Home » News » Government Releases Strategic Examination of R&D final report – Comments on R&D Tax Incentive Proposals

Government Releases Strategic Examination of R&D final report – Comments on R&D Tax Incentive Proposals

In the May 2024 federal budget, The Albanese Government announced a strategic examination and review of Australia’s Research and Development (R&D) system to align it with national priorities and to improve outcomes.

In late 2024, The Government announced specific details to launch the review. It was noted that the review will assess how to maximise the value of R&D investments, strengthen industry linkages, and support national priorities, and will examine existing systems, such as the Research and Development Tax Incentive (RDTI), and explore broader strategies to ensure Australia remains competitive in global innovation.

A general discussion paper for Strategic Examination of Research and Development was released in February 2025, and Swanson Reed made a submission to this in April 2025.

Issues papers were then released as part of the review which Swanson Reed provided feedback on.

The Government has now (in March 2026) released the final report from the review panel which was led by Robyn Denholm.

We have only briefly reviewed the report so far, but notable extracts from the report that relate specifically to the R&D Tax Incentive include the following:

• ‘The RDTI constitutes the largest portion of federal support for business R&D and represents approximately 30% of all commonwealth R&D funding (DISR 2025b). Submissions across both industry and research sectors noted that the RDTI is vital to our R&D ecosystem. Most supported simplifying access to the scheme. Despite its national reach, the current RDTI framework was widely regarded as administratively complex, particularly for startups or resource constrained firms.
• It is argued that tax incentives for R&D that are market-based and neutral across technologies and industry sectors allow the private sector to determine where R&D effort is best directed (Appelt et al. 2025).
• Recommended implementation pathways to simplify and focus the RDTI include:
  • Introducing a deemed rate for supporting R&D activities.
  • Raising the minimum R&D project expenditure floor (currently $20k) to a minimum annual R&D project spend of $150k.
  • Removing clawback rules in the RDTI.
• To improve simplicity and integrity, eligibility should be based on a 100-point style test reflecting the features of high-potential startups. The test should consider aspects such as:
  • Startup business characteristics to limit access to companies with high growth potential.
  • Secured venture capital investment from a qualified investor.
  • Participation in approved, selective pre-accelerator and accelerator programs.
  • Existence of intellectual property rights.
  • Collaboration with universities.
• Introduce a higher refundable offset rate of corporate income tax +23.5%.
• Enable advanced payments on a quarterly basis, based on quarterly business activity statements.
• Eligible R&D expenditure for the startup stream should be based on R&D projects instead of the core and supporting R&D definitions that still apply to the non-startup RDTI streams. Additionally, eligible expenditure should be extended to include development and deployment, early commercialisation, and allow for user testing and adoption research.
• Access to the startup stream should be limited to 3 years, with a process to reapply every 3 years for a further 3-year period for deep techs such as pharmaceuticals that have longer development timeframes
• Recommended implementation pathways to reform the RDTI to better support SMEs focused on growth through R&D include:
  • Base ongoing eligibility on outcomes including significant revenue growth and introduce ‘on’ and ‘off’ ramp conditions to ensure support is targeted toward high-growth firms.
  • Increase the turnover threshold for the refundable R&D tax offset from $20 million turnover to $50 million.
• Recommended implementation pathways include:
  • Removing the $150 million R&D expenditure cap.
  • Removing the tiered R&D intensity measure aspect of the program and providing a standard offset rate that is globally competitive, such as bringing the rate for large firms in line with that currently provided for SMEs.
  • Make the cost of the first contract RDTI eligible to encourage first procurement from new startups.
  • Removing the RDTI offset from franking credit calculations.
  • Enhanced benefits dependant on qualifying criteria, assessed through a points-based ‘corporate citizen’ test.’

Swanson Reed appreciates the work of the review panel and respects the credentials of those involved in delivering the report.

Our initial reaction to the report is that it seems very ambitious and we are mindful that:

• Certain elements of the proposal would be nice to have and would certainly be an incentive to business to invest. However these proposals may drive the R&D Tax Incentive Cost to an unsustainable level. Such measures include:
  • a higher refundable offset rate of corporate income tax +23.5%.
  • uncapped expenditure thresholds;
  • removal of franking credit impact;
• We are also concerned some measures may actually increase rather than decrease complexity (including the points tests and streams);
• We disagree with the proposal to remove the ability for regulators to remove/clawback R&D benefits after they are received, as the regulators play an important role in program integrity and must have some power to reverse incorrect claims. However, changes could be made to limit clawbacks to a period of 2 or 1.5 years. No limit should apply for clawback of benefits in cases of fraud or evasion;
• We agree Quarterly Credits are good in theory, but we see large problems in administration of this, in terms of companies accurately predicting activities, expenditure and tax loss balances throughout the year. This becomes even more problematic if there is no mechanism for the ATO to clawback over claiming;

As outlined in our original submission, the following modest changes to the R&D Tax Incentive could further encourage business investment in R&D:

• An increase in the turnover threshold for the refundable offset:

• • The $20 million turnover threshold for the R&D Tax Incentive established in 2012 is now outdated. Many argue that, when accounting for inflation and growth, the definition of a “small business” from FY12 is vastly different from what it is today in FY25.

• • It is proposed to increase this to $50M which would be generous, and which we would welcome;

• An increase to the R&D Expenditure Cap:

• • The Business Council of Australia and notable large claimants such as Cochlear have recently renewed their calls for removal or extension of the $150M annual expenditure cap on claims.

• • Changes to the cap could provide additional incentive for large companies to undertake more R&D.

• Collaboration premium:

• • A collaboration premium that provides enhanced tax benefits for expenditure with Research Service Provider (RSP) or University organisations was originally proposed in the Ferris, Finkel and Fraser review and may be worth exploring.

The Government will now consider the recommendations from the review panel and determine whether to adopt some of the proposals which would require amendments to the tax law which administers the R&D Tax Incentive.

On the whole, the Strategic Examination of R&D report should be viewed as a positive, and The Government and the review panel should be commended for looking to increase business investment in R&D Activity.

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.