R&D Tax Incentive Eligibility

Learn more about the R&D Tax Incentive eligibility requirements

Check if you are eligible for the R&D Tax Incentive

Eligible entities 

Only eligible R&D entities can claim the Research and Development Tax Incentive (R&D Tax Incentive). An R&D eligible entity is a corporation that is either:

  • Incorporated under an Australian law
  • Incorporated under a foreign law but an Australian resident for income tax purposes
  • Incorporated under a foreign law and are both:
    • A resident of a country with which Australia has a double tax agreement that includes a definition of ‘permanent establishment’ and
    • Carrying on business in Australia through a permanent establishment as defined in the relevant double tax agreement.

Ineligible entities include:

  • Individuals
  • Corporate limited partnership
  • Exempt entities that are exempt from paying income tax
  • Trusts, except for public trading trusts with a corporate trustee
For members of consolidated groups or multiple entry consolidated (MEC) groups, there are special rules. Subsidiary members are treated as part of the head company as long as they remain part of the consolidated or MEC group.

This means, only the head company of the group should register for and claim the tax incentive, even if a single entity within the group is conducting all the R&D activities.


Find out more about eligible enitites from the Australian Taxation Office (ATO).


Eligible activities

You have to be performing eligible R&D activities to receive the R&D Tax Incentive. The eligibility criteria is explained in detail below. 

Something to keep in mind, for the most part, the activities described below have to be physically performed in Australia. If you are performing R&D activities outside of Australia, you may be eligible for an overseas finding.  Contact Azure Group to discuss whether or not you should apply for an overseas finding.

Core activities

You must be conducting or plan to conduct one or more core R&D activities. A core activity is defined in Section 355-25(1) of the ITAA 1997 as experimental activities:
  • Whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that:
    • Is based on principles of established science; and
    • Proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and
  • That are conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes, or services)

Let's break this down a little bit. To have an eligible core R&D activity, you need to have:

  • A technical uncertainty that cannot be resolved without experimentation.
    • Non Eligible Uncertainty | You might not know the melting point of steel, but you can discover it through a quick google search.
    • Eligible Uncertainty | You have created a new composite material never before used.  You have to know its melting point to determine if it is safe to use in a specific application. The only way to determine its melting point is by subjecting the material to different temperatures and observing its reaction.
  • A process of experimentation that is undertaken to resolve your technical uncertainty. A process of experimentation is an iterative, repeatable process, typically with controls and variables.  Similar to a high school science report, you should have a formalised hypothesis with measurable metrics that are evaluated and tested through your experiment.

    Process of experimentation examples include:
    • Physically testing a prototype car to determine which combination of engine and body designs produces the most fuel-efficient vehicle.
    • Breeding different plant hybrids together to determine which combinations produces an offspring that is resistant to a common pest.
    • Testing different database architecture designs in a development environment to determine which database is fastest under predicted production loads.
  • The end goal of resolving your technical uncertainty is the generation of new knowledge.  Meaning, a new product, process, material, etc. or improvements to an existing product, process, material, etc. New knowledge can be general or applied. 

    Examples of new knowledge can include:
    • New drugs and medical treatments
    • Plant hybrids that are disease and/or drought resistant
    • Alternative manufacturing process that reduces scrap by a measurable margin


To learn more about how to self-assess your R&D activities against the legislative requirements.


When evaluating your R&D activities, it’s important to remember a few things...

Competent Professional Test

A technical uncertainty meets the eligibility criteria if  a competent professional within the field cannot resolve the uncertainty without undertaking a process of experimentation.  A competent professional is a person in his/her field that:
  • Has knowledge and experience
  • Has qualifications (if appropriate) or a reasonable level of skill within the industry
  • Is up to date with recent industry developments
  • Has access to global knowledge and resources (industry journals, internet, etc.)


Your hypothesis is the vital aspect of your R&D application and is generated before starting your process of experimentation. A good hypothesis will direct your experimentation and is how you will judge the success or failure of your experiment.

When formulating your hypothesis, remember to include:
  • The end result you want to achieve
  • How you expect to achieve your result
  • Measurable metrics
Examples of good hypotheses are:
  • An electric car with a 80 kWh battery and a body made of aluminium and AI matrix composites will have an operational range 20% higher than the average electric car available on the market.
  • Crossbreeding plant parent 1 with plant parent 2 will produce an offspring that has the same production yield and requires 25% less water than either parent 1 or 2.
  • A new machine learning model will predict traffic patterns of Sydney commutes with 95% accuracy based on historical traffic patterns from 2019 through to present.
Examples of bad hypotheses are:
  • Moving from a monolithic architecture to a microservice architecture will improve platform performance.
  • Changing sensor vendors will not negatively impact the effectiveness of a commercial insulin pump.
  • We can produce a cheaper engine than our competitor by reverse engineering their engine.

R&D Tax Incentive Documentation

You have to maintain documentation of your R&D activities. To read more about documentation, click on the button.


Excluded Core Activities

Certain activities are specifically excluded from being core R&D activities per Section 355-30 of the ITAA 1997.  These activities cannot be core activities but can be considered supporting activities.
  • Market research, market testing, market development, sales promotion, including consumer surveys
  • Prospecting, exploring or drilling for mineral or petroleum for the purpose of one or more of the following:
    • Discovering deposits
    • Determining more precisely the location of deposits
    • Determining the size or quality of deposits
  • Management studies or efficiency studies
  • Research in social sciences, arts or humanities
  • Commercial, legal and administrative aspects of patenting, licensing or other activities
  • Activities associated with complying with statutory requirements or standards, including one or more of the following:
    • Maintaining national standards
    • Calibrating secondary standards
    • Routine testing and analysis of materials, components, products, processes, soils, atmospheres and other things
  • Any activity related to the reproduction of a commercial product or process:
    • By a physical examination of an existing system; or
    • From plans, blueprints, detailed specifications, or publicly available information
  • Developing, modifying or customising computer software for the dominant purpose of use by any of the following entities for their internal administration (including the internal administration of their business functions):
    • The entity (the developer) for which the software is developed, modified or customised;
    • An entity connected with the developer;
    • An affiliate of the developer, or an entity of which the developer is an affiliate.

Supporting Activity

Per Section 355-30 of the ITAA 1997:
  • Supporting R&D activities are activities directly related to core R&D activities.
  • However, if an activity:
    • Is an activity referred to in subsection 355-25(2); or
    • Produces goods or services; or
    • Is directly related to producing goods or services
The activity is a supporting R&D activity only if it undertaken for the dominant purpose of supporting core R&D activities.

Part of preparing your R&D application is analysing your specific circumstances and identifying the activities that are directly related to your core R&D activity. This includes identifying the relationship of the supporting activity with the elements in your systematic progression of work. 

Examples of supporting activities include:
  • Literature review to refine your hypothesis before you begin conducting your experiments
  • Assembling and physically testing a prototype that will undergo testing to prove or disprove your hypothesis
  • Cleaning and maintaining equipment used in your experiments
Some supporting activities have to be undertaken for the dominant purpose of supporting your core R&D activities, meaning that the main purpose of performing the activity is to support your core R&D activities. This requires an evaluation to:
  • Identify each reason for undertaking the activity
  • Weighting each reason
  • If the highest weighted reason is to support your core R&D activity, than it is an eligible supporting activity

R&D Expenditures

After identifying your eligible R&D activities, you will want to identify your eligible R&D expenditures. Depending on the type of R&D that you are undertaking, you will have different types of expenditures.  For instance, a software R&D claim is most likely to have some kind of cloud computing cost included whereas a manufacturing claim is likely to have raw material costs for prototype testing. Below is a deep dive of the types of costs that may be included in your R&D claim.


The salary and superannuation costs for Australian based employees involved in R&D activities are one of the largest eligible costs in most R&D claims. That being said, you have to allocate the costs based on the employees R&D involvement.  If an employee spent half of the year performing eligible R&D activities, then you can only allocate 50% of their salary and superannuation costs to your R&D claim.


The cost of any third party contractors physically located in Australia that were performing eligible R&D activities can be included in your R&D claim. Similar to employees, the cost has to be allocated based on their R&D involvement.  If a contractor invoices you for 50 hours of work, 40 of which were spent on R&D and 10 of which were business as usual activities, than you can only include 80% of that invoice's costs in your R&D claim.

Direct Costs

The types of direct costs you can include in your R&D claim will vary depending on the type of R&D activities you are undertaking. Think of a direct cost as a resource that was used and consumed in the process of performing your R&D activities. This can include costs like:
  • Raw materials to build prototypes or perform tests
  • Cloud computing development environments
  • Subscriptions to technical journals that contain information used to facilitate your R&D activities


Certain business as usual costs can be included as an allocated overhead cost in your R&D claim and can include expenses like rent and utilities. Overhead costs are allocated based on a few different calculation methodologies which are explained in more detail here >

Downloadable R&D resources 

The R&D Tax Incentive downloadable resources contain information on a range of R&D topics to help you understand the R&D program.

Industry Specific Papers

We can assess your R&D Eligibility

icons8-phone-message-100.pngAzure Group has a proven track record of successful R&D Grant claims. Our team of R&D Specialists have extensive experience in preparing and supporting R&D applications across a wide range of industries including manufacturing, software, health, agriculture, etc.


Get the latest R&D insights and guidance

The R&D Tax Incentive articles contain information on a range of topics to help you understand the R&D program.

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