R&D conducted overseas: when it can and cannot be claimed

Understanding where your research and development activities happen is not a minor detail for the R&D Tax Incentive. It is one of the first questions AusIndustry and the ATO will ask. The starting point is simple: the R&D activities you claim must be conducted in Australia. That general rule comes from the Income Tax Assessment Act 1997 and the accompanying program guidelines, and it affects every entity that lodges an R&D tax incentive claim.

If your business operates across borders, or you work with overseas researchers, manufacturers, or test facilities, this rule may raise immediate questions. Can any of that work count? The answer is sometimes yes, but only through a formal, pre-approved process called an overseas finding. This guide explains how the exception works, what the Department of Industry, Science and Resources (publisher of business.gov.au) requires, and the practical steps businesses and their registered tax agents should follow before including any overseas expenditure in a claim.

This is general information only and is not tax, financial, or legal advice. The rules around overseas activities change and are interpreted in detail through legislation, ATO rulings, and AusIndustry guidance. Always confirm your position with a registered tax agent or adviser who can review your specific circumstances and the current income year rules before you lodge.

Prerequisites: what you need before you start

Before you work through the overseas R&D rules, make sure you have a reliable picture of the R&D activities your business is conducting and where they are taking place. You will need:

• A clear description of each registered R&D activity, including what it aims to achieve and how you are systematically progressing from hypothesis to experiment to observation.
• A calendar or project log that records when and where the work was performed, especially any work outside Australia.
• Your accounting records that separate expenditure for domestic R&D activities from expenditure for overseas activities. GrantsMAX connects read-only to your accounting data in Xero, MYOB, QuickBooks, Microsoft 365 and Google Workspace, so you can identify and substantiate the costs that may be eligible for different categories of R&D. The secure read‑only connectors never change your data, and they feed into the grant and R&D discovery engine that identifies what you may be eligible for.
• Your AusIndustry registration details and any existing advance or overseas findings.
• Access to a registered tax agent who will be responsible for reviewing and lodging your R&D tax incentive claim. GrantsMAX prepares an evidence‑backed pack from your data; a registered tax agent reviews and lodges, and your business owns the claim.

These prerequisites are important because an overseas finding is never a blanket approval. It relates to specific activities, specific expenditure, and specific tax periods.

Step 1: Start with the general rule

Under the R&D Tax Incentive, eligible expenditure can only be claimed for R&D activities conducted in Australia. This is the baseline position set out by the ATO at ato.gov.au and by the Department of Industry, Science and Resources through business.gov.au. The legislation defines a "body registered under section 27A" that must lodge application forms, and those forms require you to declare which activities are conducted in Australia and which, if any, are conducted overseas.

Why does this rule exist? The policy intent is to build and sustain Australian research capacity. The government wants to encourage high‑value R&D work onshore, supporting local jobs, skills, and knowledge spillovers. Allowing claims for overseas R&D without restraint would undermine that objective, so the program restricts the overseas allowance to a narrow set of circumstances.

Pro tip: Before you even start thinking about an overseas finding, review every R&D activity your business registers and ask: is any work physically taking place outside Australia? This includes anything your employees do while travelling, any subcontracted trials run at an overseas facility, and any collaboration with an overseas incorporated company or university. If the answer is yes, you will likely need an overseas finding.

For most Australian R&D‑active businesses, the work they do in‑house is already in Australia, and the general rule is satisfied without extra steps. Manufacturers trying process improvements, first‑time grant seekers, and exporters often have Australian‑based prototyping, testing, and analysis that clearly meet the onshore requirement. Confirming that is an essential first step.

Step 2: Learn what an overseas finding really covers

An overseas finding is an approval from AusIndustry that a specific R&D activity can be conducted outside Australia and still qualify for the incentive. It is not a generic permit; it covers the activity and the period you apply for. According to AusIndustry guidance at business.gov.au, there are four conditions that must all be met:

1. The overseas activity must have a significant scientific link to an Australian core R&D activity.
2. The overseas activity cannot be conducted in Australia, or can only be conducted in Australia at a prohibitive cost, or requires access to unique populations, facilities, or ecosystems that do not exist in Australia.
3. The overseas activity does not duplicate an activity conducted in Australia and is necessary for the core R&D activity.
4. The overseas activity is not an activity listed as specifically excluded, such as market research or routine testing for quality control.

These conditions are strict and are assessed case by case. For example, if you need to conduct clinical trials on a patient population that is only available in a specific overseas region, or if you require an offshore meteorological facility to test a sensor under conditions you cannot replicate locally, you may be eligible for a finding. But you must demonstrate why the work cannot be done here: a statement such as "we already have a relationship with an overseas lab" is not enough.

Warning: An overseas finding must be obtained before you lodge the R&D tax incentive claim that includes the overseas expenditure. You cannot apply retrospectively. If you lodge without a finding, the ATO may disallow the overseas portion of your claim and potentially penalise the shortfall. The application process can take weeks, so factor this into your planning cycle.

When you engage GrantsMAX to prepare your application pack, the platform organises expenditure by location and activity from your cloud accounting data, using the browser connector if you use Xero, MYOB or QuickBooks. That gives your registered tax agent a clean dataset to help decide whether to seek an overseas finding for any offshore component.

Step 3: Know when you cannot claim overseas R&D at all

Even with an overseas finding, some overseas expenditure is ineligible by law. The ATO spells this out clearly at R&D activities conducted for an associated foreign corporation. If the R&D activity is conducted for an associated foreign corporation, the expenditure cannot be claimed, no matter how compelling the scientific case. An associated foreign corporation is generally a foreign resident entity that is related to your business or where both entities are under common control.

This rule prevents a structure where a foreign parent company directs R&D through an Australian subsidiary and then claims the Australian incentive for work that essentially benefits the overseas group. The ATO will examine control, funding flows, and the ultimate beneficial owner of the resulting IP. If you are a subsidiary of an overseas group and you perform R&D that is sold, licensed, or transferred to a related offshore entity, you may be caught.

There are other common exclusion triggers:

• Market research, business development, and promotional activities are never eligible, whether conducted in Australia or overseas. The legislation explicitly excludes them.
• Routine data collection, compliance testing, and any activity that does not involve a genuine experimental process are not R&D for incentive purposes.
• Expenditure on overseas travel that is not directly attributable to an approved overseas R&D activity is generally ineligible.

These exclusions apply regardless of whether you hold an overseas finding. Taxpayers and their advisers should screen every overseas cost against the ATO and AusIndustry guidance before including it. Bookkeepers who are close to the client data can highlight potential pitfalls early by flagging intercompany charges or travel that might need specific review. When GrantsMAX surfaces that spend from the accounting ledger, the discovery and matching feature helps identify which items fall into high‑risk or ineligible categories.

Step 4: Apply for an overseas finding, step by step

Applying for an overseas finding is a formal process managed by AusIndustry. Here is a typical sequence, though your registered tax agent will guide you through the detail:

a. Confirm your AusIndustry R&D registration first. You must already be registered for the R&D Tax Incentive for the income year in question. Registration is done via the business.gov.au portal and requires you to describe your core R&D activities.

b. Prepare the overseas finding application. Using the AusIndustry form (currently accessed through the customer portal), you will need to:

• Identify the specific core R&D activity to which the overseas activity relates.
• Describe the overseas activity in detail, including locations, timeframes, and personnel.
• Explain how each of the four legislative conditions is met, with evidence. This may include scientific rationale, quotes from Australian suppliers showing unavailability or prohibitive cost, or documentation of the unique overseas facility.
• Provide a cost estimate for the overseas activity. This does not need to be a final audited figure, but it should be a reasonable projection.

c. Submit and wait for a decision. AusIndustry normally issues the finding within 28 days but may request further information. The finding, if granted, will specify the activity, the period covered, and any conditions.

d. Maintain copies. You will need to keep the finding notice with your R&D records for the statutory five‑year retention period.

This process is technical and requires clear articulation of scientific, technical, and factual evidence. While GrantsMAX does not prepare the overseas finding application, it can help by extracting the relevant expenditure data and activity summaries from your cloud accounting and document management systems. Integrations with Microsoft 365, Google Workspace, Box, and Dropbox let you pull supporting documents together quickly.

Pro tip: Apply for an overseas finding as early as possible in the income year. If you wait until after the year ends, you risk delays that could push your R&D tax incentive claim past the lodgement deadline, or create uncertainty that makes it harder for your registered tax agent to certify the return. Some businesses apply for an advance finding for a forward period, which provides greater clarity before significant costs are incurred.

This is not a step to take lightly. Submitting an incomplete or poorly evidenced application can result in a refusal that cannot be appealed through standard merits review, only through limited administrative avenues. Your registered tax agent or an experienced R&D adviser should be involved from the start.

Step 5: Document everything, because the ATO will ask

Substantiation is the backbone of any R&D claim, and overseas activities carry an even higher burden. The ATO expects you to keep records that demonstrate:

• The nature of the overseas activity and how it links to the core R&D activity in Australia.
• The basis for believing the activity could not be performed in Australia.
• Actual expenditure incurred, itemised by activity.
• Contracts, invoices, and correspondence with overseas parties.
• Any agreements about intellectual property ownership and use.

These records must be contemporaneous, meaning they are created at or near the time the activity occurs. Retrospective reconstructions are given less weight. The ATO has published guidance on record keeping for the R&D Tax Incentive, and it applies equally to overseas activities.

Where possible, use your existing systems to capture this data automatically. For example, if your accounting software is linked to GrantsMAX, the platform can pull in tagged transactions and let you annotate them with activity codes and project notes. This helps your registered tax agent review the pack before lodging. The secure connectors ensure the data is read-only, preserving integrity.

Pro tip: Create a dedicated folder (physically or in your cloud drive) for overseas R&D evidence. Store the overseas finding, the application, supporting quotes, emails approving the offshore work, and a log of hours worked. When the ATO conducts a review, having a single organised source will reduce stress and professional fees.

If you are an SMB on cloud accounting, you likely have much of the transactional data already categorised. The extra work is connecting that spend to the R&D activity and the overseas finding. GrantsMAX was built to do exactly that: it reads your accounting data and prepares the initial evidence pack, so your accountant can focus on the judgement calls.

Step 6: Lodge the claim through your registered tax agent

Once you have your overseas finding and all your documentation, the next step is lodging the R&D tax incentive schedule as part of your company tax return. By law, the schedule must be certified by a registered tax agent (or you can self‑certify if certain conditions are met, but most businesses use a registered agent). The tax agent must be satisfied, based on reasonable enquiries, that the activities are eligible and the expenditure is correctly computed.

The agent will:

• Review the overseas finding to ensure it covers all activities claimed.
• Reconcile the expenditure claimed with your financial records.
• Apply the correct offsets (refundable or non‑refundable, depending on your aggregate turnover and entity type).
• Lodge the schedule and tax return electronically through the ATO’s systems.

GrantsMAX does not lodge, guarantee outcomes, or maximise a refund. It prepares an evidence‑backed pack from your own data, which the registered tax agent then reviews, refines, and lodges. The business owns the claim throughout. This division of responsibility is important because it maintains independence and aligns with the Tax Practitioners Board’s requirements for tax agent services.

If the claim is subsequently audited or reviewed by the ATO, the overseas finding will be a key document. Keep it with your tax records and be ready to explain how you met the four conditions. If the ATO believes the overseas activity was not covered by the finding, or that the finding was obtained on incomplete information, the overseas expenditure may be disallowed.

Warning: Do not treat an overseas finding as a one‑time exercise. If the nature or location of your R&D activities changes, you may need to apply for a new finding or amend the existing one. Businesses that scale up from a single pilot to full‑scale trials overseas must check whether their original finding still covers the expanded work. Your registered tax agent can advise on materiality and when a new application is warranted.

Understanding the global R&D landscape

While Australia’s rules require an overseas finding, other countries have their own mechanisms for incentivising domestic R&D. The United Kingdom, for example, provides R&D tax relief for corporation tax qualifying expenditure, but recent reforms restrict the use of overseas subcontractors for the enhanced deduction and R&D expenditure credit. The United States offers a federal Credit for Increasing Research Activities that generally requires the research be performed within the U.S., with limited exceptions for certain energy research or research aboard U.S. flagged vessels.

This international consistency reflects a common policy: governments want to encourage innovation investment inside their borders. The OECD topic page on research, development and innovation collates analysis from many member countries, showing that R&D incentives are regularly calibrated to support local economic activity. According to the latest WIPO World Intellectual Property Indicators 2024, global R&D expenditure continues to concentrate in a few large economies, making the onshore rule a natural expression of national priority.

For Australian businesses, the practical takeaway is that the system expects R&D to be done here unless there is a genuine, demonstrable reason why it cannot. The U.S. Small Business Administration’s guidance on market research might seem distant, but it reinforces a broader principle: businesses should document the rationale for their research decisions, including why a specific location is necessary. That same rigor applies when preparing an overseas finding.

Data from the NSF National Center for Science and Engineering Statistics’ State of U.S. Science and Engineering 2024 report shows how R&D performance is increasingly multinational. Australian businesses that intend to claim the R&D Tax Incentive must be particularly careful when their R&D footprint spans borders, because the ATO will scrutinise any claim that looks like it is shifting the centre of gravity offshore without an approved finding.

Common traps and how to avoid them

Trap 1: Assuming that subcontractor costs overseas are always eligible. Many businesses engage overseas contract research organisations (CROs) for trials, testing, or product development. Without an overseas finding, none of those costs are eligible for the R&D incentive, even if the core R&D activity is registered in Australia. Before engaging an overseas CRO, assess whether the four conditions can be met.

Trap 2: Claiming travel and accommodation as R&D expenditure without linking it to the approved overseas activity. Even if you have an overseas finding, you can only claim expenditure that is directly attributable to the approved R&D activity. General travel, conference attendance, and business development trips are not R&D expenditure. The ATO views this strictly.

Trap 3: Forgetting that the overseas finding expires. Findings are issued for a specific income year or period. If your overseas work spans multiple years, you must hold a finding covering each year. A finding from two years ago does not automatically extend.

Trap 4: Relying on a verbal assurance from AusIndustry. Only a written overseas finding from the department carries legal weight. Informal discussions or pre‑submission advice do not replace a formal finding.

Trap 5: Assuming the overseas activity is eligible because it meets one condition. All four conditions must be satisfied. Meeting three is not enough. Your application must prove each one.

For first‑time claimants, the overseas finding may feel like an administrative obstacle. But it is a protection for your claim. Getting it right up front reduces the risk of a costly ATO challenge later.

Key takeaways and your next step

The rule is clear: R&D must be conducted in Australia to be claimed under the incentive. The overseas finding exception is real but limited. To navigate it successfully, you need to:

• Understand the general rule and apply it to every registered activity.
• Evaluate whether any of the four legislative conditions exist, and if they do, prepare a well‑evidenced application well before the lodgement deadline.
• Never claim expenditure for activities conducted for an associated foreign corporation, market research, or routine testing.
• Keep detailed, contemporaneous records that connect each dollar of overseas spend to the approved finding and the core R&D activity.
• Engage a registered tax agent early, and use tools that help organise your data and evidence.

GrantsMAX was built to make the evidence‑gathering part of this process faster and more accurate. It connects to the accounting and document systems your business already uses, discovers the grants and R&D incentives you may be eligible for, and prepares a complete, evidence‑backed pack for your registered tax agent to review and lodge. You can see how it works and what it costs on our website.

If your business is doing R&D that crosses borders, don’t assume you can claim it, and don’t assume you can’t. Take the time to work through the requirements with a qualified adviser. And if you want to get your data ready for a potential overseas finding or any other government grant, join the GrantsMAX waitlist today.