Clinical Trials in Australia: R&D Tax Incentive for Overseas Biotechs

Australia is a popular location for early-phase clinical trials run by overseas biotech and medtech companies. The R&D Tax Incentive is a big part of the reason: a small biotech's Australian subsidiary can receive a cash refund of 43.5% of eligible trial spending. This guide explains how trials qualify, how the company should be set up and the traps for foreign sponsors. It is part of our series on the R&D tax incentive for foreign-owned subsidiaries.

Which trials are core R&D

The Industry Research and Development (Clinical Trials) Determination 2022 treats these trials as core R&D activities, without having to prove each element of the general definition, if they test an unapproved therapeutic good and are either notified under the TGA's Clinical Trial Notification (CTN) scheme or approved under the Clinical Trial Approval (CTA) scheme:

• phase 0, phase I, phase II and phase III trials;
• pre-market pilot and pre-market pivotal trials (for devices).

The determination does not cover trials of generics or biosimilars, pre-clinical work, phase IV trials, or market and post-market trials. Those can still qualify, but you have to show they meet the general definition of core R&D. The department's biotechnology sector guide says ethics approval and the CTN steps themselves are not core R&D but can be claimed as supporting activities.

The CTN or CTA process is run by the TGA and is separate from the R&D Tax Incentive. The determination simply uses it as the trigger.

The usual structure: an Australian sponsor company

Only an R&D entity can claim, so an overseas biotech normally sets up an Australian Pty Ltd to sponsor the trial, contract the CRO and sites, and incur the costs. Key setup points:

• The company needs a resident director. Every Australian Pty Ltd needs at least one director who ordinarily lives in Australia. See resident director services.
• Decide who owns the trial data and IP. If the Australian company owns the results, it claims its own R&D. If the parent owns them, the subsidiary can still claim if the parent is resident in a double tax agreement country, the trial is conducted solely in Australia, and there is a written agreement. See R&D for a foreign parent company.
• Put the contracts in the Australian company's name (CRO, sites, laboratories) so the spending is clearly its own.
• Register activities each year within 10 months after the end of the income year.

Refundable or not: the group turnover test

The refundable 43.5% offset requires aggregated turnover under $20 million, counting the parent and all connected companies worldwide. Most venture-funded biotechs are well under that, so the Australian subsidiary receives the offset as a cash refund when it is in tax loss. Subsidiaries of large pharmaceutical groups get the non-refundable offset instead (33.5% to 46.5% depending on tax rate and R&D intensity). See aggregated turnover for foreign groups.

There is no annual cap on the cash refund. Some older guides mention a $4 million cap with an exemption for clinical trials; that cap was proposed but never became law.

Trial work outside Australia

Multi-country trials are common. Overseas sites or overseas laboratory work can only be claimed with an overseas finding, applied for before the end of the income year. A lack of enough patients in Australia is one of the recognised reasons, but the overseas spending must be less than the related Australian spending, and the overseas work must be conducted for the Australian company, not for the foreign parent.

Other things that reduce the claim

• Grants. If the company or a connected entity receives a government grant or reimbursement for the same spending, a clawback adjustment reverses the benefit above the company tax rate.
• Payments to related parties are counted only when paid, capped at market value, and stripped of group profit margins. See intercompany agreements and transfer pricing.
• Timing. Costs incurred before the Australian company exists, or paid by the parent directly, are not the subsidiary's costs.

Changes announced for 2028

The 2026-27 Budget announced that from 1 July 2028 cash refunds will be limited to companies less than 10 years old, the refundable threshold will rise to $50 million, core rates will rise by 4.5 percentage points and supporting activities will no longer be eligible. These measures are not yet law. For biotechs that rely on supporting activities such as ethics and regulatory work, the loss of supporting activities matters.

We set up Australian sponsor companies for overseas biotechs, provide the resident director, and prepare the R&D registration and claim. See our R&D tax incentive service and company formation service.

Frequently asked questions

Do clinical trials qualify for the R&D tax incentive in Australia?

Yes. Phase 0 to III trials, and pre-market pilot and pivotal trials, of unapproved therapeutic goods notified under the TGA's CTN scheme or approved under the CTA scheme are treated as core R&D under the Clinical Trials Determination 2022.

Do phase IV trials qualify?

Not automatically. Phase IV, post-market, generic and biosimilar trials are outside the determination. They can still qualify if they meet the general definition of core R&D, which has to be shown.

Does an overseas biotech need an Australian company to claim?

In practice, yes. The claimant must be an R&D entity, which usually means an Australian-incorporated company that sponsors the trial and incurs the costs. It needs at least one Australian-resident director.

Is there a $4 million cap on clinical trial refunds?

No. There is no annual cap on refunds. The $4 million cap that some guides mention was proposed but never legislated.

This content is general information only and is not legal, financial or tax advice. Laws and regulations change often. For advice on your circumstances, speak to a qualified adviser.