to 1.5%. The core R&D offset bumps to +25-50% above company tax. Maximum eligible expenditure: $200 million per year. Minimum spend to qualify: $50,000. The package is scored as a $650 million net cost over 5 years from 2025-26, funding an estimated $400 million per year in extra R&D by young firms.

Anyone claiming "young firms can't access R&D offsets anymore" is wrong. The opposite: refundable offsets are now targeted at them.

Jargon decoder:

R&D Tax Incentive = a government scheme that gives companies a tax break for spending on research and development (experimenting, building new tech, testing new products).

Refundable offset = a tax discount that pays out as cash even if the company has no tax bill (because it made a loss). Critical for pre-revenue startups.

Non-refundable offset = a tax discount you can only use to reduce a tax bill you actually owe. Fine for profitable firms, useless to loss-makers.

Intensity threshold = the minimum portion of your total business spend that has to go on R&D before you qualify for the offset (1.5% in the new rules, was 2%).

Turnover = your company's total annual revenue (sales income before costs).

What's NOT in this budget

Abolition of the R&D Tax Incentive — the program continues.
Removal of refundability for all firms — only the >10-year-old firms shift to non-refundable.
A retrospective claw-back of prior-year claims.
A change to base company tax rates.
State-level R&D grants reform — separate process.

What IS in this budget

The reform from 1 July 2028

Parameter	Before	After
Core R&D offset	+13.5 to +18.5 ppts above company tax	+25 to +50 ppts above company tax
Intensity threshold	2.0%	1.5%
Refundable-offset turnover cap	$20M	$50M
Refundability eligibility	All eligible firms (subject to turnover cap)	Firms <10 years old only
Older firms	Refundable	Non-refundable equivalent offset
Min eligible R&D spend	$20,000	$50,000
Max eligible R&D spend	$150M	$200M / year

The funding

Item	Figure
Net cost over 5 years (from 2025-26)	$650M
Estimated extra young-firm R&D unlocked	~$400M/year
Refundability period for startups	First 10 years of company life

Why the redesign

The previous regime gave the same refundability to mature profitable firms and to loss-making startups. Refundability was effectively cash-back even for firms with strong balance sheets — undermining the policy's "stimulate new R&D" purpose.
Young firms (under 10y) typically have weak cash flow, no taxable income → they NEED refundability or the offset is just paper.
Older firms typically have profits → a non-refundable offset is fine for them.
The reform targets cash subsidies at the firms that actually need them to invest in R&D.

Key dates

Event	Date
Reform takes effect	1 July 2028
First income year affected	FY 2028-29
Transition consultation	2026-2027
Min/max parameters effective	1 July 2028

Worked example — Loopfox, AI startup, 3 years old, $0 revenue, $300k R&D

Loss-making → refundable offset applies (eligible: <10 years).
Refundable offset rate: 25-50ppts above company tax (subject to intensity).
Cash refund flowing to Loopfox: meaningful 6-figure injection, no need for taxable income to claim.
Sustains another 12 months of runway → more R&D.

Worked example — Atlassian-scale tech firm, 22 years old, $500M R&D

Aged out of refundability (>10y).
Receives non-refundable offset — reduces tax payable, doesn't cash-back.
Net effect: similar dollar-value tax reduction since the firm has plenty of taxable income; refundability was never the binding constraint for them.

Worked example — Mature manufacturer, $80M turnover, $250k R&D, profitable

Turnover above $50M cap → wouldn't have qualified for refundable offset anyway under either rule.
Non-refundable offset applies — same as today. No real change.

Myths vs reality

Myth 1: "Young firms can't access R&D offsets anymore" — FALSE

Exact opposite. Refundability is preserved specifically for them (<10y, <$50M turnover).

Myth 2: "Big tech gets a tax cut" — MISLEADING

Older firms move from refundable to non-refundable — that's a slight tightening for some, not a cut. Combined with the +25-50ppt rate, the dollar impact varies firm-by-firm.

Myth 3: "It's an R&D handout for losers" — MISLEADING

Refundability for young firms is designed to make sure pre-revenue startups can actually convert R&D spend into runway. That's how every comparable jurisdiction structures startup R&D credits (Canada SR&ED, UK SME R&D).

Myth 4: "The reform is effective immediately" — FALSE

Effective from 1 July 2028. The 2026-27 and 2027-28 income years use the existing rules.

Myth 5: "Minimum spend went up — small claimants are pushed out" — DEPENDS

Min spend rises from $20k to $50k. Marginal claimants previously doing $20k-$49k R&D will need to scale up or skip the offset. The carve-up reduces admin overhead for ATO.

Myth 6: "Refundability is now uncapped" — FALSE

Subject to the $200M max eligible R&D spend per year. Capped, just higher than before.

Myth 7: "Service businesses are excluded" — DEPENDS

The eligible R&D definition (core + supporting activities) is unchanged. Pure services without an experimental hypothesis still don't qualify; tech services with novel R&D do.

Myth 8: "Older startups (8-12 years old) are in no-man's-land" — DEPENDS

A firm at year 9 still has refundability; year 11 doesn't. The transition is sharp. Whether that's a feature (incentive to grow quickly) or a bug (cliff edge) is genuine debate.

Myth 9: "It costs the budget billions" — MISLEADING

Net cost is $650M over 5 years — about $130M/year. Small relative to total tax incentive spend (~$3-4B/yr).

Myth 10: "It's identical to overseas regimes" — MISLEADING

Each jurisdiction has different intensity thresholds, age cut-offs, and turnover caps. The Australian reform aligns directionally with UK/Canada but isn't a copy-paste.

But what if...

...I'm a sole trader doing R&D — do I qualify? No. The R&D Tax Incentive is company-only (Pty Ltd structures). If you're trading under your own ABN as a sole trader, you deduct R&D-style expenses through normal business deduction rules instead. If you're scaling up genuine R&D work, talk to an accountant about whether incorporating is worth it.

...do I need an R&D tax specialist to claim? For small claims (close to the $50k minimum), your usual accountant can often handle it. For anything bigger or borderline (is this really "experimental"?), specialist R&D consultants are the norm — they prepare the eligibility documentation and deal with AusIndustry. The minimum-spend bump to $50k is partly designed to weed out claims where specialist fees would eat the benefit.

...my startup is 11 years old. Am I out completely? Not out — but you shift to the non-refundable offset. Still a tax discount if you owe tax. If you're loss-making at 11+ years old, the offset doesn't pay cash; the loss carries forward to offset future profits. Year 9 vs year 11 is a real cliff edge (see Myth 8).

...what counts as "R&D"? Genuine experimental activity with an unknown outcome — building a new product, testing a new manufacturing process, writing novel software. Not routine work, market research, or copying something competitors already do. The ATO's R&D guidance via the AusIndustry portal walks through the line.

...when do the new rules actually bite? 1 July 2028. For 2026-27 and 2027-28 income years, the existing R&D rules apply. So if you're planning R&D spend this year, you're under the old regime.

...will the cash actually arrive when I need it? Refundable offsets pay out after you lodge your tax return — typically several months after year-end. Plan cash flow accordingly; the refund isn't instant.

Where genuine debate lives

Whether the 10-year cut-off is the right line — some founders argue 7 years (faster) or 15 (deep tech).
Whether the $50M turnover cap for refundability should be higher (e.g. $100M) to support scaling firms.
Whether the intensity threshold (1.5%) is meaningful — most genuine R&D spenders are well above it.
Whether to bundle R&D Tax Incentive reform with broader patent box / IP regime reform.

A useful filter

<10 years old? Refundable offset preserved.
>10 years old? Non-refundable offset, similar dollar value.
Effective when? 1 July 2028, not earlier.
Capped at? $200M eligible R&D spend per year.

Sources

Budget Paper 1 — lines 2067-2117 (R&D reform)
Theme 03 — Productivity
Factsheet — Productivity
Factsheet — Backing Small Business

Why R&D tax breaks now favour companies under 10 years old