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Consultation on exposure draft for exclusion of gambling and tobacco companies under the R&D Tax Incentive

The December 2024 Mid‑Year Economic and Fiscal Outlook (MYEFO) was released by the Government on 18 December 2024 and announced that The Government will exclude activities related to gambling and tobacco from Research and Development Tax Incentive eligibility for income years starting on or after 1 July 2025.

The Government then released an exposure draft in December 2025, releasing Treasury Laws Amendment Bill 2025: Exclusion of tobacco and gambling related activities from the Research and Development Tax Incentive which is the legislative instrument that would enact the announced exclusion.

As expected, the legislation proposed to enact the exclusion by adding the following within the activity exclusions list within 355-25(2) of Income Tax Assessment Act 1997. The exclusions are defined as follows:

• (i) an activity that relates to any of the following, unless the 15 activity is covered by subsection (3) (harm minimisation purpose):
  • (i) a gambling service (within the meaning of the Interactive Gambling Act 2001);
  • (ii) gambling;
  • (iii) a gambling-like practice;
• (j) an activity that relates to any of the following, unless the activity is covered by
  • (i) tobacco (see subsections (5) and (6));
  • (ii) a tobacco product (as defined in section 9 of the Public Health (Tobacco and Other Products) Act 2023);
  • (iii) a tobacco product accessory (as defined in section 10 of the Public Health (Tobacco and Other Products) Act 29 2023);
  • (iv) a vaping good (as defined in section 41P of the 31 Therapeutic Goods Act 1989);
  • (v) tobacco extract;

Submissions on the draft legislation closed in January 2026, and Swanson Reed made a brief submission.

A summary of the Swanson Reed submission is outlined below:

• Swanson Reed are not advocates for the gaming or tobacco industries and we recognise that significant public harm can be done by those exposed to gambling and tobacco;
• We are however concerned about the rare and relatively new approach of excluding new activities/industries from eligibility, over and above the original excluded activity list whose origins are from the original R&D Tax concession legislation commenced in 1985;
• We are concerned by any measure that reduces the stability of R&D Incentives, and this may lead other industries to wonder if their eligibility may be compromised in future, thereby possibly reducing business confidence to invest in R&D;
• In our view, R&D Tax Incentives work best when they are broad based, market driven and stable to allow business to determine where the most effective deployment of scarce R&D Capital is;
• We also think that the savings from the measure originally announced in the December 2024 MYEFO (measure is estimated to increase receipts by $12.0 million and decrease payments by $8.0 million over five years from 2023–24) may possibly be materially underestimated. There are likely many SME software development companies who, whilst not directly providing gaming services to individuals gambling, develop software used directly or indirectly in gaming related industries. Their R&D activities will probably now be excluded under the proposed law. These companies’ exclusion from qualification for the Refundable offset may significantly impact their cashflow and possibly even jeopardise the viability of some. The savings quoted in December 2024 seem very low to us on this basis;
• If the exclusion is to proceed, we think a better approach may have been to limit the exclusion to very large companies that claim under the Non-Refundable offset (for those large companies with group turnover greater than $20M). This would likely capture the companies that were the subject of the original media scrutiny of this issue, and would probably bring the savings more in line with what was estimated. Small companies claiming the Refundable R&D tax Offset should not be subject to the exclusion in our view.

Swanson Reed will continue to advocate for a stable and sustainable R&D Tax Incentive.

Please get in touch with our office if you require assistance, would like to speak to someone about a potential claim, or check out our website for more information.