Published 5 May 2026 · ClaimKit
1Entity eligibility
Are you eligible to claim?
There are three layers of eligibility in the R&DTI program: the entity, the activities, and the expenditure. You must clear all three. This section deals with the entity — the gating question that determines whether you can register at all.
Entity Eligibility Check List
All five conditions must be satisfied to proceed with a registration. Click through each question to check your position.
Entity eligibility checker
Answer all five criteria to confirm you can register
Criterion 1 of 5
Is your entity an Australian incorporated company?
Only bodies corporate incorporated under Australian law — or foreign-incorporated companies that are Australian tax residents or carry on business through an Australian permanent establishment — qualify as R&D entities. Sole traders, trusts, partnerships, and not-for-profits cannot claim.
Authority: s 355–35(1), ITAA 1997
What offset rate applies to you?
Once you clear those criteria, the benefit you receive depends on your company's aggregated annual turnover. Note: aggregated turnover includes connected and affiliated entities — it is not just your own revenue.
Most valuable
43.5%
Refundable offset
Cash back — even in a loss position, with no tax payable
Aggregated annual turnover under $20 million. Not controlled by exempt entities.
38.5%+
Non-refundable offset
Reduces your income tax liability only. Excess can be carried forward.
Aggregated annual turnover $20 million or more. Tiered rates apply based on R&D intensity (8.5% or 16.5% premium above company tax rate).
Offset cap: The R&D premium does not apply to expenditure above $150 million in an income year. The offset for amounts above this threshold equals your company tax rate only — no additional benefit.
2Activity eligibility
Do your activities qualify?
This is where most claims succeed or fail. The legislation draws a clear distinction between eligible R&D activities and ordinary business activities, development work, or commercial execution — even if those activities are genuinely innovative.
There are two categories of eligible activity: core R&D activities and supporting R&D activities.
Core R&D activities — the four-part test
The four-part test under s 355–25(1) of the ITAA 1997 is the framework DISR and the ATO use to assess core R&D activities. Interpretation is fact-specific, and the line between eligible R&D and ordinary development is not always obvious — an R&D tax consultant or a chat with the ClaimKit team can help you work through your specific situation. Click each element below to see what it requires.
Not sure how the four-part test maps to your work? Eligibility under the four-part test is fact-specific, and the line between eligible R&D and ordinary development is not always obvious. An R&D tax consultant or a quick chat with the ClaimKit team can help you work through where your activities sit.
The eight exclusions from core R&D
Click any exclusion to see what it covers and how it tends to apply to tech and software work. Exclusion (h) — internal administration software — is the one most commonly hit by technology companies, so read it carefully if you build software.
Supporting R&D activities
Activities directly related to a core R&D activity can qualify as supporting R&D activities under s 355–30 of the ITAA 1997. Some require an additional dominant purpose test.
When is dominant purpose required? A supporting R&D activity must be conducted for the dominant purpose of supporting a core R&D activity if it: (a) is an excluded core R&D activity (s 355–25(2)); (b) produces goods or services; or (c) is directly related to producing goods or services. "Dominant purpose" means your prevailing or most influential purpose — there can only be one.
Does your activity qualify? Try it
Pick the option that best matches the activity you are assessing — the left column lists activities that typically qualify, the right column lists activities that typically don't. This is a guide only; the specific facts always matter. If you're unsure, have a chat with ClaimKit's team.
Activity eligibility quick-check
Select the option that best describes the activity you are assessing
Select an option below to see whether it qualifies.
Likely eligible
Likely not eligible
Depends on the facts
If you're unsure which side your activity falls on, have a chat with ClaimKit's team.
3Expenditure eligibility
What expenditure can you claim?
You can only claim expenditure incurred on registered, eligible R&D activities. The ATO is responsible for expenditure review — detailed ATO guidance is available at ato.gov.au. This section provides a practical overview of what is typically eligible and what is not.
Apportionment is mandatory where activities are mixed. If a person's time or an asset is used for both R&D and non-R&D activities, you must apportion the expenditure on a reasonable and documented basis. Overstatement of R&D apportionment is one of the most common compliance issues identified by the ATO and DISR.
Typically eligible
Salaries and wages of staff directly working on eligible R&D activities (appropriately apportioned)
Contractor and consultant fees for work directly on eligible R&D (if expenditure is at risk)
Decline in value (depreciation) of assets used in R&D activities
Overheads reasonably and directly attributable to R&D (e.g. proportion of rent, utilities)
Materials and consumables used in experiments and consumed in the R&D process
Contributions to Cooperative Research Centres (CRC) programs
Payments to registered Research Service Providers (RSPs) for eligible R&D
Not eligible
Expenditure on activities that are not registered eligible R&D activities
Government grants received for the R&D (offset dollar-for-dollar against eligible expenditure)
Costs reimbursed or funded by a related party (not at risk)
Acquiring the right to use technology or IP — software licences cannot be claimed as a notional deduction
Payments to associates that have not been actually paid within the income year
Overhead apportionments that result in an unreasonable allocation to R&D activities
Expenditure on activities that have transitioned from R&D into ordinary business operations
Common expenditure mistakes in software companies
DISR and the ATO have identified specific recurring issues in technology and software development claims:
Whole-of-project claiming: Claiming the entirety of a software project's expenditure without assessing each activity against the four-part core R&D test. Only the genuinely experimental portions qualify — standard development, delivery, and product work do not.
Technical uncertainty not articulated: Registrations that describe software features or business goals rather than specific technical hypotheses and experiments. The department expects to see clearly identified technical uncertainties that could only be resolved by conducting experiments.
Unreasonable overhead apportionment: Using an apportionment methodology that allocates a disproportionate amount of overheads to R&D activities. The methodology must be documented, reasonable, and specific to each type of expense — the right method for salary apportionment may not be appropriate for utilities.
4Glossary
Key terms defined
First-time applicants encounter specialised legislative language that is not immediately obvious. These definitions refer directly to the legislation and official guidance.
Aggregated annual turnovers 328–115, ITAA 1997
Not just your company's revenue. Includes the annual turnover of any entity connected with you, or any affiliate of yours, for the period they are connected or affiliated. If you are part of a corporate group, check this carefully before assuming the 43.5% refundable rate applies.
Affiliates 328–130, ITAA 1997
An individual or company is your affiliate if, in relation to the affairs of their business, they act — or could reasonably be expected to act — in accordance with your directions or wishes, or in concert with you. A commercial relationship alone (e.g. supplier) does not make an entity an affiliate.
Advance findingPart III, IR&D Act 1986
A legally binding decision by the department that specified activities are, or would be, eligible core or supporting R&D activities. Provides certainty before you claim. Must be applied for — it is not automatic. The department assesses your described activities against the legislative criteria.
At risk ruleTR 2021/5; s 355–405, ITAA 1997
Expenditure can only be notionally deducted as R&D if your company actually bears the financial risk of the R&D. If the expenditure is funded, guaranteed, or reimbursed by another party — government grant, related party, or contract that pays you regardless of outcome — it is not at risk and cannot be claimed.
Competent professionalGuide to Interpretation, May 2024, p.16
A person who, in the relevant field, has knowledge, experience, and appropriate qualifications; keeps up to date with developments; and has access to worldwide knowledge and resources including journals, internet, and peer professionals. The "unknown outcome" element is assessed from the perspective of such a person — not just you or your team.
Connected entitys 328–125, ITAA 1997
Your company is connected with another entity if either controls the other, or both are controlled by the same third entity. Control includes having at least 40% voting power or entitlement to income/capital. Both Australian and foreign entities can be connected with you.
Core R&D activitys 355–25(1), ITAA 1997
An experimental activity whose outcome cannot be known in advance based on current worldwide knowledge, can only be determined by a systematic progression of work (hypothesis → experiment → observation → evaluation → logical conclusions) based on established science, and is conducted for the purpose of generating new knowledge. Must also not be an excluded activity under s 355–25(2).
Dominant purposes 355–30(2), ITAA 1997
Your prevailing or most influential purpose. There can only be one dominant purpose. Required to qualify certain activities as supporting R&D activities — specifically those that produce goods or services, relate to producing goods or services, or are excluded from being core R&D activities. Assessed based on what you actually do, why you do it, and whether you would have done it without the core R&D activity.
Eligible R&D entitys 355–35, ITAA 1997
A body corporate incorporated under Australian law; a body corporate incorporated under foreign law that is an Australian tax resident; or a body corporate incorporated under foreign law that is a resident of a country with a double tax agreement with Australia that includes a definition of permanent establishment and carries on business in Australia through that permanent establishment. Exempt entities cannot be R&D entities.
HypothesisGuide to Interpretation, May 2024, p.17
Your proposed explanation for how or why a particular result might be achievable. Must be developed before experiments begin, must have a scientific basis, and must be testable through experiment. Can be expressed as a single statement or several statements. Records should show the hypothesis was established prior to the commencement of experimental activities.
New knowledges 355–25(1)(b), ITAA 1997
Knowledge that does not already exist and adds to current knowledge. Can be general (theoretical understanding) or applied (new or improved materials, products, devices, processes, or services). The requirement is that it is genuinely new — confirming what is already known, or demonstrating known results, does not produce new knowledge.
Notional deductionDivision 355, Subdivision 355-B, ITAA 1997
The amount used to calculate your R&D tax offset. Includes eligible R&D expenditure, decline in value of assets used in R&D, and eligible CRC contributions. The offset is calculated by multiplying the notional deduction by the applicable offset rate (43.5% or tiered non-refundable rate). Not the same as an ordinary tax deduction.
Overseas findingPart III, IR&D Act 1986
A formal decision by the department that specified R&D activities conducted outside Australia are eligible. Must be obtained before the end of the income year in which the overseas activities are conducted — late applications are not accepted. Requires a significant scientific link to an Australian core R&D activity, a reason the activity cannot be conducted in Australia, and overseas costs less than Australian R&D costs.
R&D entitys 355–35, ITAA 1997
See "Eligible R&D entity" above. Only R&D entities can register for and claim the R&DTI. The ATO makes decisions about entity eligibility.
Refundable tax offsets 67–25, ITAA 1997
A tax offset that is paid as cash to the company even if it has no tax liability — for example, a startup in a loss position. Available to eligible R&D entities with aggregated annual turnover under $20 million that are not controlled by exempt entities. Currently 43.5% (company tax rate plus 18.5% premium).
Research Service Provider (RSP)Part III, IR&D Act 1986
An entity registered by the department to provide research services. If all your R&D is conducted through an RSP, the $20,000 minimum expenditure threshold does not apply. Payments to RSPs must still be on eligible R&D activities. Verify current RSP registration on the business.gov.au register before relying on this exemption.
Supporting R&D activitys 355–30, ITAA 1997
An activity directly related to a core R&D activity. Some categories of supporting R&D activity must additionally be conducted for the dominant purpose of supporting a core R&D activity: activities excluded from being core R&D activities; activities that produce goods or services; and activities directly related to producing goods or services. Supporting R&D activities can be conducted before, during, or after their associated core R&D activity.
Systematic progression of works 355–25(1)(a), ITAA 1997
The five-element scientific process required for core R&D activities: hypothesis → experiment → observation → evaluation → logical conclusions. Must be based on principles of established science. All five elements must be present. Records must show that activities proceed from one element to the next. Can span multiple income years.
Disclaimer: This guide provides general information about the R&D Tax Incentive to assist with self-assessment. It does not constitute formal tax advice, a legal opinion, or a registered tax agent service. The R&DTI is a self-assessment program — you remain responsible for ensuring you meet all legislative requirements before registering. Always refer to Division 355 of the Income Tax Assessment Act 1997, the Industry Research and Development Act 1986, and the Department of Industry, Science and Resources' Guide to Interpretation (May 2024) when assessing your eligibility. Seek independent professional advice for your specific circumstances.