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Budget 2026 - R&D TI Evaluation

The May 2026 budget has generated quite a bit of commentary among the community of R&D Tax Incentive consultants and various commentators on Company tax affairs. Some clients have already indicated they are anxious about the proposed changes to the R&DTI – but the broad response from across our industry is ‘everybody lie down on the floor and keep calm’.

The budget proposed a series of changes to the R&D TI, most of which will have a pretty limited effect for a small number of our clients, and one of which would have a substantial effect for most clients – both in the structure and the quantum of their claims. But before I go into details, I want to remind everyone that the R&D TI is a legislated entitlement programme.

Any changes require amendment to an existing act of parliament, and through the almost 15 years of the programme, multiple governments have failed to pass legislation that would make anything more than minor changes to the R&D TI’s original scope. Even if (some of) the changes do pass parliament, they will not take effect until FY29 – that leaves the next two full tax years for companies to amend their practices to make full use of the new entitlements.

On the plus side, the Government is proposing to increase the aggregated turnover threshold from $20m to $50m. This will benefit growing companies by allowing them to claim cash rebates on their R&D activity for longer.
However, there is a proposal to make available cash rebates only to companies that have operated for less than 10 years.

Hopefully, most clients with 10+ years of existence will be profitable, and be unaffected by the change. But for clients in sectors with long research lead times before profitability (such as bio and drug research companies), the impact could be more significant if this change is legislated. We are already award there will be quite a lot of pushback from this very powerful sector, and this is one proposal that we believe will struggle to pass parliament.

Either way, when a company is not eligible for a cash rebate, it will still be eligible for either a reduction of tax liability (when in profit) or an accumulation of R&D benefit in carried forward losses.

There is also a proposed increase in the minimum threshold for R&D claims, from $20k to $50k in eligible expenditure. This is just a good idea that directly aligns with the advice that we already give to all potential claimants: Given the low reward vs risk ratio for small claims, we generally would not recommend lodging an R&D TI claim for less than $60k of expenditure in a given tax year. Accordingly, this proposed change should not affect any of our current clientele.

Overwhelmingly, the biggest change that affects all claimants is the proposed elimination of supporting activities. Under the current legislation, eligible R&D includes:

• Core Activities: all the direct tasks of physically conducting an experiment (setting up, undertaking the experiment, collecting observations, evaluating results and drawing a logical conclusion), where the experiments are conducted for the purposes of generating new knowledge on a worldwide basis and where the experimental outcomes cannot be predicted in advance; and
• Supporting Activities: all of the other activities that are directly causal to the Core experimental activities, and which are not part of the ordinary course of business. This can include R&D research and planning, data collection, and preparatory experiments where the outcome might be predictable, but which are needed to feed information to the unknown experiments.

Between the definitive activities within both categories is a pretty broad range of ‘grey area’, such as prototyping, which could just as easily be argued to be part of the setup of an experiment and therefore Core Activity.

Under current legislation, both Core and Support activities attract the same benefit, while Supporting Activities face a much lower eligibility threshold, so most claimants take the conservative approach of just allocating the grey areas to Support and leaving it at that.

If Supporting activities are eliminated from eligibility, it will encourage companies to examine the grey area much more closely with the aim to categorise a more substantial portion to Core activities.

Moreover, Core activities will under the proposed changes attract a much higher benefit of +4.5%. For most of our clients (with aggregated turnover <$50m), that increases their R&D benefit rate from +18.5% to an attractive + 23%! That’s a very handy refundable benefit of 48% for many of our clients! And it may well go a long way to offset the loss of benefit from the proposed elimination of Supporting Activity.

In summary, our advice is that it will be best to just carry on business as usual for now while the debate continues on proposed reforms. We will keep a close eye on the progress (or failure) of the proposed new law through a bicameral legislature. Whatever the outcome, Access Grants will work with all our clients to ensure appropriate action is made well in advance so your claims capture the full scope of eligible activities according to the legislation.

Naturally if there are any specific queries generated from the above please reach out to us.