What qualifies for the R&D Tax Incentive?
Which activities the legislation treats as R&D, which costs can go into a claim, and the records the ATO expects — in plain English, from published ATO and AusIndustry guidance. Ask Dee anything about it below, or read the rules yourself. Free, no sign-in. A registered adviser decides eligibility, not this page.
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What this assistant will and won’t do
- Explain the R&D Tax Incentive rules in plain English
- Draw on verified ATO and Division 355 sources
- Walk through how everyday costs are typically treated
- Show you what to take to your advisor
- Decide whether you specifically qualify
- Give tax or financial advice
- Replace your registered R&D tax advisor
- See or store your personal details (they're auto-removed)
The plain-English rules for R&D eligibility.
Pick your industry to see how the rules play out in real projects. The principles below apply to every sector.
Which activities count as R&D in the first place.
Typically eligible
- Experimental work with an outcome a competent professional could not determine in advance
- Systematic progression: hypothesis → experiment → observation → evaluation → conclusion
- Generating new technical knowledge — not just applying existing knowledge
- Technical uncertainty as the driver — not just commercial uncertainty
- Supporting activities that directly enable a core R&D experiment (dominant purpose test)
- Failed experiments — the ATO does not require success, only systematic methodology
- Developing novel algorithms, materials, processes, or devices
- Work documented contemporaneously — notes, logs, photos, commits, test data
Typically not eligible
- Market research, consumer surveys, or sales campaigns
- Routine testing and quality control against existing standards
- Software developed primarily for internal admin use (CRM, ERP, accounting systems)
- Reproducing or reverse-engineering an existing product or process
- Compliance with standards, regulations, or legal requirements
- Management studies or general efficiency surveys
- Commercial, legal, or admin aspects of patenting or licensing
- Mass production or routine manufacturing once a process is established
Typically claimable
- Salaries, wages, super and leave — for the time staff actually spend on R&D (apportioned by timesheets)
- Contractors and consultants paid to carry out the R&D work on your behalf
- Overheads with a direct link to the R&D — rent, electricity, gas, water, cleaning, some insurance — to the extent they relate to R&D
- A dedicated R&D workspace or home office — apportioned by floor area, and only if the company (not you personally) incurs the cost
- Decline in value (depreciation) of equipment used for R&D — over the asset's life, to the extent it's used for R&D
- Power, internet and consumables used in R&D — apportioned on a fair and reasonable basis per cost type
Typically not claimable
- Interest on loans or financing — specifically excluded
- The cost to buy or construct a building (that goes to the capital-works rules, not the R&D offset)
- ‘Core technology’ you bought the right to use as the starting point for the R&D
- General running costs that would happen anyway, with no real link to the R&D
- The upfront purchase price of that equipment as a one-off expense (you claim its depreciation instead)
- Expenditure that isn’t ‘at risk’ (e.g. guaranteed to be reimbursed regardless of the R&D outcome)
The company must be on the lease (or contract)
The R&D offset only covers expenditure incurred by the company. If you sign the lease personally, the company hasn't incurred the rent — even if you use a room for R&D. Put the company on the lease, and you can apportion the R&D workspace share.
Employee contributions eliminate FBT on the personal share
When the company pays rent on a home you live in, the personal-use portion is a fringe benefit (taxed at 47% grossed-up). You reduce this to zero by paying the company back for the personal share — either as a direct contribution or via a formal sublease at market rent.
Salary is usually your biggest R&D claim
A founder-director's salary, apportioned to R&D time, is the most common claimable item for startups. Keep a timesheet or project log — even a simple weekly summary. On-costs (super, workers' comp, payroll tax) are apportioned at the same R&D percentage.
Each cost type needs its own apportionment method
The ATO doesn't accept a single blanket percentage for everything. Rent is apportioned by floor area, salary by time (timesheets), power by metered use or time, equipment by R&D-use percentage. Pick the method that fits each cost.
Records must be contemporaneous — not reconstructed
The ATO's position is clear: keep your floor-plan sketch, timesheets, and apportionment records at or near the time the expenditure is incurred. Retrospective estimates prepared only at claim time are viewed with scepticism.
You can claim across multiple locations
If you do R&D at a warehouse and admin work at a home office, both locations' overheads can be claimed — each apportioned separately. There's no rule limiting a claim to one site.
Motor vehicle costs follow a log-book method
Fuel, maintenance, rego, insurance, and depreciation are claimable at the R&D-use percentage. Keep a log book for 12+ weeks to establish the split. Daily commuting doesn't count — only travel directly connected to R&D.
Sheds, garages, and storage count if they store R&D equipment
A home shed or garage used to store R&D equipment, materials, or a company vehicle used for R&D can be included in the premises apportionment by floor area. It must have a genuine link to R&D — not just general household storage.
Consumables and raw materials are fully claimable when used for R&D
Chemicals, components, prototyping supplies, and other consumables used up in R&D experiments are claimable in full. If materials serve both R&D and production, apportion using batch tracking or inventory records.
Contractor costs are claimable — but the company must direct the R&D
Payments to contractors or consultants performing R&D under the company's direction are claimable. Related-party (associate) amounts are limited to their actual costs and only when paid. Overseas R&D needs an Overseas Finding first.
You get cash back even if you're not profitable
For companies with aggregated turnover under $20M, the 43.5% offset is refundable — if it exceeds your tax liability, the ATO pays the difference as cash. It's claimed in your annual tax return, not upfront.
Only companies can claim — sole traders and trusts cannot
The R&D Tax Incentive is only available to incorporated companies (Pty Ltd). Sole traders, partnerships, and trusts are not eligible. If you're a sole trader doing R&D, incorporate first — but R&D done before incorporation can't be claimed.
Government grants can reduce your R&D claim
Grants that reimburse specific R&D costs may make those costs 'not at risk' — and expenditure not at risk isn't claimable. You must disclose all government recoupments. Your advisor reviews each grant's conditions.
Don't confuse commercial risk with technical uncertainty
'We don't know if customers will buy it' is commercial risk — not R&D. 'We don't know if this material will withstand the load' is technical uncertainty — that's what the program is for.
Selling your product or IP doesn't disqualify the R&D claim
Commercialising R&D outcomes is encouraged. Feedstock adjustments may claw back part of the benefit if R&D produces a saleable product, but the original claim stands.
Your advisor confirms the structure — the chatbot explains the rules
Dossio explains how these rules work in general terms so you can have an informed first conversation with your advisor. Your R&D tax advisor and accountant confirm the right structure, amounts, and FBT treatment for your specific situation.
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