R&D tax incentive: Is your business eligible? Claiming guide for AU manufacturers

Published 6 March 2026

Table of contents

• What is the R&D tax incentive in Australia?
• Who can claim the R&D tax incentive
• Manufacturers’ activities that qualify for the R&D tax incentive
• Calculating your R&D tax offset
• How to claim the R&D tax incentive in Australia
• Get R&D ready with Xero
• FAQs on the R&D tax incentive

Key takeaways

• Only Australian companies can claim the Research and Development Tax Incentive, and you must register your eligible activities within the 10-month deadline each year.
• Your R&D tax offset depends on your company tax rate, group turnover, and structure. There are refundable offsets available for companies with a turnover under $20 million.
• Keep clear evidence year-round, including hypotheses, experiments, staff time, materials, prototypes, and test results — and link each record to the activity it relates to.
• Xero helps you tag R&D costs, store supporting documents, and collaborate with your advisor so you can prepare and claim with confidence.

What is the R&D tax incentive in Australia?

The Research and Development Tax Incentive (R&DTI) is a government program that gives companies a tax offset for eligible R&D activities. This offset – sometimes also called R&D tax credits – means you can reduce the amount of income tax you pay. For smaller companies, it may result in a cash refund.

The incentive encourages Australian companies to develop new or improved products, materials, devices, and processes. For manufacturers, the incentive can apply to testing new production methods, improving product performance, or trialling different materials.

To get the tax offset, your business needs to genuinely try to solve a technical or scientific problem. You’ll need to keep records of what you planned to do, what you actually did, and what you learned along the way.

Who can claim the R&D tax incentive

Only Australian companies can claim the R&DTI with AusIndustry (under the Department of Industry, Science and Resources) and the Australian Taxation Office (ATO). These include companies incorporated in Australia or foreign-owned companies that are Australian tax residents.

To be eligible, your company must:

• carry out R&D in Australia
• spend at least $20,000 on eligible R&D – unless you’re engaging an approved R&D consultant
• register activities with AusIndustry every year
• lodge the claim in the company tax return

Sole traders, partnerships, and trusts can’t claim the incentive.

Manufacturers’ activities that qualify for the R&D tax incentive

Manufacturers often carry out R&D when they’re creating a new product, improving how something is made, testing materials, or trying to solve a technical problem without a known fix.

Under the R&DTI, the ATO groups these activities into three main categories: core, supporting, and excluded activities.

Core activities

Core activities are the experiments your business might carry out. They must follow a structured process: you start with a hypothesis (a testable idea), carry out experiments, observe the outcomes, and draw conclusions.

Examples for manufacturers include:

• testing new material combinations to improve durability
• experimenting with new production methods to reduce defects
• prototyping a new device when the technical outcome is uncertain

Core activities must involve scientific or technical uncertainty – something a competent professional can’t already predict the answer to.

Supporting activities

Supporting activities help you run or complete a core activity. They may not be experiments themselves, but you need them to carry out your R&D.

In manufacturing, they can be:

• designing prototype tools
• analysing test data
• using software to run an experiment
• setting up machinery for test runs

A supporting activity is only eligible if it directly relates to a core activity.

Excluded activities

Some activities are specifically excluded or only partly eligible, such as:

• market research or customer feedback
• making and selling your product once the R&D stage is over
• routine quality checks
• minor or cosmetic changes that don’t solve a real technical problem
• buying existing technology and using it without doing any genuine experimentation

In some cases, you might be able to claim parts of an excluded activity if you can prove it directly supports a core activity.

• Quality testing can be eligible if it helps you measure whether your experimental prototype is working.
• Production runs can be partly eligible if you’re making small, not-for-sale batches purely to test your experimental design or process.
• Market feedback might be claimable if you're gathering technical performance data that feeds directly into solving the scientific or technical problem.

Calculating your R&D tax offset

Your R&D tax offset depends on your company’s tax rate and annual turnover. It’s applied to your tax return and may be refundable if you’re a smaller company.

If you’re unsure about your offset rate, use the Australian Taxation Office’s (ATO) R&D tax incentive calculator.

Companies with turnover under $20 million

If your company earns less than $20 million, you’ll receive a refundable offset. This means that if the offset is larger than the tax you owe, the ATO pays you the difference as a refund.

The refundable offset rate is your company tax rate plus a 18.5% premium. For example, if your tax rate is 25%, your R&D offset is 43.5%.

This makes the R&DTI valuable for small and medium manufacturers who are sensitive to changes in cash flow.

Companies with a $20 million turnover or more

If your company earns $20 million or more a year, the R&D tax offset can only reduce the amount of tax you have to pay – it won’t turn into a cash refund. If you don’t use the full offset in that year, you can save the leftover amount and use it in a future tax return.

Your offset rate depends on how much you spend on R&D compared to your total business expenses. This is called your R&D ‘intensity’. The higher the intensity – the share of your budget that goes into R&D – the higher your tax offset.

• If your R&D spending is up to 2% of your total expenses, your offset is your company tax rate plus 8.5%.
• If your R&D spending is more than 2% of your total expenses, your offset is your tax rate plus 16.5%.

How to claim the R&D tax incentive in Australia

Claiming the R&D tax incentive involves registering your activities with AusIndustry and claiming the offset in your company tax return with the ATO. Here’s a step-by-step guide to help you through the process.

1. Confirm your R&D business structure and group turnover

If your company operates and pays tax in Australia, start by checking you’ve calculated your total income for the year accurately. Your advisor or accountant can help confirm this.

This figure determines your offset rate and whether you can receive a refund.

2. Define your core and supporting activities

Describe each of your activities in plain language. This description is what AusIndustry will use to assess your R&D claim.

Discuss the technical problem you wanted to solve, the experiments you ran, and the supporting work you needed to complete.

3. Tag and track eligible R&D costs

Keep records that match your R&D related costs to an activity.

Costs usually include:

• staff wages and hours spent on R&D
• the materials you used in experiments
• any prototype costs
• contractor and consultant fees
• depreciation on equipment used for R&D

Using the tracking categories feature in accounting software like Xero makes it easier to keep the records you need to support your claim – you won’t have to dig through general business expenses later.

4. Register activities on the R&D tax incentive portal within 10 months

Register your R&D projects using the government’s official R&D Tax Incentive (R&DTI) customer portal. This is where AusIndustry collects your R&D application details.

You must register within 10 months of the end of your income year. For example, if your company’s income year ends on 30 June, your registration is due by 30 April the next year.

Make sure you don’t miss the deadline, or you might not be allowed to make an R&D claim for that year.

5. Calculate the offset and prepare tax schedules

Your accountant will use your R&D spending, turnover, and company tax rate to work out your R&D tax offset. They then prepare the R&D Tax Incentive schedule for you to attach to your company tax return to support your claim.

Here are a couple of examples:

• If your small company spends $500,000 on eligible R&D in a year, has a turnover under $20 million, and a tax rate of 25%, you might be eligible for a 43.5% refundable offset. That could mean a refund of around $217,500.
• For a larger company with turnover of over $20 million, the offset might be 25% plus 8.5–16.5% depending on your R&D intensity, which reduces tax payable.

6. Lodge your company tax return and claim the offset

You can claim the R&D offset when you lodge your tax return.

If you're eligible for a refund and your calculations are correct, the ATO processes the refund once it’s completed its checks.

7. Maintain records and respond to reviews

AusIndustry and the ATO may review R&D claims. Good records protect your claim and make reviews smoother.

Be prepared for a review by keeping records of:

• experiment notes
• test results and findings
• staff timesheets
• invoices, quotes, and receipts
• prototype costs
• emails and project documents

Get R&D ready with Xero

Xero gives your manufacturing business clever tools to track and store R&D information throughout the year so you’re not rushing at tax time.

Xero helps you:

• use tracking categories or custom accounts to tag R&D wages, materials, and contractor costs
• attach your documents, test results, and prototype photos directly to bills and transactions, so all your evidence is stored in one place
• share real-time R&D data with your accountant or R&D consultant
• run reports to estimate your likely refund or offset before year end

Xero helps you stay organised, maintain evidence, and claim the R&DTI with confidence.

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FAQs on the R&D tax incentive

Here are answers to common questions from manufacturers who are looking at R&D tax incentives in Australia:

Can I claim overseas R&D activities?

Yes, but only in a few cases. You must apply for advance approval before doing the overseas work, and you must show why it cannot be done in Australia (for example, specialised equipment not available here).

To understand which overseas R&D activities you can claim, check the government's eligibility criteria.

What if I miss the registration deadline?

The 10-month deadline is strict. If you miss it, you usually cannot register activities or claim the offset for that year. Contact an R&D advisor quickly, as there are few exceptions.

Can trusts or partnerships claim R&D?

No – only companies can claim the incentive. But a trust or partnership can conduct the work as long as the R&D entity (the company lodging the tax return) is the one incurring the R&D costs and paying them.

Can I claim prototypes and pilot runs?

Yes, if you’re using them to test or experiment with a new idea and help resolve technical uncertainty. But once the prototype is used for normal commercial production, costs are no longer eligible.

What is a feedstock or clawback adjustment?

A feedstock adjustment applies when you produce something during R&D and later sell or use it commercially. The ATO can ‘claw back’ part of the benefit so you aren’t rewarded twice.

This adjustment balances the tax benefit with any commercial value created during experiments.

How long does the refund take?

It varies. Many companies receive payment a few weeks after lodging their tax return, depending on how long the ATO’s review takes. Claims with large offsets or incomplete records may take longer.