Proposed R&D Tax Incentive Changes from 2028
Status at 5 September 2026: Proposal only — not yet law. Proposed start date: 1 July 2028. Headline changes: Offset rates up 4.5 percentage points, a $50 million turnover threshold, refundability focused on firms under 10 years old, and supporting R&D removed.
Why the R&D Tax Incentive is being redesigned
The Research and Development Tax Incentive helps eligible companies offset part of the cost of qualifying R&D. The Government’s May 2026 Budget proposes to redirect more support towards core experimental work, young firms and businesses with meaningful R&D intensity.
Some settings become more generous. Others become narrower. That means a company should not look at the proposed 4.5-percentage-point rate increase and assume its claim will automatically rise.
These changes are proposed to begin from 1 July 2028 and were not law at 5 September 2026 — no draft legislation had been released. Existing claimants should keep applying the current rules to current income years.
The seven proposed changes at a glance
The announced redesign would:
increase offset rates for core and experimental R&D by 4.5 percentage points;
reduce the R&D intensity threshold from 2% to 1.5%;
remove expenditure on supporting R&D activities from eligibility;
increase the turnover threshold for the higher-rate incentive from $20 million to $50 million;
limit cash refundability below that threshold to firms less than 10 years old, while older eligible firms retain the higher rate as a non-refundable offset;
increase the annual R&D expenditure cap from $150 million to $200 million; and
increase the minimum R&D spend from $20,000 to $50,000, unless the work is conducted through a registered Research Service Provider or Cooperative Research Centre.
Final legislation will need to settle definitions, transition rules and how company age is measured.
Higher rates, but a narrower activity base
The proposed 4.5-percentage-point increase is significant. On $500,000 of otherwise qualifying expenditure, 4.5 percentage points represents an additional $22,500 of tax offset before other interactions.
However, supporting R&D expenditure would no longer qualify. Under current law, certain activities directly related to core R&D — and some dominant-purpose activities — can form part of a claim. Businesses with large supporting-activity costs could lose more from the narrower base than they gain from the higher rate.
Now is a good time to separate core experimental activities from supporting work in project plans, staff timesheets and the general ledger. Clear records will help under either the existing rules or a redesigned regime.
The $50 million threshold and the company-age test
Lifting the turnover threshold from $20 million to $50 million would bring more growing companies into the higher-rate stream.
But refundability would be targeted. Under the proposal, only firms less than 10 years old would receive a cash refund when the offset exceeds their income-tax liability. An older company below $50 million turnover could still receive the higher offset rate, but the excess would be non-refundable and generally carried forward subject to the rules.
For scale-ups, the interaction between aggregated turnover, company age and available tax losses may be more important than the headline rate.
Practical example: two companies with the same R&D spend
Company A (a made-up example) is six years old, has aggregated turnover of $35 million and incurs $500,000 on qualifying core experimental R&D after the proposed start date. It could fall within the expanded sub-$50 million stream and, subject to the final rules, access refundability because it is under 10 years old.
Company B has the same turnover and eligible spend but is 14 years old. It could receive the higher rate, but any excess offset would be non-refundable under the proposal.
If either company also spends $150,000 on activities classified as supporting R&D, that amount would not qualify under the announced redesign. Classification and evidence will therefore matter as much as the company’s age.
What the lower intensity threshold means
R&D intensity broadly compares eligible R&D expenditure with total expenditure. Reducing the threshold from 2% to 1.5% would let more larger companies (those in the non-refundable stream) reach the higher-intensity premium rate.
The calculation is technical, and group structures or unusual expenses can change the result. Avoid estimating the benefit using R&D spend alone.
The new $50,000 minimum
The proposed minimum annual R&D expenditure rises to $50,000. Smaller experimental projects below that amount may no longer qualify unless the work is undertaken through a registered Research Service Provider or Cooperative Research Centre.
Do not spend extra merely to cross a tax threshold. Instead, assess whether a registered provider makes commercial and technical sense for the project.
Frequently asked questions
Do the proposed rules affect a 2026–27 R&D claim?
No. The proposed start date is 1 July 2028. Current claims must follow the law applying to their own income year.
Will every company under $50 million receive an R&D cash refund?
No. Under the proposal, refundability would be limited to eligible firms less than 10 years old. Older firms may receive a non-refundable offset.
Can supporting R&D costs still be claimed after the change?
Not under the announced design. Expenditure on supporting R&D activities would cease to qualify, although final legislation is required before the exact boundary is known.
Start improving the evidence now
If your business claims the R&D Tax Incentive, Regans Accountants can work with your technical team to review activity descriptions, cost capture, company age and turnover grouping. Contact us well before year end — the strongest R&D claims are built from contemporaneous records, not reconstructed after the work is finished.
General information only, current at 5 September 2026. Speak with us about your own circumstances.
Comments