For the R&D Tax Incentive, aggregated turnover is the claimant's own turnover plus the turnover of every connected entity and affiliate, including foreign ones, counted worldwide. Control generally means 40% or more. If the total is $20 million or more, the Australian subsidiary gets a non-refundable offset instead of the 43.5% cash refund.
The single most common misunderstanding we see in foreign-owned R&D claims is the headline 43.5% cash refund. It is only available where aggregated turnover is under $20 million, and for a subsidiary that test is applied to the group, not the Australian company alone. A subsidiary with no sales of its own can still be a "large" company for R&D purposes because of its parent.
This guide explains how the test works, with the scenarios we see most often. It is part of our series on the R&D tax incentive for foreign-owned subsidiaries.
What aggregated turnover includes
Aggregated turnover is defined in s328-115 of the Income Tax Assessment Act 1997 and applied to the RDTI by s355-100. It is:
- the claimant's own annual turnover (ordinary income earned in the ordinary course of business), plus
- the annual turnover of any entity connected with the claimant, plus
- the annual turnover of any affiliate of the claimant,
- excluding dealings between those entities, so intra-group sales are not double counted.
The ATO states that "both Australian entities and foreign entities can be connected or affiliated with you" and that annual turnover "includes income on a worldwide basis, regardless of whether it is subject to tax in Australia". Foreign amounts are converted to Australian dollars.
Connected entities: the 40% control test
An entity is connected with the claimant if either controls the other, or both are controlled by the same third entity (s328-125). For a company, control generally means owning, or having the right to acquire, at least 40% of the voting power or of the rights to income or capital distributions. Some points that matter for groups:
- Control can be indirect. A parent that controls an intermediate holding company controls that company's subsidiaries, so sister companies anywhere in the group are usually connected with the Australian subsidiary.
- Between 40% and 50%, the Commissioner can decide that an entity is not controlled if someone else actually controls it.
- Listed companies break the chain. The indirect control rules do not trace through listed public companies in the same way, which can matter for groups with listed investors.
An affiliate is an individual or company that acts, or could reasonably be expected to act, in line with the claimant's directions or wishes in relation to their business. Affiliates' own connected entities are then counted as well.
Scenarios
| Structure | Aggregated turnover | Likely outcome |
|---|---|---|
| Australian Pty Ltd 100% owned by a pre-revenue overseas startup | Group turnover, for example AU$3M | Refundable 43.5% |
| Subsidiary of a mid-sized private group turning over AU$18M | AU$18M plus the subsidiary's own turnover | Refundable, but check each year as the group grows |
| Subsidiary of a group turning over AU$35M | Over $20M | Non-refundable, 33.5% / 41.5% (base rate entity) |
| Subsidiary of a multinational turning over AU$400M | Over $50M | Non-refundable, 38.5% / 46.5% |
| Startup where a large corporate holds 30% and founders hold 70% | The corporate's turnover is generally not counted, unless it controls through other means or is an affiliate | Often refundable; confirm the facts |
| Company 50% or more controlled by a university, charity or other exempt entity | Any | Non-refundable only (a separate 50% test in s355-100) |
The ATO's own example makes the point: an Australian subsidiary of a UK parent counts the parent's turnover, so its aggregated turnover is "greater than $20 million. Therefore, it can't claim the refundable R&D tax offset."
The same turnover sets the company tax rate
The refundable offset is the company tax rate plus 18.5 percentage points, so the tax rate matters too. A company is a base rate entity, taxed at 25%, if its aggregated turnover is under $50 million and no more than 80% of its assessable income is passive. Aggregated turnover is the same group-wide figure. In practice a refundable claimant (under $20 million) is almost always on 25%, so its offset is 43.5%. A subsidiary of a group between $20 million and $50 million is usually on 25% and gets a non-refundable 33.5% or 41.5%.
Practical points for foreign groups
- Get the group numbers early. The Australian team often does not know the worldwide figure. Ask the parent's finance team for the turnover of every connected entity and affiliate for the income year.
- Different year-ends. Group companies often have a different accounting period from the Australian subsidiary. The ATO has published a determination (TD 2021/7) on how to count their turnover; follow it rather than simply using the parent's latest annual report.
- Acquisitions change the answer. If a startup is acquired by a larger group, or takes a controlling investment, the acquirer's turnover counts once the companies are connected. Model the R&D refund before the deal closes.
- You cannot restructure your way out. Splitting activities into separate companies does not help, because connected entities are aggregated.
- Non-refundable is still valuable. A subsidiary on a cost-plus arrangement usually has taxable profit to absorb the offset. See intercompany agreements and transfer pricing.
What changes from 2028
The 2026-27 Budget announced that from 1 July 2028 the refundable threshold rises from $20 million to $50 million, but only companies less than 10 years old will get cash refunds. This is not yet law. If it passes as announced, a young subsidiary of a group turning over $20 million to $50 million would move from a non-refundable to a refundable offset.
Frequently asked questions
Does my foreign parent's turnover count for the R&D tax incentive?
Yes, if the parent controls your company, which generally means holding 40% or more of the voting power or rights to distributions. Its turnover, and that of the other companies it controls, is included on a worldwide basis.
Is aggregated turnover the same as the group's consolidated revenue?
Not exactly. It is based on ordinary income earned in the ordinary course of business and excludes dealings between group members, which is close to consolidated external revenue but is worked out entity by entity under the tax rules. Treat the consolidated accounts as a starting point, not the answer.
Our investor owns 30%. Does their turnover count?
Generally not under the 40% control test, unless they have control in another way, act as an affiliate, or together with other interests reach the threshold. Check the shareholders agreement and board rights.
What happens if the group crosses $20 million during the year?
The test is applied for each income year. If aggregated turnover for the year is $20 million or more, the non-refundable offset applies for that year.
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.