Research and development (R&D) is often perceived as something that only happens in high-tech labs or cutting-edge startups. But in reality, eligible R&D activities take place across a wide range of industries, from agriculture to software development. If your business is developing new or improved products, processes or services, there’s a good chance you’re undertaking eligible R&D—even if you don’t realise it.
Understanding what counts as R&D is key to making a successful R&D Tax Incentive claim. To help you navigate the rules, we’ve compiled a list of common R&D activities examples across various sectors.
What Makes an Activity Eligible?
To be eligible under the R&D Tax Incentive, your activities must meet the legislative criteria, which include:
- Core R&D activities: Experimental activities whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience. These must be conducted for the purpose of generating new knowledge.
- Supporting R&D activities: Activities that are directly related to core R&D activities or undertaken for the dominant purpose of supporting core R&D.
Eligible R&D must involve a process of technical uncertainty and systematic investigation. It must also be undertaken within Australia and by an R&D entity that is an Australian tax resident, and must adhere to Australian law for income tax purposes.
Many companies may need to conduct background research before beginning core activities to establish what knowledge gaps exist, which can further support their eligibility to claim the R&D tax benefit.
Software Development
Software development is one of the most common areas where businesses engage in eligible R&D. Examples include:
- Developing a new algorithm that solves a unique problem
- Creating a platform that performs a novel function not currently available
- Integrating disparate systems using custom code to achieve something technically uncertain
Note: Standard software updates or user interface tweaks that don’t involve technical uncertainty generally do not qualify.
Manufacturing and Engineering
In the manufacturing sector, eligible R&D can involve the development of new materials, improved production methods or innovative machinery. Examples include:
- Designing and testing a new composite material for strength and durability
- Developing a custom machine to automate a specific production task
- Experimenting with different production methods to reduce waste or increase efficiency
These often involve trialling and refining prototypes, which squarely fall under core R&D activities.
Agriculture and Food Production
Agribusinesses often perform R&D when improving crops, livestock or food products. Examples include:
- Developing a drought-resistant crop variety through selective breeding
- Creating a new fermentation process to enhance food flavour or preservation
- Trialling alternative fertilisers or planting methods to boost yield
These activities must involve a level of experimentation and technical challenge.
Health and Biotechnology
Medical and biotech firms often undertake extensive R&D. Examples include:
- Developing a new drug compound and running clinical trials
- Engineering a medical device with improved functionality
- Investigating the genetic basis of a disease to inform treatment options
Even if not all phases of development are eligible, the early stages typically meet the core R&D criteria.
Renewable Energy and Environmental Solutions
As industries pivot toward sustainability, new innovations often require R&D. Examples include:
- Designing a novel solar panel configuration to improve energy capture
- Developing biodegradable packaging materials
- Creating a system to capture and reuse industrial waste heat
These projects often carry technical risk and require iterative testing.
Construction and Architecture
While not traditionally associated with R&D, these sectors can still qualify. Examples include:
- Developing a new construction method to meet regulatory or environmental standards
- Testing innovative insulation materials or soundproofing systems
- Creating modular design systems that involve technical integration challenges
Eligibility hinges on whether the work involves a degree of technical uncertainty and experimentation.
Fashion and Textiles
Innovation in textiles can also qualify as R&D. Examples include:
- Creating fabrics with embedded technology (e.g., sensors or temperature control)
- Developing eco-friendly dyes or production methods
- Experimenting with automated cutting or sewing techniques
These activities must aim to generate new knowledge rather than apply existing solutions.
Could Your Work Qualify as R&D?
When it comes to the R&D Tax Incentive, the definition of R&D is broader than many businesses realise. If you’re addressing technical challenges and testing new solutions, you may be conducting eligible R&D without even knowing it.
Using these R&D activities example as a reference point can help you assess whether your work fits within the scope of the program. Businesses involved in industry research and development may be especially well-positioned to access the tax offset available through the incentive. The key is to conduct R&D activities that demonstrate genuine innovation and technical risk.When in doubt, consult with a registered tax adviser or R&D finance specialist to help you capture and claim the R&D tax benefits your eligible R&D entities are entitled to. Here at Rocking Horse, we’re always ready to help.