Australia’s R&D Tax Incentive provides a refundable 43.5% tax offset for eligible companies with under $20M turnover and a non-refundable 38.5% offset for larger companies. Foreign companies must have an Australian entity and conduct core R&D activities in Australia to claim.
R&D Tax Incentive Australia for Foreign Companies
Last Updated: March 2026
By Aus Business Register
Disclaimer: This guide is for general informational purposes only and does not constitute tax or financial advice. The R&D Tax Incentive is a self-assessment program with complex eligibility rules. We recommend engaging a qualified R&D tax adviser before making claims. Aus Business Register works with experienced tax partners who specialise in R&D incentives for foreign-owned companies.
Australia’s Research and Development Tax Incentive (R&D TI) provides tax offsets of up to 43.5% for eligible R&D expenditure – making it one of the most generous R&D incentive programs in the OECD. For foreign companies establishing Australian operations, particularly in technology, manufacturing, healthcare, and agriculture, this program can provide substantial cash refunds or tax reductions that improve the economics of investing in Australia.
This guide explains how the program works, who is eligible, and what foreign-owned companies need to know before claiming.
Program Overview
The R&D Tax Incentive is jointly administered by two agencies:
- AusIndustry (Department of Industry, Science and Resources) – handles registration of R&D activities
- Australian Taxation Office (ATO) – handles the tax offset claim through the company tax return
The program operates as a self-assessment system. Companies register their activities, claim the offset in their tax return, and must be prepared to demonstrate eligibility if reviewed. Registration confirmation does not mean the ATO has accepted that activities are eligible.
Source: ATO – About the R&D program
Current Rates and Offsets
The rates below apply from 1 July 2021 onwards.
Entities with Aggregated Turnover Under $20 Million (Refundable)
| Component | Detail |
|---|---|
| Offset rate | Company tax rate + 18.5% premium |
| Effective rate (base rate entity at 25%) | 43.5% |
| Cash refund cap | $4 million per year |
| Clinical trials exception | Exempt from $4M cap |
| Excess above $4M | Converted to non-refundable offset, carried forward |
What “refundable” means: If the tax offset exceeds the company’s tax liability, the excess is paid as a cash refund. This makes the incentive particularly valuable for pre-revenue or early-stage companies conducting R&D in Australia.
Entities with Aggregated Turnover of $20 Million or More (Non-Refundable)
| R&D Intensity | Premium Above Tax Rate | Effective Rate (at 30%) |
|---|---|---|
| Up to 2% of total expenditure | +8.5% | 38.5% |
| Above 2% of total expenditure | +16.5% | 46.5% |
R&D intensity is calculated as: notional R&D deductions divided by total expenditure for the income year.
Expenditure cap: For R&D spending above $150 million in a year, the offset rate reduces to the company tax rate only (no premium).
Minimum spend: Total R&D deductions must be at least $20,000 (unless expenditure is with a Registered Research Service Provider or is a contribution to a Cooperative Research Centre).
Source: ATO – Rates of R&D tax incentive offset
Eligibility for Foreign-Owned Companies
The R&D Tax Incentive is available to corporations – not individuals, partnerships, or trusts. For foreign-owned entities, there are three qualifying paths:
| Path | Requirement |
|---|---|
| Australian-incorporated company | A Pty Ltd or public company registered with ASIC – automatically eligible |
| Foreign corporation, Australian tax resident | Incorporated overseas but an Australian tax resident (central management and control in Australia) |
| Foreign corporation with PE | Incorporated overseas, resident of a DTA partner country, carrying on business through a permanent establishment in Australia |
For most foreign companies entering Australia: The simplest approach is to incorporate an Australian Pty Ltd subsidiary, which is automatically eligible. The subsidiary can then conduct R&D activities in Australia and claim the offset.
Important for aggregated turnover: Aggregated turnover includes the turnover of all connected and affiliated entities worldwide. For a subsidiary of a large multinational, the parent group’s global turnover is included. If group turnover exceeds $20 million, only the non-refundable offset is available (no cash refund).
Source: ATO – Eligible R&D entities
What Qualifies as R&D?
Core R&D Activities
Core R&D activities are experimental activities that meet all of the following criteria (Section 355-25, ITAA 1997):
- Outcome cannot be determined in advance based on current knowledge, information, or experience
- Systematic progression of work – proceeding from hypothesis, through experimentation, observation, and evaluation, to logical conclusions
- Conducted for the purpose of generating new knowledge – including new knowledge in the form of new or improved materials, products, devices, processes, or services
Supporting R&D Activities
Supporting activities are those that directly relate to core R&D activities. They must demonstrate a clear connection to at least one registered core activity. If the activity would otherwise be excluded from being a core activity, it must be conducted for the dominant purpose of supporting the core activity.
Activities That Are NOT Core R&D
The following are excluded from being core R&D activities (though they may qualify as supporting activities):
- Market research, market testing, or sales promotion
- Mineral or petroleum prospecting or exploration
- Management studies or efficiency surveys
- Social science, arts, or humanities research
- Routine software customisation for internal business administration
Source: business.gov.au – Assess if your R&D activities are eligible
How to Register and Claim
| Step | Action | Agency |
|---|---|---|
| 1 | Conduct eligible R&D activities (at least one core activity) | Self-assessed |
| 2 | Register activities with AusIndustry via the R&DTI customer portal | AusIndustry (DISR) |
| 3 | Lodge company tax return with R&D Tax Incentive Schedule (NAT 73794) | ATO |
| 4 | Claim the tax offset at Item 21 of the Company Tax Return | ATO |
Key Deadlines
| Deadline | Detail |
|---|---|
| Registration with AusIndustry | Within 10 months after the end of the income year |
| Example (30 June year-end) | Registration due by 30 April the following year |
| Overseas Finding application | Before the end of the income year – no late applications accepted |
| Advance Finding application | Before the end of the relevant income year |
Portal: incentives.business.gov.au
Source: business.gov.au – Apply to register
Overseas R&D Activities
As a general rule, only R&D activities conducted in Australia qualify for the incentive. However, overseas R&D can be claimed if an Overseas Finding is obtained from AusIndustry before the end of the income year.
An Overseas Finding requires demonstrating that:
- The activity qualifies as eligible R&D under program definitions
- There is a scientific link to an Australian core R&D activity
- The activity cannot be conducted in Australia (acceptable reasons: unavailable facilities, expertise, or equipment; quarantine restrictions; specific living populations; unique geological or geographical features)
- Costs of overseas R&D are less than the costs of related Australian R&D activities
Cost alone is not a valid reason for conducting R&D overseas. The fact that R&D would be cheaper to conduct in another country does not satisfy the Overseas Finding requirements.
Source: business.gov.au – Claiming overseas R&D activities
Caps and Clawback Provisions
Refundable Offset Cap ($4 Million)
For entities claiming the refundable (cash) offset, the maximum cash refund is $4 million per year. Expenditure on clinical trials is exempt from this cap. Amounts exceeding $4 million are converted to a non-refundable offset and carried forward to future years.
Clawback Events
Three types of events can trigger clawback of the R&D offset premium:
- Recoupment amounts: Government grants received for expenditure that also generated an R&D tax offset
- Feedstock adjustments: When R&D activities produce tangible products that are sold or used internally
- Balancing adjustments: When you dispose of a depreciating asset used for R&D
The general anti-avoidance provisions (Part IVA, ITAA 1936) also apply to R&D tax offset claims.
Source: ATO – Clawback of R&D tax offset
Record-Keeping Requirements
The ATO expects contemporaneous records – documentation created at or near the time activities are conducted. Records created after the fact specifically for an ATO review carry significantly less weight.
| Requirement | Detail |
|---|---|
| Contemporaneous documentation | Created at the time activities are conducted |
| Retention period | 5 years after the claim is made |
| Language | English or readily translatable |
| Time tracking | Timesheets or job cards linking staff hours to registered activities |
| Expenditure apportionment | Documented methodology for allocating costs between R&D and non-R&D |
Source: ATO – Keeping records and calculating your notional deductions
Software Development – Special Considerations
Software development R&D claims are a particular focus area for the ATO and AusIndustry. Not all software development qualifies.
What may qualify:
- Developing genuinely novel algorithms or approaches where the outcome is uncertain
- Creating new technical capabilities that cannot be achieved using known techniques
- Overcoming significant technical challenges with no known solution
What generally does NOT qualify:
- Routine software development using established frameworks and techniques
- Adapting existing software to a new context where the technical approach is known
- Building applications using well-understood technology stacks
- Customising commercial off-the-shelf software
- Software integration projects using standard APIs and protocols
The ATO has issued specific Taxpayer Alerts (2017/5 and 2017/5A) targeting questionable software R&D claims. Software R&D claims should be supported by strong contemporaneous technical documentation demonstrating genuine uncertainty.
Source: business.gov.au – Software development sector guide
Common Pitfalls for Foreign Companies
- Permanent Establishment requirement: Foreign corporations (not incorporated in Australia) must verify they have an Australian PE under the relevant DTA. Without a PE, the foreign entity itself cannot claim. The simplest solution is to incorporate an Australian subsidiary.
- Overseas Finding deadline is absolute: Applications for an Overseas Finding must be submitted before the end of the income year. There are no extensions. Missing this deadline means overseas R&D cannot be claimed for that year – regardless of the merits.
- Aggregated turnover includes the global group: If your worldwide group turns over more than $20 million, the Australian subsidiary only qualifies for the non-refundable offset (no cash refund).
- R&D conducted for foreign associates: Special rules under Section 355-210 apply when the Australian entity conducts R&D for an associated foreign corporation. The Australian entity must demonstrate it receives the primary benefit of the R&D.
- ATO may withhold refunds: The ATO can retain R&D refunds for up to 30 days for verification, with a 60-day objection window.
- Gambling and tobacco exclusion: From 1 July 2025, R&D activities related to gambling and tobacco products are excluded from the program.
How Aus Business Register Can Help
Accessing the R&D Tax Incentive starts with having the right corporate structure in Australia. Aus Business Register assists with:
- Company formation – incorporating an Australian Pty Ltd that is automatically eligible for the R&D Tax Incentive
- ABN and GST registration – establishing the tax registrations needed before you can lodge a tax return and claim the offset
- Tax adviser referrals – connecting you with R&D tax specialists who can assess your activities, prepare documentation, and manage the registration and claim process
- Resident director services – appointing a qualified resident director so your subsidiary meets Corporations Act requirements
Request a quote to discuss your Australian company setup, or call us on +61 2 8599 9890.
Frequently Asked Questions
Can a foreign-owned Australian company claim the R&D Tax Incentive?
Yes. An Australian-incorporated Pty Ltd is automatically eligible regardless of who owns it. The R&D activities must be conducted in Australia (or covered by an Overseas Finding), and the company must meet all other program requirements.
Can we get a cash refund?
Cash refunds (the refundable offset) are available to companies with aggregated turnover under $20 million. Aggregated turnover includes the worldwide group – so if your parent company’s global turnover exceeds $20 million, only the non-refundable offset is available. The non-refundable offset reduces your tax liability but does not generate a cash payment.
What is the effective rate of the incentive?
For small companies (under $20M turnover, 25% tax rate): the effective offset is 43.5% of eligible R&D expenditure. For larger companies (30% tax rate): it ranges from 38.5% to 46.5% depending on R&D intensity.
Can we claim R&D done overseas by the parent company?
Overseas R&D can only be claimed with a positive Overseas Finding from AusIndustry, which must be applied for before the end of the income year. The activity must have a scientific link to Australian core R&D, and it must be demonstrated that the work cannot be done in Australia. Cost alone is not a valid reason.
Is software development eligible?
Some software development qualifies, but it must involve genuine technical uncertainty – outcomes that cannot be determined in advance using current knowledge. Routine development, customisation of existing software, and projects using standard techniques do not qualify. The ATO has issued specific alerts about questionable software R&D claims.
This guide was prepared in March 2026 based on information published by the ATO and business.gov.au. R&D Tax Incentive rules are complex. Always engage a qualified R&D tax adviser before making claims.