If you’ve been researching the R&D Tax Incentive, you’ve probably seen three terms used almost interchangeably: R&D tax offset, R&D tax credit, and R&D tax rebate. It creates genuine confusion, particularly when government websites, accounting firms, and overseas guides all seem to use different language for the same benefit.
Here’s the short version: in Australia, the correct term is the R&D tax offset. Sometimes written out in full as the research and development tax offset, it’s the mechanism through which the government rewards businesses for conducting eligible R&D. Understanding that distinction matters because it affects how much you receive, when you receive it, and whether you get cash in hand or a reduction against future tax.
What Is the R&D Tax Offset?
The R&D tax offset is the benefit delivered under Australia’s R&D Tax Incentive (R&DTI) programme. It’s established under Division 355 of the Income Tax Assessment Act 1997 and jointly administered by the ATO and the Department of Industry, Science and Resources.
Rather than providing a standard tax deduction, the R&DTI allows eligible R&D entities to claim qualifying expenditure as a notional deduction. That notional amount feeds the calculation of a tax offset, which directly reduces the tax you owe. For companies that qualify for the refundable version, any excess is paid out as cash by the ATO.
Claiming R&D tax benefits requires conducting eligible R&D activities and registering them with AusIndustry within 10 months of the end of the relevant income year. The R&D Tax Incentive schedule is then lodged with your income tax return.
So Why Do People Call It a Credit?
Because the rest of the world does. In the United States, the equivalent mechanism is formally called the “Credit for increasing research activities” under Internal Revenue Code §41. In the United Kingdom, HMRC’s scheme is officially titled “R&D tax credits.” When global advisory firms compare research and development tax incentives across jurisdictions, “credit” travels with them.
Accounting practice reinforces the habit. RSM Australia notes that some preparers categorise the R&DTI as an “investment tax credit” under their accounting policies, and PwC catalogues Australia’s offset under a page literally titled “Tax credits and incentives.” The terminology sticks because accountants and advisors recognise the concept globally, even though the formal Australian label is different.
None of this changes what the benefit actually is. Under Australian law, it is a tax offset. If you see “R&D tax credit” in an Australian context, the writer almost certainly means the R&D tax offset delivered through the R&DTI.
Refundable vs Non-refundable: How Each Offset Works
The R&D tax offset operates in two distinct forms, and which one applies depends primarily on your company’s aggregated turnover.
Refundable offset
For companies with aggregated turnover under $20 million (and not controlled by a tax-exempt entity). The R&D tax offset rate equals the company tax rate plus an 18.5 percentage point premium. For a company on the 25% base rate entity tax rate, that works out to 43.5%. Critically, if the offset exceeds your income tax liability, the ATO pays the difference directly to you. A loss-making startup with no tax payable receives the full amount as cash, which is why this version of the offset is so valuable to early-stage and growth-stage companies still investing ahead of revenue.
Non-refundable offset
For companies with aggregated turnover of $20 million or more. The offset rate equals the corporate tax rate plus a tiered intensity premium: 8.5 percentage points for R&D expenditure up to 2% of total expenses, and 16.5 percentage points above that threshold. If the offset exceeds your tax liability, the excess carries forward to future income years rather than paying out as cash.
Both forms are subject to a $150 million cap on notional deductions, above which the offset rate drops to the company tax rate only.
What the Proposed 2028 Reforms Mean for the Offset Rate
The 2026–27 Federal Budget, announced on 12 May 2026, proposed significant changes to the R&DTI. The headline proposals include a 4.5 percentage point increase in the R&D tax offset rate for core R&D activities, a rise in the refundable offset turnover threshold from $20 million to $50 million, the removal of “supporting” R&D activities from offset eligibility, and a new restriction limiting refundability to a company’s first 10 years of operation.
These reforms are proposed, not legislated. The ATO states expressly that this measure is not yet law, and the changes would not take effect until 1 July 2028 at the earliest. The current rules apply in full until then, though the proposed direction reflects the Government’s intent to concentrate R&DTI support where it contributes most to economic growth. Your R&D tax advisor can help you understand what the proposed changes may mean for your specific position once the final legislation is settled.
Where R&D Finance Fits In
For companies eligible for the refundable R&D tax offset, the cash refund from the ATO is a known asset, but you can’t access the R&D tax rebate until well after lodgment. That gap between spending on eligible R&D and receiving the refund can stretch past 12 months.
R&D Tax Incentive financing bridges that timing gap. At Rocking Horse Group, we provide loans secured against eligible R&D expenditure your company has already incurred during the current financial year, confirmed by a comfort letter from your R&D tax consultant. The refundable offset is the underlying asset, and our funding gives you access to up to 80% of your expected rebate before the ATO pays out. No equity dilution, no personal guarantees, and no restrictions on how the funds are used. When the rebate arrives, it settles the loan automatically.
If your business is conducting eligible R&D and you’d rather deploy that capital now than wait, check whether you qualify.
