The Quick Version
- The R&D Tax Incentive changes announced in the May 2026 Federal Budget include seven proposed reforms, headlined by a 4.5 percentage point increase to the core offset rate and the removal of supporting R&D activities from the eligible base.
- FY26 and FY27 are completely unaffected. The proposed changes would take effect from 1 July 2028 at the earliest, subject to legislation.
- The higher core rate lifts the maximum refundable offset from 43.5% to as high as 48%, making the rebate more valuable for businesses conducting clearly experimental R&D.
- The cash-flow gap between spending on R&D and receiving the rebate is unchanged regardless of the reform. R&D Tax Incentive financing still bridges that gap on the same terms.
The May 2026 Federal Budget announced the most significant package of R&D Tax Incentive changes since the 2020 amendments. A higher core offset rate, tighter activity definitions, and revised eligibility thresholds will reshape how Australian businesses claim R&D tax credits from FY29 onwards.
But the reforms come with a two-year runway. FY26 and FY27 are completely unaffected, and none of the proposed measures are legislated yet. For founders, CFOs and their advisors, this is a planning window, not a reason to panic.
Here’s what was announced, what it means for the value of your R&D tax offsets, and how it affects funding.
What the May 2026 Federal Budget Announced
On 12 May 2026, the Government proposed seven reforms to the R&D Tax Incentive, grouped under three objectives.
The first is a shift from breadth to intensity. The eligibility of supporting R&D activities would be removed entirely. In exchange, the core R&D offset rate would increase by 4.5 percentage points, and the intensity premium threshold would drop from 2% to 1.5% of total business expenditure. The intent is to concentrate the incentive on genuinely experimental work rather than adjacent or enabling activities.
Separately, a second cluster of reforms narrows the refundable offset toward younger companies with high growth potential. Refundability would be restricted to a company’s first 10 income years. The minimum annual R&D expenditure would rise from $20,000 to $50,000, and the aggregated turnover threshold for accessing the refundable offset would increase from $20 million to $50 million. That last point is a meaningful expansion: businesses that currently lose access to cash refunds at $20 million in turnover would retain it up to $50 million under the proposed settings.
Third, the maximum notional deduction cap would rise from $150 million to $200 million, encouraging larger-scale investment in R&D in Australia.
These measures form the Government’s first formal response to the Strategic Examination of Research and Development (SERD) Final Report, released in December 2025. According to the Budget papers, the R&D Tax Incentive reform in Australia is projected to generate 20% more business R&D investment for each dollar of tax offset spent.
FY26 and FY27 Are Completely Unaffected
If you’re lodging an R&DTI claim for FY26 or FY27, nothing changes. Current research and development tax rules continue to apply for the income years ending 30 June 2026, 30 June 2027, and 30 June 2028. That includes the 43.5% refundable offset for companies with aggregated turnover under $20 million and a $20,000 minimum in eligible R&D expenses.
All proposed changes would commence from 1 July 2028, applying from the FY29 income year onward. William Buck describes the gap as a transitional period for businesses to adapt, and the ATO has been allocated $2.8 million over three years from 2027–28 to support implementation.
The R&D Tax Incentive changes announced in 2026 don’t require any immediate action on current or upcoming claims. They do, however, warrant early planning for FY29 and beyond, particularly around the classification of core versus supporting activities in your R&D programme.
A Higher Core Rate Makes the Rebate More Valuable
The headline reform is the 4.5 percentage point increase to the core offset rate. For businesses on the refundable offset, this lifts the maximum rebate from 43.5% to as high as 48% of core R&D expenditure.
According to BDO Australia, the premium above a company’s corporate tax rate would rise from between 8.5% and 18.5% under current settings to between 13% and 23% under the proposed reforms. BDO estimates this would boost the net tax benefit by approximately 25% to 50%, depending on the company’s circumstances. For businesses focused on core experimental work, the R&D Tax Incentive changes in the 2026 Budget represent a material increase in value.
There’s a trade-off to understand, though. Because supporting activities would be removed from the eligible base entirely, the higher rate only produces a net gain where supporting activities represent a small share of total R&D spend. William Buck’s analysis suggests younger, research-focused companies with clearly demonstrable experimental activity stand to benefit most, while established businesses that rely heavily on supporting activity claims may see a reduced total benefit despite the rate increase.
If your R&D programme is weighted toward core experimental work, the proposed RDTI changes in 2026 work in your favour. If supporting activities make up a large share of your claim, model the impact before FY29 with your R&D tax advisor.
These Reforms Are Not Yet Law
Every proposed change remains subject to the passage of legislation. The ATO has confirmed the measure is not yet law, and EY notes all measures remain unlegislated.
The typical pathway runs from exposure draft legislation and stakeholder consultation through to a Bill being introduced and passed by Parliament. Key design details are still unresolved. The precise definition of what qualifies as a core R&D activity, whether the 10-year refundability test applies at the entity or group level, and what transitional rules will look like are all questions that will be settled through the consultation process.
For that reason, the R&D Tax Incentive changes in 2026 should be treated as proposals that may evolve through drafting. EY recommends businesses model their exposure under a core-only scenario and review how their activities are currently classified, but warns against making irreversible decisions on the basis of the announcements alone.
Where Rocking Horse Group Fits In
Regardless of how the R&DTI reform plays out from FY29, one thing won’t change: the cash-flow gap between when your business spends money on eligible R&D and when the ATO pays out the rebate. That gap typically stretches past 12 months. For companies where R&D is a significant business investment, it puts real pressure on working capital, hiring plans, and project timelines.
Rocking Horse Group provides R&D Tax Incentive financing that lets you access up to 80% of your expected rebate early, based on the R&D expenditure you’ve already incurred. The loan is non-dilutive, requires no personal guarantees, and is repaid automatically when the ATO processes your return. There are no restrictions on how you use the funds.
Whether you’re claiming under the current rules in FY26 or preparing for the reformed settings from FY29, the financing works the same way. And if the proposed core rate increase proceeds, the rebate you’re borrowing against becomes more valuable, not less.
If you want to understand how the 2026 R&D Tax Incentive changes affect your funding options, talk to our team on 0414 295 842 or apply to finance your R&D Tax Incentive.
Frequently Asked Questions
Do the 2026 Budget Changes Affect My Current R&DTI Claim?
No. FY26 and FY27 claims are completely unaffected. The current rules, including the 43.5% refundable offset and the $20,000 minimum spend, remain in place until 30 June 2028. The R&D Tax Incentive changes proposed in the 2026 Budget would commence from 1 July 2028 at the earliest, subject to legislation. If you’re lodging a claim now or planning one for FY27, the process and rates are exactly as they stand today.
Is the R&D Tax Incentive Becoming More or Less Valuable?
Under the R&D Tax Incentive changes proposed in 2026, the incentive becomes more valuable for businesses with a high proportion of core experimental R&D activity. The 4.5 percentage point core rate increase lifts the maximum refundable offset from 43.5% to as high as 48%. However, the removal of supporting activities from the eligible base means businesses that currently rely on those claims may see a net reduction. The outcome depends on how your R&D programme is structured, which is why modelling the split between core and supporting activities before FY29 is important. Your R&D tax advisor can help you run those numbers.
Can I Still Finance My R&DTI Rebate Under the Proposed New Rules?
Yes. R&D finance is based on eligible R&D expenditure your company has already incurred, confirmed by a comfort letter from your R&D tax advisor. As long as your business is eligible for the R&D Tax Incentive and has qualifying R&D spend, you can access financing against your expected rebate. The R&D Tax Incentive changes from the 2026 Budget affect how the offset is calculated and who qualifies for the refundable component, but they don’t change the fundamental mechanics of R&D finance.
When Will the Proposed Changes Be Finalised?
The Government has not published a specific timeline for exposure draft legislation on the R&D Tax Incentive 2026 reforms. The measures announced in the May 2026 Budget are expected to undergo consultation with Treasury and industry stakeholders before a Bill is introduced. The earliest effective date is 1 July 2028. Businesses should monitor ATO and Treasury releases for updates, and engage with the consultation process when draft legislation is published.