R&D Tax Incentive for Software Startups (AU)

Last updated: 27 September 2026

At the time of writing (September 2026), an Australian software startup with turnover under $20 million can claim a refundable R&D tax offset equal to its corporate tax rate plus an 18.5% premium, if it spends at least $20,000 on eligible R&D and registers within 10 months of the end of the income year. Only genuinely experimental work counts as core R&D, and R&D done overseas, including by an offshore development team, is claimable only in narrow circumstances.

This is general information, not tax or financial advice. Speak to a registered adviser about your situation.

How the offset works

The R&D Tax Incentive (R&DTI) gives you a tax offset on eligible R&D spending. According to business.gov.au, the offset is built from your corporate tax rate plus a premium, and which version you get depends on your turnover.

If your turnover is under $20 million, the refundable offset is the one that applies to you. As an illustration only: if your company's tax rate were 25%, the offset would be 25% + 18.5% = 43.5% of eligible spend. Confirm your company's actual tax rate with your adviser.

There is also a ceiling. For R&D expenditure above $150 million, business.gov.au says the offset equals your company tax rate, "meaning you may not get any further tax benefit".

The $20,000 minimum and its exception

Your R&D expenditure for the income year must be at least $20,000. The threshold does not apply if you use a research service provider to conduct your R&D, or if you contribute to the Cooperative Research Centres Program.

If your eligible spend for the year is below $20,000 and neither exception applies, you can't claim the offset for that year.

Core versus supporting R&D activities

The program splits eligible work into two kinds.

• Core R&D activities are "experimental activities that are conducted to generate new knowledge" where the outcome "cannot be known or determined in advance" and "can only be determined by applying a systematic progression of work (hypothesis, experiment, observation, evaluation, logical conclusions)".
• Supporting R&D activities are "directly related to a core R&D activity". If an activity is excluded from being core R&D, or produces or directly relates to producing goods or services, it must be done "for the dominant purpose of supporting a core R&D activity".

In short, you need a real technical unknown first. Supporting work only counts because it serves that core experiment.

What the software guidance says

The government publishes a software development sector guide. Its key points for founders:

When software work can be core R&D

Core R&D "may occur when you encounter a specific technical hurdle that stops you progressing the work because no existing knowledge, method, or solution can resolve it, even for experienced professionals". The guide gives two examples of where this may happen: adding a new functionality to an application, or integrating a new AI agent into a platform.

What is usually routine

The guide lists work that is "unlikely to be eligible as core R&D activities", though it "may be eligible as supporting R&D activities":

• applying documented configuration options with known outcomes
• integrating third-party services or APIs by following vendor documentation
• assembling user interfaces using known components, style guides or frontend frameworks
• building a dashboard using established design and development patterns
• migrating data between systems using known tools

Complex or new to market is not enough

The guide warns that software work may be "technically complex, have implementation challenges or be commercially novel" and still involve "applying existing knowledge, techniques, tools and established practices". Being first to market with an idea does not, on its own, make the build R&D.

Your methodology doesn't decide it

"Applying a particular software development methodology does not, by itself, make an activity eligible or ineligible." Working in agile sprints neither helps nor hurts.

Internal admin software is excluded

Software developed, modified or customised for the dominant purpose of internal administration by the developer, a connected entity or an affiliate is excluded.

Registration and deadlines

Two agencies run the program. The Department of Industry, Science and Resources registers R&D activities, and the ATO processes the expenditure claims.

• Deadline: "You must apply for the R&DTI within 10 months of the end of the income year in which your R&D activities took place."
• Late registration: you can ask the department for an extension of time, but it isn't automatic.
• Registration isn't approval: the confirmation you receive "does not mean your activities are eligible". The program works on self-assessment, so the responsibility stays with you.
• Want certainty first? An advance finding is a legally binding decision on whether your activities are eligible, made before you register. It can be valid for up to three years from the income year you apply, and processing takes around 90 days.

Record keeping

According to business.gov.au, "records should be created at the time the activity is conducted", and you must keep them "for 5 years after claiming your expenditure". Rebuilding a year of experiments at tax time is hard, so start keeping records from day one.

The software guide says "it is the content of the records, rather than the format in which they are kept, that is important". It gives examples that fit a normal development workflow:

• spike tickets or investigation tasks
• design notes and architecture decision records
• issue-tracking systems and digital boards
• emails, chat messages and saved Q&A threads
• test plans and outputs, logs and performance graphs
• technical reports and workshop notes

Good records capture the hypothesis, what you tried, what happened and what you concluded.

R&D done overseas

This is the part of the program most likely to catch out founders who build with an offshore team.

To claim expenditure on activities conducted outside Australia, you must have a positive overseas finding. This is a legally binding decision by the Department of Industry, Science and Resources. Even with one in place, you still need to show the expenditure is eligible when you claim with the ATO.

The four conditions

1. The overseas activity is core or supporting R&D.
2. There is a related core R&D activity conducted solely in Australia that cannot be completed without the overseas activity.
3. The overseas activity cannot be conducted solely in Australia because it needs a facility, expertise or equipment not available in Australia; would breach the Biosecurity Act 2015; needs a population of living things not available in Australia; or needs geographical or geological features not available in Australia. business.gov.au states: "Financial reasons are insufficient for an overseas activity to meet this condition."
4. "The total cost of the overseas activities must be less than the related Australian activities."

You also need evidence that you made reasonable efforts to find the resource in Australia, such as recruitment campaigns or expert statements.

Timing

You must apply before the end of the income year in which you conduct, or plan to conduct, the overseas work. The department "cannot accept late applications or grant extensions of time for overseas findings under any circumstances". Processing takes around 90 days, and a finding lasts for the duration of the overseas activities it covers.

What this means if you use an offshore development team

DevForge is an offshore studio based in Ahmedabad, India, so we'll be direct about how these rules affect our clients.

Fees paid to an overseas development team, including DevForge, are generally hard to claim under the R&DTI. A lower price is a financial reason, and financial reasons are insufficient. On top of that, the overseas spend must be less than the related Australian spend, a linked core activity must be done in Australia, and the application must be in before the income year ends.

So please don't choose any offshore provider, us included, on the assumption that you can claim its fees. Price your build as if the offset won't apply to that spend, and get advice from a registered tax adviser before you rely on it.

Whoever builds your product, ask for technical records kept as the work happens: spike tickets, architecture decision records, test results and notes on what was tried and why. That's the kind of material the software guide describes, and it helps your adviser assess any R&D done in Australia.

Proposed changes from 1 July 2028

The Budget 2026–27 announced changes from 1 July 2028. These are proposed, not law. The Treasurer released exposure draft legislation on 11 September 2026, open for consultation until 28 September 2026. As announced, the government plans to:

• increase the offset for experimental core R&D "by around 25 to 50 per cent"
• "replace the offset on supporting R&D activities with a higher offset for core activities", according to business.gov.au. If much of your eligible work is supporting R&D, check how this affects you.
• raise the turnover threshold for the refundable offset to $50 million
• limit refundability, generally, to firms operating for less than 10 years, with biotech and medtech getting access for up to 15 years
• raise the minimum expenditure threshold to $50,000, with R&D below that done through a research service provider or Cooperative Research Centre
• raise the maximum expenditure cap to $200 million
• reduce "the intensity threshold" to 1.5%

The exact new offset rates were not stated on the government pages we reviewed. If your plans run past mid-2028, check the final legislation.

Key takeaways

• Under $20 million turnover, the offset is refundable: corporate tax rate plus 18.5%.
• You need at least $20,000 of eligible spend, unless you use a research service provider or contribute to the CRC Program.
• Register within 10 months of the end of the income year.
• Routine software work is unlikely to be core R&D. You need a genuine technical unknown.
• Keep records as you go, and keep them for 5 years.
• Overseas R&D needs a positive overseas finding, and you must apply before the end of the income year. Cost savings don't qualify.
• The 2028 changes are proposed only.

This is general information, not tax or financial advice. Speak to a registered adviser about your situation.

How DevForge can help

DevForge is a founder-led studio that takes Australian founders from idea to MVP in 4 to 8 weeks, and you own 100% of the code and IP. See our MVP development and AI development services, and our guide to what an MVP costs in Australia in 2026.

We give a fixed estimate for phase 1 after a free 30-minute call, and we'll be upfront that fees paid to an offshore team like ours are unlikely to be claimable. Book a free 30-minute call.

Sources

• business.gov.au, "Overview of the R&D Tax Incentive" (no update date shown; read 27 Sep 2026): https://business.gov.au/grants-and-programs/research-and-development-tax-incentive/overview-of-rd-tax-incentive
• business.gov.au, "Check if you are eligible for the R&D Tax Incentive" (no update date shown; read 27 Sep 2026): https://business.gov.au/grants-and-programs/research-and-development-tax-incentive/check-if-you-are-eligible-for-the-randd-tax-incentive
• business.gov.au, "Apply for the R&D Tax Incentive" (no update date shown; read 27 Sep 2026): https://business.gov.au/grants-and-programs/research-and-development-tax-incentive/apply-for-the-randd-tax-incentive
• business.gov.au, "Software development sector guide for the R&D Tax Incentive" (no update date shown; read 27 Sep 2026): https://business.gov.au/grants-and-programs/research-and-development-tax-incentive/sector-guides-for-r-and-d-tax-incentive-applicants/software-development
• business.gov.au, "Records to show eligible R&D activities" (no update date shown; read 27 Sep 2026): https://business.gov.au/grants-and-programs/research-and-development-tax-incentive/assess-if-your-randd-activities-are-eligible/records-to-show-eligibility
• business.gov.au, "Apply for an overseas finding" (no update date shown; read 27 Sep 2026): https://business.gov.au/grants-and-programs/research-and-development-tax-incentive/apply-for-an-overseas-finding
• business.gov.au, "Apply for an advance finding" (no update date shown; read 27 Sep 2026): https://business.gov.au/grants-and-programs/research-and-development-tax-incentive/apply-for-an-advance-finding
• business.gov.au, "What does the Budget mean for your business?", 13 May 2026: https://business.gov.au/news/budget-2026-27
• Australian Government, Budget 2026–27, "Tax reform", May 2026: https://budget.gov.au/content/04-tax-reform.htm
• The Treasurer, media release on exposure draft legislation for tax reforms, 11 Sep 2026: https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/exposure-draft-legislation-tax-reforms-support