R&D rebate: what you need to know
If you run a small business in Australia and spend time or money developing new products, services, or processes, you might be eligible for one of the most generous government support schemes available — the Research and Development (R&D) Tax Incentive, commonly known as the R&D rebate. Many business owners miss out simply because they think R&D is only for large corporations or scientists in lab coats. That’s not the case. The scheme is specifically designed to encourage innovation at all levels, and small businesses across many industries successfully claim the rebate every year. In this guide, I’ll walk you through exactly what the R&D rebate is, how it works, who is eligible, what you can claim, and how to apply. I’ll also show how using Thriday can save you time and money by automating the accounting, bookkeeping and tax processes involved.
What is the R&D tax rebate in Australia?
The R&D Tax Incentive is a federal government program that offers tax offsets to businesses that invest in eligible research and development activities.
The rebate helps reduce the cost and risk of innovation, allowing businesses to reinvest more in developing products and services.
If your small business meets the criteria, you can claim either:
- A refundable tax offset (if your turnover is less than $20 million), or
- A non-refundable tax offset (if your turnover is over $20 million).
In simple terms, this means that eligible small businesses can either reduce their tax bill or, if they are not yet profitable, receive a cash refund.
You can find full details about the program on the Australian Taxation Office’s R&D Tax Incentive page.
Who is eligible to claim the R&D rebate?
To claim the R&D rebate, your business must:
- Be an incorporated company in Australia
- Be liable to pay income tax in Australia
- Conduct eligible R&D activities
This means sole traders, partnerships and trusts are not eligible — though many small businesses set up a company structure for this very reason.
It doesn’t matter what industry you’re in. If you are developing new or improved products, services, or processes, there is a good chance you could qualify.
What qualifies as R&D activity?
To claim the rebate, your business must carry out eligible R&D activities. These are divided into two categories:
Core R&D activities
These are experimental activities where the outcome is unknown and cannot be determined in advance. The activities must be based on scientific principles and aim to create new knowledge.
Examples include:
- Designing new software
- Developing a prototype
- Testing new materials
- Creating new manufacturing processes
Supporting R&D activities
These are activities that directly support your core R&D. For example:
- Project management
- Data collection
- Market research (only if it is directly related to the R&D project)
You can read more about what qualifies as R&D activity on the Business.gov.au website.
What costs can be claimed under the R&D rebate?
You can claim a wide range of costs associated with your eligible R&D activities, including:
- Employee salaries directly related to R&D
- Contractor fees for R&D work
- Software development costs
- Prototyping materials
- Overheads and indirect costs (rent, utilities, etc. — to the extent they support R&D)
- Depreciation of equipment used in R&D
It’s important to maintain clear records of all these costs — more on that later.
What does not qualify for R&D?
Not everything can be claimed under the rebate. Some common exclusions include:
- Routine business activities
- Market research not directly linked to R&D
- Promotional or marketing expenses
- Legal and IP costs
- Activities where the outcome is already known
It’s worth seeking advice if you are unsure about what is eligible.
How to apply for the R&D tax rebate
The process to claim the rebate involves a few key steps:
- Register your R&D activities each year with AusIndustry (part of the Department of Industry, Science and Resources). You must do this within 10 months of the end of your income year.
- Registration details: Registering R&D activities
- Prepare detailed records to support your claim. This should include project plans, experimental records, accounting records, and timesheets.
- Lodge your tax return with the ATO, including the R&D tax schedule.
Many small businesses choose to work with an R&D tax consultant or specialist accountant to assist with this process, but you can also do it yourself if you have the right systems in place.
How much can you get back?
The rebate is very generous for small businesses.
If your company’s annual turnover is less than $20 million, you can claim:
- A refundable tax offset of your corporate tax rate + 18.5%.
For many small businesses on a 25% company tax rate, this means a 43.5% offset. If you’re in a tax loss position, you can receive this as a cash refund.
For example, if you spend $100,000 on eligible R&D, you could potentially receive a $43,500 refund.
Is software development eligible for R&D?
Yes — in fact, software development is one of the most common areas of R&D claims.
If your business is building new software, experimenting with new functionality, or improving software processes in ways that involve technical uncertainty, this work may be eligible.
Examples of eligible software R&D could include:
- Developing new algorithms
- Experimenting with artificial intelligence (AI) or machine learning
- Creating entirely new platforms or products
- Testing new performance optimisation techniques
If you are a tech-based small business, it’s definitely worth reviewing your projects to see if they could qualify.
How Thriday can help
Keeping accurate records is one of the biggest challenges when it comes to R&D claims. The ATO expects businesses to maintain detailed financial records, time records, and supporting evidence.
That’s where using a smart platform like Thriday can make life much easier.
Thriday automates your banking, accounting, bookkeeping and tax, helping you:
- Instantly track R&D-related expenses
- Categorise and allocate transactions to R&D projects
- Maintain clean records ready for R&D consultants or the ATO
- Save time on bookkeeping so you can focus on innovation
- Stay on top of cash flow and tax forecasting
Because Thriday uses automated accounting, you don’t need to waste hours each month reconciling transactions or updating spreadsheets. Everything happens in the background, and your financial data stays organised.
If you’re serious about claiming the R&D rebate and want to streamline your financial admin, Thriday is the perfect tool to support you.
Final thoughts
The R&D rebate is a fantastic opportunity for small businesses to unlock funding for innovation. If you are developing new products, services, or software, it’s well worth exploring.
Just remember:
- Check your eligibility
- Keep good records
- Register on time
- Seek advice if needed
And with tools like Thriday, you can simplify the accounting and bookkeeping side of the process — saving you time, money and hassle. Innovation is never easy. But the R&D rebate can make it more affordable.
DISCLAIMER: Team Thrive Pty Ltd ABN 15 637 676 496 (Thriday) is an authorised representative (No.1297601) of Regional Australia Bank ABN 21 087 650 360 AFSL 241167 (Regional Australia Bank). Regional Australia Bank is the issuer of the transaction account and debit card available through Thriday. Any information provided by Thriday is general in nature and does not take into account your personal situation. You should consider whether Thriday is appropriate for you. Team Thrive No 2 Pty Ltd ABN 26 677 263 606 (Thriday Accounting) is a Registered Tax Agent (No.26262416).
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