Home » News » Swanson Reed submission to proposed legislative amendments titled ‘Better targeting the Research and Development Tax Incentive’

Swanson Reed submission to proposed legislative amendments titled ‘Better targeting the Research and Development Tax Incentive’

In the Federal Budget handed down on 12 May 2026, The Government proposed major structural changes to the R&D Tax Incentive (RDTI) proposed to commence on 1 July 2028.

Proposed reforms announced in May 2026 include:

• Increasing the offset for experimental ‘core’ R&D by around 25 to 50 per cent and removing eligibility for expenditure that only supports R&D. The intensity threshold will reduce from 2 per cent to 1.5 per cent, providing higher offsets to firms undertaking substantial core R&D.
• Expenditure on supporting activities – such as literature review and equipment maintenance – will no longer be eligible.
• Changing the eligibility criteria for the Refundable R&D Tax Offset by increasing the turnover threshold to $50.0 million. Refundability was also proposed to be limited to firms operating less than ten years, with older firms eligible for an equivalent, non-refundable offset.
• Increasing the maximum expenditure threshold to $200 million to allow large businesses to claim more expenditure.
• Increasing the minimum expenditure threshold to $50,000, with R&D below this required to be undertaken with a Research Service Provider or Cooperative Research Centre.

The proposed changes were not received well by industry, particularly the measure proposing to limit eligibility for the Refundable R&D Tax Offset to firms operating less than ten years.

On September 11, 2026, The Government  released an exposure draft for the legislation to enact their proposed changes titled ‘Better targeting the Research and Development Tax Incentive’.

The proposed measures in the exposure draft generally align with the May 2026 Announcement; however, the Government has made one change regarding the most controversial element of the proposed measures:

• The proposal to limit Refundability of the proposed measures to firms operating less than ten years, has been modified slightly to be:
  • A limit of refundability to firms up to 10 years of age, with an extension for up to 15 years for eligible firms undertaking R&D activities related to therapeutic goods.

Swanson Reed has serious concerns regarding the proposed legislative changes, and we have voiced these in our submission.

An extract of the Swanson Reed submission is outlined below:

Submission: Proposed Legislative Amendments titled ‘Better targeting the Research and Development Tax Incentive’.

Swanson Reed welcomes the opportunity to provide feedback on the proposed amendments to the Research and Development (R&D) Tax Incentive contained within the Treasury Laws Amendment (Tax Reform No. 5) Bill 2026: Better targeting the Research and Development Tax Incentive.

Swanson Reed has consistently advocated for a stable, generous, and simple R&D Tax Incentive framework across multiple reform consultations over the past two decades, including:

• 2025 Strategic Examination of Australia’s R&D System
• 2016 R&D Tax Incentive Review and associated reports
• 2015 Tax White Paper (Re:Think)
• 2014 Senate Inquiry into Australia’s Innovation System
• Various targeted consultations on proposed R&D tax law amendments

We hold two significant concerns regarding the proposals in the 2026 amendment bill, which are detailed within our submission.

Context: Aligning Proposed Amendments with the Strategic Examination of R&D

The genesis of the 2026 amendment bill to reform the R&D Tax Incentive was the May 2024 Budget announcement initiating a strategic examination of Australia’s R&D system. The Government noted that the aims of this examination were to:

• Strengthen Australia’s R&D system to secure future national prosperity.
• Maximize the value of investments across universities, industry, and government.
• Harness and grow private-sector business investment in R&D.
• Leverage national scientific strengths to foster new industries and elevate Australia’s overall R&D intensity.

The independent expert panel conducting the examination (led by Robyn Denholm) published its findings in the 2025 report, Ambitious Australia – Strategic Examination of R&D. The panel emphasized that tax incentives must remain market-based and sector-neutral to empower businesses to allocate capital effectively. They recommended significant reforms to the R&D Tax Incentive, including quarterly credit distributions, removing franking credit penalties, and eliminating clawback mechanisms (among other proposals).

Swanson Reed noted upon its release that the proposals in the 2025 report, Ambitious Australia – Strategic Examination of R&D, while admirable and well-intentioned, carried high budgetary costs, risked increasing program complexity, and were likely unworkable as a complete package.

Despite Swanson Reed not advocating for the full implementation of the R&D Tax Incentive reform proposals in the 2025 report, we are concerned that the current draft legislation in the Treasury Laws Amendment (Tax Reform No. 5) Bill 2026 has diverged too far from the objective of the strategic examination of Australia’s R&D system, which was to grow business investment in R&D. Rather, the focus of the 2026 Bill has shifted primarily toward short-term fiscal contraction. If policy reform focuses primarily on cost-containment, it risks undermining Australia’s innovation ecosystem and business confidence to invest in Australian R&D Activity.

Primary Concern 1: Restricting Refundable R&D Offsets Based on Entity Age and Industry

Our primary concern relates to the proposal to restrict access to the Refundable R&D Tax Offset to entities operating for less than 10 years (or 15 years for entities conducting R&D related to therapeutic goods).

This measure was not proposed in the 2025 report, Ambitious Australia – Strategic Examination of R&D, and its inclusion has come as a shock to Swanson Reed and our many impacted clients.

If enacted, effective 1 July 2028 (FY29), companies incorporated prior to July 2018 (or July 2013 for therapeutic goods) will lose access to refundable offsets, leaving impacted loss-making firms without immediate cash benefit for their R&D Expenditure.

Put simply, Swanson Reed expects age-based limitation on refundable offsets will have a devastating impact upon tax loss companies affected, as such companies will not be able to fund their ongoing Australian R&D Salaries, Superannuation and other expenditures by using non-refundable R&D Tax Offsets.

If detailed modelling were to be done on the proposal to limit refundability of R&D Tax Offsets, we suspect it would show the non-viability of hundreds (possibly thousands) of Australian companies, and for those that do soldier on, their capacity to conduct R&D activity in future will be greatly diminished.

This proposal will severely disadvantage deep-technology, life sciences, and advanced manufacturing sectors, which inherently require extended development lifecycles before generating revenue or taxable income. While the Strategic Examination suggested linking ongoing access to growth trajectories, an arbitrary chronological cut-off was not proposed, and this creates a severe funding cliff.

Of equal concern is the retrospective nature of the proposal. Many impacted companies have raised capital, entered contracts and committed to multi-year R&D programmes (such as clinical trials, pilot plant development and product development pathways) in reliance on the legislated refundable offset remaining available for the life of their long-term projects. A company incorporated in 2012 that commenced a five-year R&D project in 2026 did so on the reasonable expectation, consistent with the 2025 Strategic Examination, that the framework would be stable or improved, not withdrawn part-way through. Companies and Investors rely on certainty as part of their funding decisions, and removal of the legislated entitlement will be felt not only by the companies losing refundability but by the broader capital-raising environment for Australian R&D. This reduces Australia’s attractiveness as a destination to conduct future R&D activity.

Swanson Reed’s desktop analysis of 21 publicly listed Australian entities receiving large refundable R&D tax offsets highlights the impact of an arbitrary 10- or 15-year age limit:

*Note: Data compiled from public ASIC records and media publishing of ASX filings. None of the entities listed above are Swanson Reed clients.

The above analysis demonstrates that nearly all major current recipients of refundable R&D Tax Offsets would face a funding cliff in FY29 that may impact their ability to conduct future R&D. It is also important to note that the above analysis is limited to publicly listed entities, and analysis of private companies would likely further evidence the severe impact of the proposed age-based limitation on refundable offsets.

Feedback from Swanson Reed’s client base indicates that if this age restriction is implemented, the many impacted businesses will be forced to:

• Significantly reduce their investment in ongoing R&D activities;
• Potentially look at other global jurisdictions to undertake R&D activities;
• Cease their R&D activities or operations altogether;
• Look at options to restructure into a new entity solely due to the proposed limit on refundable offsets. This exposes them to significant and needless administrative cost. A restructure may also not be effective in attaining a future period of eligibly depending on potential application of grouping or integrity provisions.

While expanding the eligibility window to 15 years for therapeutic goods R&D entities is a welcome modification from the original proposal announced in May, it remains insufficient. Introducing industry-specific age rules erodes a key founding pillar of the R&D Tax Incentive: maintaining a sector-agnostic, market-driven policy framework.

Furthermore, the increase in the turnover threshold to $50M may have limited applicability if companies only have ten years of access to Refundable R&D Tax Offsets. Very few companies would reach $50M turnover within 10 years, and this change will benefit only a very small number of high-growth companies

Recommended Policy Alternatives

Swanson Reed recommends abandoning the age-based limitation on refundable offsets. Should cost-saving measures remain necessary, the Treasury should consider the following alternatives:

• Option A: Maintain age-neutral refundability, but adjust the turnover threshold from $20M to $35M (rather than the more costly $50M level proposed) to account for inflation since the threshold’s introduction in FY12. The reduction in turnover threshold could offset some of the cost in not proceeding with age-based limitation on refundable offsets.
• Option B: Maintain age-neutral refundability, but introduce an annual cap on refundable offsets for entities older than 10 years (e.g., $1M general cap, increased to $3M for therapeutic goods R&D entities).
• Option C: Implement a universal cap on annual refundable offset disbursements across all participating entities (e.g., $4M standard cap, $8M cap for approved therapeutic goods R&D entities). R&D expenditure incurred above the cap could be subject to Non-Refundable R&D tax offsets.

Primary Concern 2: Exclusion of Supporting R&D Activities

Swanson Reed strongly opposes the proposed exclusion of Supporting R&D Activities from eligibility under the R&D Tax Incentive. Specifically, we are concerned that:

• Eliminating supporting activities is disconnected from the reality of how business conducts R&D activities and requires companies to draw a rigid boundary between core experimental R&D and necessary contextual work (e.g., literature reviews, project management or experiment preparation).
• This increases complexity and compliance risk around delineating between core and supporting activities, particularly when supporting type R&D activities have attracted some form of eligibility under the Australian tax system since introduction of the R&D Tax Concession in 1985.
• This move may disproportionately harm certain industries that may have a higher proportion of supporting activities in the projects, further depleting a key design feature of the R&D Tax Incentive, being sector agnostic.

While we do note an increase of R&D tax offset for Core Activities, we feel that the altogether removal of Supporting R&D Activities greatly increases program complexity and does not encourage business to instigate or undertake more R&D activity.

Recommended Policy Alternatives

Swanson Reed recommends abandoning the proposal to remove eligibility for supporting activities from the R&D Tax Incentive altogether. The Treasury should consider the following alternatives:

• Option A: Retain statutory eligibility for Supporting Activities, rebalancing fiscal impact by reducing (or not proceeding with) the proposed rate increase for Core Activities.
• Option B: Retain Supporting Activities as eligible expenditure, but apply a lower-tier offset rate relative to Core Activities. However, this option increases complexity and is less favourable than Option A.

Conclusion

Swanson Reed reiterates its strong commitment to a stable, accessible, and competitive R&D Tax Incentive framework. At a time when international jurisdictions are actively expanding incentives to attract private capital, introducing strict age-based limitation on refundable offsets and excluding supporting R&D activities risks significantly reducing an incentive for businesses to undertake R&D activity in Australia.

We previously commended the Government for initiating the Strategic Examination of R&D with intention of increasing business investment in R&D, and aside from the proposed age-based limitation on refundable offsets, the reform package announced on 12 May 2026 seems well intentioned.

However, the proposed reforms have become unaligned with the objective of increasing business investment in R&D. We urge the Treasury to reconsider these proposals prior to the passage of the legislation to protect Australia’s long-term research and industrial capability.

Swanson Reed calls on the Government to listen to the widespread industry concern around the controversial elements of the proposed changes, particularly the age-based limitation on refundable offsets and amend or withdraw these proposed changes.

Swanson Reed will continue to advocate for a sustainable and stable 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.