Aggregated turnover and the R&D Tax Incentive: why the threshold matters

Aggregated turnover is not just a figure your accountant pulls from your tax return. For any Australian business considering the Research and Development Tax Incentive, it is the number that decides whether you may receive a cash refund, or a tax offset carried forward. In this guide we walk through what aggregated turnover means for the R&D Tax Incentive, how it is calculated under Australian law, and why the threshold matters. This is general information only, not tax, financial, or legal advice. Always confirm your position with a registered tax agent before acting.

Pre-requisites: what you need before you start

Before you work through the mechanics of aggregated turnover, a few things should already be in place.

• You need a clear picture of your entity’s structure, company, trust, partnership, or sole trader. The R&D Tax Incentive is available to entities incorporated in Australia or foreign entities that are Australian residents for tax purposes and carry on R&D activities through a permanent establishment here.
• Your financial records for the income year must be substantially complete. Work from your accounting software, Xero, MYOB, QuickBooks, or from management accounts prepared by your bookkeeper.
• You should understand the basics of the R&D Tax Incentive. If you are new to the incentive, start with What is the R&D Tax Incentive? A plain-English guide for Australian businesses.
• You need to know whether your R&D activities and expenditure will pass the eligibility tests administered by AusIndustry and the ATO. GrantsMAX can assess your eligibility from your own accounting data, flag risk areas, and prepare a pack for your accountant to review and lodge. But you must still verify every conclusion with a registered tax agent.

Step 1: Understand what aggregated turnover is

Aggregated turnover is defined in the Income Tax Assessment Act 1997 (Cth). It is the sum of your entity’s “annual turnover” (ordinary and statutory income) and the annual turnovers of any entity that is “connected with” or an “affiliate” of your entity. The ATO’s grouping guidance explains the control rules in detail. The concept matters because for the R&D Tax Incentive, your aggregated turnover sets the threshold that determines the nature of your tax offset.

Ordinary income includes sales, fees, and other revenue from everyday operations. Statutory income captures items like capital gains, royalties, and certain government grants. When you add yours to the incomes of connected entities and affiliates, you get the aggregated turnover for the income year.

Why aggregated, not just your own turnover?

The Government deliberately uses aggregated turnover to prevent large groups from splitting into smaller entities to access refundable offsets that were designed for genuinely smaller businesses. The law therefore looks through corporate structures to the economic group.

Step 2: Determine your entity’s ordinary and statutory income

Start with your own numbers. Pull the income figures from your financial statements for the relevant income year. Do not simply grab the “total revenue” line from your profit and loss, some revenue items may be excluded under the definition, and statutory income must be added. For most trading companies, ordinary income will be the main component, but if you have sold IP, received royalties, or realised capital gains, a tax agent can confirm what counts.

Pro tip 🔎

The definition of “annual turnover” for aggregation purposes is not identical to “assessable income”. You exclude certain receipts like input-taxed supplies and GST, and you may need to apply specific adjustments. A registered tax agent or accountant who handles R&D claims will normally perform this step. Do not rely on your MYOB or Xero trial balance without professional verification.

Step 3: Identify connected entities and affiliates

This is where aggregation becomes complex. The ATO divides relationships into two categories: connected entities and affiliates. Together, they form the “group” for the aggregated turnover calculation.

• Connected entities: These are entities that have a majority voting interest, a right to receive a majority of any distribution of income or capital, or a control relationship defined under the Income Tax Assessment Act 1997. In a typical group, a parent company and its wholly-owned subsidiaries are connected entities.
• Affiliates: An entity is an affiliate of yours if it acts, or could reasonably be expected to act, in accordance with your directions or wishes, or in concert with you. Family trusts, common directors, and overlapping shareholdings can create affiliate relationships even when formal control percentages are below the connected-entity threshold.

The ATO’s aggregated turnover page sets out the detailed control tests. For many small and medium businesses, the analysis will be straightforward: the R&D entity plus any subsidiaries, and possibly a related trust that operates the same enterprise. But for groups with multiple shareholders, joint ventures, or complex family arrangements, the exercise can be nuanced.

Warning ⚠️

Ignoring connected entities is a common mistake. Even if the R&D entity has turnover of $15 million, a connected entity with $10 million of turnover pushes the group above the $20 million threshold. The ATO can review your aggregation, and getting it wrong may lead to a denied refundable offset or penalties. Always have the grouping analysis checked by a registered tax agent.

PwC Australia has published a detailed explanation of the connected entity and affiliate rules that illustrates when an affiliate relationship can exist even without a controlling equity stake. Grant Thornton also provides a practical article on aggregated turnover and the $20 million threshold.

Step 4: Calculate the aggregated turnover for the income year

Once you have identified the group entities, you sum the annual turnovers for the income year. Where an entity is fully-owned, include 100% of its turnover. For affiliates, include only the proportion that reflects the affiliate relationship. Special ordering rules apply if the same entity is both a connected entity and an affiliate, the connected entity rule usually prevails, but your tax agent can navigate the hierarchy.

The calculation is typically done on an income-year basis, not a rolling average. This means a one-off large transaction (such as the sale of a subsidiary) could spike aggregated turnover in a single year and temporarily shift your entity above the threshold, with significant consequences for that year’s R&D claim.

The product of this step is a single dollar figure: your aggregated turnover. Compare it to the legislated threshold for the income year.

Step 5: Compare aggregated turnover to the $20 million threshold (and note the proposed $50 million change)

For income years commencing on or after 1 July 2021, the threshold that matters for refundability is $20 million. Entities with aggregated turnover of less than $20 million may be entitled to a refundable R&D tax offset. Entities with aggregated turnover of $20 million or more generally receive a non-refundable offset, subject to the R&D intensity rules discussed in Step 7.

The business.gov.au overview of the R&D Tax Incentive confirms the current threshold and rates. The OECD’s INNOTAX summary also outlines the threshold structure for international comparison.

Proposed reform: the $50 million threshold 🚧

In the 2025-26 Budget, the Government announced an intention to increase the refundable offset turnover threshold from $20 million to $50 million for income years starting on or after 1 July 2026. At the time of writing, legislation has not been enacted. This is an announced policy, not current law. Before you plan your claim around a higher threshold, confirm with a registered tax agent whether the law has changed. Do not assume the amendment will proceed as proposed.

If the reform is enacted, it would extend refundable treatment to many more R&D-active businesses. GrantsMAX has published a summary for growing companies that explains what the change could mean in practice, but again, the law is not yet changed. You should not rely on an announced measure when preparing a claim for the current income year.

Step 6: Understand refundable vs non-refundable offset treatment

The most important consequence of your aggregated turnover is the nature of the tax offset you may receive.

Refundable offset (aggregated turnover below $20 million)

If your aggregated turnover is below the threshold, the R&D tax offset is a refundable tax offset. In simple terms, the offset reduces your tax liability, and any excess is refunded to you in cash. This is particularly valuable for pre-revenue or loss-making companies undertaking eligible R&D.

The current refundable offset rate is the company tax rate (25% or 30%, depending on your aggregated turnover) plus an 18.5% premium. For a base rate entity (aggregated turnover under $50 million and passive income test), this yields a 43.5% offset. For other entities, it is 48.5%. These rates are set out on the ATO website and should be verified for the income year you are claiming.

Non-refundable offset (aggregated turnover $20 million or more)

If your aggregated turnover is at or above the threshold, the R&D tax offset is non-refundable. It can reduce your tax liability to zero, but you do not receive a cash refund for any leftover amount. For many large companies, this remains a valuable benefit, but it does not provide the same immediate cash flow support that a refundable offset delivers for smaller players.

The current non-refundable offset rate is the company tax rate plus an 8.5% premium (for R&D expenditure up to a certain intensity, as discussed in Step 7). Again, you must check the ATO’s current rates.

A KPMG Australia update discusses the rate structure and how the threshold interacts with eligibility for larger entities. Holding Redlich’s guide also covers the offset rates and the importance of aggregated turnover.

Pro tip 💡

Because the threshold applies on an income-year basis, it is possible for a business to be eligible for a refundable offset one year and a non-refundable offset the next, simply because aggregated turnover moved above $20 million. Do not assume your treatment will be the same every year. Many advisors recommend running a provisional aggregated turnover calculation well before year-end so you can model the cash-flow impact and discuss timing of R&D expenditure with your tax agent.

Step 7: Check the R&D intensity rules for entities above the threshold

For non-refundable offset entities (aggregated turnover $20 million or more), the rate tier is not uniform. The premium component (currently 8.5%) applies to R&D expenditure up to an R&D intensity of 2% of total business expenses. Expenditure beyond that intensity may attract a higher premium, and for very high intensity, additional rates can apply. These rules were introduced to encourage large businesses to increase their R&D investment relative to their size.

Calculating R&D intensity requires you to divide your eligible R&D expenditure by your total expenses (as defined). This is separate from the aggregated turnover calculation but follows from it. The ATO and AusIndustry provide detailed guidance; you should not attempt to self-assess intensity without professional support.

How GrantsMAX fits into the picture

GrantsMAX is an AI grant agent that connects to your accounting data (read-only) and maps your business activity against the R&D Tax Incentive and other government grants. It does not lodge or guarantee a claim, what it does is prepare an evidence-backed application pack from your own data, including narrative, expenditure schedules, and supporting documentation. A registered tax agent or accountant then reviews, refines, and lodges the claim with the ATO and (where required) AusIndustry. The business always owns the claim.

If you are a founder, CFO, or accountant and the aggregated turnover exercise feels daunting, GrantsMAX can help by automatically pulling your financial data and grouping structures to give you a clear picture of what you may be eligible for. It then prepares a pack that your accountant can lodge at a fraction of traditional consultant fees. You can see how it compares to legacy R&D consultants here.

For first-time claimants, the process can be especially opaque. GrantsMAX for first-time claimants shows how the platform demystifies the steps, including the turnover threshold analysis. For small businesses without a dedicated finance team, GrantsMAX for small businesses reads your Xero or QuickBooks data and surfaces what you may be eligible for, so funding is within reach.

Accounting firms that manage multiple client claims can use the Accountant Channel to white-label the workflow and refresh claims annually from the latest data.

Common pitfalls in aggregated turnover calculations

Even experienced finance teams sometimes stumble on these points. Watch for them.

• Missing an affiliate when a director’s family trust runs a trading business with significant revenue. The trust may be an affiliate if the director can direct its actions.
• Using accounting profit rather than “annual turnover” as defined in tax law. Write-offs, revaluations, and non-revenue items can create confusion.
• Forgetting statutory income such as royalties or gains that are included in turnover for aggregation purposes.
• Applying the wrong income year when a group has different balance dates. The ATO’s grouping pages detail the ordering rules.
• Assuming the $50 million threshold is already law. Until the legislation passes, the $20 million threshold remains in effect. Always check with your tax agent.

Key takeaways

• Aggregated turnover is the gatekeeper for refundable vs non-refundable treatment. Under current law (as of publication), the threshold is $20 million. A proposed increase to $50 million for income years from 2026-27 has been announced but not enacted.
• Aggregation includes your entity and all connected entities and affiliates. You must apply the control tests in the Income Tax Assessment Act 1997 and the ATO’s guidance.
• The calculation is done for each income year. A spike in revenue from a one-off event can flip your offset character and materially change your cash position.
• A refundable offset means cash in hand; a non-refundable offset reduces tax but yields no refund. This distinction can be critical for cash-flow planning.
• R&D intensity rules apply to larger entities, adding another layer of complexity once you are above the threshold.
• You must never self-assess the final position. This is general information only. A registered tax agent must review your calculation and confirm the offset type and rate before you lodge.

Next step for your business

Understanding aggregated turnover is only the beginning. The R&D Tax Incentive, the EMDG export grant, and state innovation programs all have their own rules and deadlines. GrantsMAX reads your accounting data, discovers what you may be eligible for, and prepares a complete, evidence-backed pack that your accountant can review and lodge.

If you would like to see what your business may be eligible for, at a fraction of legacy consultant fees, join the GrantsMAX waitlist today. We will keep you updated as the product rolls out to new users.

Information correct at time of writing. Always check current rates and thresholds on the ATO website (ato.gov.au) and business.gov.au, and confirm any R&D claim with a registered tax agent before lodging.