The 2026 Australian federal budget introduces significant changes to the Research and Development Tax Incentive (RDTI), boosting support for startups and scaleups by increasing caps and expanding eligibility thresholds set to take effect from July 1, 2028.
- R&D expenditure cap increased to $200 million from $150 million
- Refundable offset eligibility raised to $50 million turnover businesses
- Minimum R&D claim threshold lifted, with new rules for smaller projects
What happened
The Australian federal budget for 2026 has outlined a series of reforms to the Research and Development Tax Incentive program that will come into effect from July 1, 2028. Key changes include raising the cap on eligible R&D expenditures from $150 million to $200 million, representing a moderate increase but falling short of industry calls to remove the cap entirely. The turnover threshold for startups and scaleups able to access refundable tax offsets is also being raised from $20 million to $50 million, allowing growing companies to benefit from these incentives for a longer period.
In addition to these headline measures, the government is increasing the minimum threshold for R&D expenditure claims from $20,000 to $50,000. For projects with research activities valued below this amount, eligibility will require engagement with registered Research Service Providers or Cooperative Research Centres. These adjustments aim to better target the incentives, simplify access, and promote higher-impact research activities within the startup ecosystem.
Why it matters
These reforms reflect a strategic move to support innovation-led growth in Australian startups by enhancing financial incentives tied to R&D activities. Increasing caps and thresholds helps startups scale more sustainably by retaining access to refundable tax offsets as they grow, which addresses a critical funding barrier in early-stage and expanding firms. More straightforward eligibility and targeting can reduce administrative overhead, ensuring government resources support projects with greater potential impact.
The changes also signal recognition of the evolving startup landscape and the need to refine policies in line with real-world challenges and ambitions. However, industry stakeholders have noted that while progress is evident, the partial increase in caps does not fully align with recommendations from some leading figures who advocate for more radical reform including the removal of caps. Additionally, upcoming consultations on capital gains tax interactions with these incentives underscore ongoing efforts to optimize Australia’s innovation tax environment comprehensively.
What to watch next
Starting in mid-2028, startups and scaleups will need to navigate the updated RDTI criteria, including new expenditure thresholds and requirements around collaboration with registered research entities for smaller claims. Monitoring how these changes influence startup funding strategies and R&D investment decisions will be essential for both entrepreneurs and investors, as the reforms may reshape the early growth funding landscape.
Meanwhile, the government’s planned consultation on capital gains tax reforms will be closely watched by the startup community. Changes to capital gains tax treatment could significantly impact investor returns and overall startup viability, potentially affecting where capital and talent choose to focus. Stakeholders should be prepared to engage in these consultations to help shape policies that maintain Australia’s competitiveness in attracting innovation capital.