The Tax Institute welcomes the opportunity to make a submission to the Treasury regarding its consultation on the exposure draft legislation on reforms to the Research and Development Tax Incentive (R&DTI).
The package of draft legislation released on 11 September 2026 comprises:
- Treasury Laws Amendment (Tax Reform No. 5) Bill 2026: Better targeting the Research and Development Tax Incentive (the draft Bill);
- accompanying draft explanatory materials – Treasury Laws Amendment (Tax Reform No. 5) Bill 2026 (draft EM);
The Tax Institute supports the Government’s objective of ensuring that the R&DTI remains well targeted, fiscally sustainable and effective in encouraging R&D investment in Australia.
The Tax Institute welcomes the proposed:
- increase in the R&DTI premiums;
- increase in the aggregated turnover threshold for refundable treatment from $20 million to $50 million;
- reduction in the R&D intensity threshold from 2% to 1.5%; and
- increase in the expenditure cap attracting the R&DTI premium from $150 million to $200 million.
However, we have significant concerns regarding two aspects of the proposed design:
- removing supporting R&D activities as a separately eligible category; and
- limiting refundability by reference to a claimant’s start day.
Our concern is not with better targeting as a policy objective. Rather, we do not consider that these measures are sufficiently connected to the problems they are intended to address.
A supporting activity is not necessarily low-value expenditure or an integrity risk. Similarly, the age of a business does not necessarily indicate whether it remains financing constrained or whether the R&DTI continues to influence its R&D investment decisions.
Summary of key recommendations
Measure | Position | Recommendation |
Supporting R&D activities | Do not proceed in current form | Retain supporting R&D activities and address identified concerns through targeted nexus, purpose, apportionment and substantiation rules. |
Start-day limitation on refundability | Do not proceed in current form | Retain the proposed $50 million turnover threshold as the principal gateway to refundable treatment. |
Evidence and modelling | Required before legislation | Publish the evidence, distributional modelling and behavioural analysis supporting the two principal restrictions. |
$50 million turnover threshold | Support | Proceed. |
Increased R&DTI premiums | Support | Proceed. |
1.5% R&D intensity threshold | Support | Proceed. |
$200 million expenditure cap | Support with review | Proceed, subject to post-implementation evaluation. |
$50,000 minimum expenditure threshold | Redesign | Retain/index $20,000 or introduce a simplified regime for smaller claims. |
Therapeutic-goods extension | Redesign if time limit retained | Base any extension on objective development characteristics rather than sector alone. |
Connected-entity/start-day rules | Redesign if retained | Ensure unrelated historical activities do not determine the treatment of economically distinct new R&D. |
Transition | Expand protection | Protect existing findings reasonably relied upon, binding commitments and material R&D project phases already underway. |
Our detailed observations and recommendations are contained in Appendix A.
We would be pleased to work with the Government to discuss the points raised in our submission further. We can provide the Government with access to a range of tax technical and industry experts who have contributed to our submission.