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Guide

The R&D intensity premium for larger companies, explained

A step-by-step guide for larger Australian companies on how the R&D intensity premium works, from calculating your intensity to applying the two-tier

TGThe GrantsMAX Team
12 minutes read

If you run an Australian business with aggregated turnover of $20 million or more, the way you claim the R&D Tax Incentive is different from smaller, loss‑making startups. For larger companies the offset is non‑refundable and the rate you receive is not a flat percentage, it is tied directly to your R&D intensity. The more you spend on eligible R&D as a proportion of your total business expenditure, the higher the offset rate on each dollar of qualifying R&D spend. This article walks through exactly how the intensity premium works, step by step, so you can understand what to expect before you sit down with your registered tax agent. It is general information only, not tax, financial or legal advice, and you should always confirm the current rates, thresholds and your own position with a tax professional, because rules can change from one income year to the next.

Prerequisites: what you need to have in place before you start

  • AusIndustry registration. Your R&D activities must be registered with AusIndustry within 10 months of the end of the income year. Without a valid registration, you cannot claim the offset. You can read more about the registration process on the Department of Industry, Science and Resources website, the relevant page is business.gov.au's overview of the R&D Tax Incentive.
  • Eligible R&D activities identified. You need a clear picture of your core R&D activities (experimental activities whose outcome cannot be known in advance) and supporting R&D activities directly related to them. GrantsMAX can help you assess eligibility and flag risk areas before your accountant gets involved, because the Eligibility Assessment & Risk Flags feature reads your own accounting data and highlights where a reviewer is likely to look.
  • Reliable cost tracking. To calculate intensity you must know your eligible R&D expenditure (labour, materials, overheads etc.) and your total business expenditure for the same period. Your Xero, MYOB or QuickBooks data, which GrantsMAX connects to on a read‑only basis, feeds directly into the Grant & R&D Discovery and Matching module, so the numbers that underpin your intensity calculation are drawn from actual transactions.
  • A registered tax agent on board. For larger companies the offset is claimed in your company tax return. A registered tax agent reviews the R&D schedule, ensures the numbers are right, and lodges the return. The Accountant Review & Lodge Workflow inside GrantsMAX hands a complete, evidence‑backed pack to your accountant in a shared workspace; the accountant then refines and lodges, and the business owns the claim.

Step 1: Determine if you are a “larger company” for R&D tax purposes

For the R&D Tax Incentive, the dividing line is aggregated turnover of $20 million or more. This is the same aggregated turnover concept used elsewhere in the tax law, it includes the turnover of entities connected or affiliated with you. If your aggregated turnover is below $20 million, you are in the refundable world where the offset can generate a cash refund even if you are in a tax loss position. Above that threshold, the offset is non‑refundable and the intensity premium applies.

Take care here: the $20 million test is not your accounting revenue; it includes all ordinary income of the group and any income that would be ordinary income if it were derived by a taxpayer. The ATO provides detailed guidance on aggregated turnover (see the ATO’s R&D Tax Incentive page). If you are unsure, your accountant will work this out.

Pro tip: Even if your standalone company has turnover below $20 million but you are part of a larger group, you may still be caught by the aggregated turnover rule. Always check the group position.

Important: The Government has announced a proposed change (not yet law) that would lift the refundable‑offset turnover threshold from $20 million to $50 million from 1 July 2024. This means that some companies currently in the non‑refundable camp could become eligible for a refundable offset in future years if the legislation passes. Keep an eye on updates from Treasury and talk to your accountant about how the potential reform might affect your planning. The GrantsMAX for growing companies page discusses how the 2026 reform could change the landscape for businesses approaching that turnover band.

Step 2: Understand the mechanics of a non‑refundable R&D tax offset

A non‑refundable offset reduces the tax you pay on your taxable income. If the offset exceeds your income tax liability for the year, you do not receive a cash refund. The excess is usually carried forward and can be used in a future year (subject to certain conditions). This is a fundamental difference from the refundable offset available to smaller entities, which can produce a cash payment from the ATO.

Because the offset is non‑refundable, the real value you get depends on your tax position. A profitable large company will typically receive the full benefit as a dollar‑for‑dollar reduction in taxes payable. A company in a loss position may not be able to use the offset immediately, though the carried‑forward amount can still be valuable later, but it does not provide an immediate cash injection.

Warning: The offset cannot be used to reduce tax beyond zero. Do not plan on a cash refund unless you have been advised that you fall below the $20 million aggregated turnover threshold (or the proposed $50 million threshold if enacted).

Step 3: Calculate your R&D intensity

R&D intensity is the percentage that determines how much premium applies to your eligible R&D expenditure. The formula is straightforward:

R&D intensity = (Eligible R&D expenditure ÷ Total business expenditure) × 100

The calculation period is generally the income year for which you are claiming the offset.

Eligible R&D expenditure includes:

  • Salary and wage costs for employees directly engaged in R&D activities
  • Contract expenditure for R&D activities undertaken by an approved research institute
  • Proportionate overheads and consumables directly linked to R&D
  • Depreciation of assets used for R&D

The ATO and AusIndustry jointly administer the rules on what counts as eligible expenditure. For a detailed breakdown, you can refer to guides like the Hall Chadwick R&D Tax Incentive Guide or the Bridgepoint Group’s practical explanation.

Total business expenditure is a broader measure: it includes all expenditure incurred in deriving assessable income, as well as other expenditure that is not capital in nature. It is not simply your total expenses per your profit and loss statement; certain items are excluded and some capital expenditure may be included. Your accountant will calculate this number precisely, but having clean data in your accounting system makes the job far easier. GrantsMAX pulls cost information directly from your Xero, MYOB or QuickBooks files and maps it to R&D categories, giving you a preliminary read on your likely intensity before your accountant refines it.

Pro tip: Many businesses underestimate their total business expenditure, which inflates the intensity ratio and can lead to an incorrect premium claim. A low intensity might mean you miss the 16.5% tier, while an overstated intensity can attract ATO scrutiny. Always validate the denominator with your accountant.

Step 4: Apply the two‑tier intensity premium rates

Once you have an R&D intensity percentage, the offset rate on each dollar of eligible R&D expenditure is determined using two tiers:

  1. Standard premium (8.5%), applies to eligible R&D expenditure that pushes your intensity up to the first 2%.
  2. Enhanced premium (16.5%), applies to eligible R&D expenditure above the 2% intensity line.

As explained on the business.gov.au overview, the total offset amount for a larger company is therefore:

  • (Company tax rate + 8.5%) × eligible R&D expenditure up to the point where intensity reaches 2%
  • PLUS (company tax rate + 16.5%) × eligible R&D expenditure above the 2% intensity threshold

The company tax rate depends on your entity type and turnover. For the 2023‑24 income year, the full company tax rate is 30% while the base rate entity rate is 25%. A base rate entity must have aggregated turnover below $50 million and 80% or less of its assessable income being passive income. You must confirm the rates that apply to you for the specific income year.

For illustration (all numbers are examples only and should be verified with current legislation): if your company tax rate is 25% and your R&D intensity is exactly 2%, you would receive an offset of 33.5% (25% + 8.5%) on all eligible R&D expenditure. If your intensity is 4%, you would receive 33.5% on the expenditure that brings you to 2% intensity, and 41.5% (25% + 16.5%) on the expenditure above that. This tiered structure means that every extra dollar of R&D spent above the 2% threshold earns a significantly higher offset, encouraging deeper R&D commitment.

Several external advisors have published worked examples. Hall Chadwick’s guide walks through a calculation for a company with an intensity of 3.5%, and Prime Financial’s blog post contrasts refundable and non‑refundable outcomes. The Bridgepoint Group article breaks the premium into clear tiers with sample numbers.

Warning: The premium rates are set in legislation and can change. Always check with your registered tax agent and the ATO’s R&D Tax Incentive page for the year in question.

Step 5: Work through a practical calculation

Let’s imagine a larger Australian company with a 25% tax rate, $10 million in total business expenditure, and $0.4 million in eligible R&D expenditure.

  1. Calculate intensity: ($0.4m ÷ $10m) × 100 = 4%.
  2. Determine the amount of R&D spend up to the 2% intensity threshold: 2% × $10m = $0.2 million.
  3. R&D spend above the threshold: $0.4m-$0.2m = $0.2 million.
  4. Apply premiums:
    • First $0.2m offset rate: 25% + 8.5% = 33.5%. Offset = $67,000.
    • Remaining $0.2m offset rate: 25% + 16.5% = 41.5%. Offset = $83,000.
  5. Total non‑refundable offset: $150,000.

This offset would reduce the company’s tax payable by $150,000 as long as its tax liability before the offset is at least that amount. If the liability were only $100,000, the unused $50,000 would be carried forward (subject to the same tax position in future years).

Caution: The calculation is simplified. In practice, you must consider R&D expenditure that may not be fully deductible, interaction with other tax offsets, and the ordering rules in the tax return. The numbers are for illustration only; do not use them as a substitute for professional advice.

Pro tip: If your company is approaching the 2% intensity line, even a modest increase in R&D spend can move you into the higher premium tier and generate a meaningful offset uplift. However, R&D spend must be genuine and substantiated, chasing intensity just for the premium can invite ATO review. The value of the premium is a reward for deep R&D commitment, not a target to game.

Step 6: Claiming the offset and supporting your claim

For larger companies, the R&D claim is lodged as part of your company tax return. The steps broadly are:

  • Compile your R&D schedule. You must identify each R&D project, describe the activities, and allocate expenditure. The AI Application Pack Drafting feature in GrantsMAX produces a narrative and cost schedule from your data, ready for your accountant to review.
  • Prepare contemporaneous records. The ATO expects evidence that shows the R&D activities actually occurred and the costs were incurred. This can include timesheets, technical reports, emails, and invoices. GrantsMAX builds an Audit‑Ready Evidence Trail that ties each cost line and activity to its source.
  • Lodge with your accountant. A registered tax agent must review the R&D schedule before it is lodged. The Accountant Review & Lodge Workflow lets your accountant work inside a shared workspace, make refinements, and lodge directly from the platform. The business owns the claim at all times.
  • Monitor for ATO review. Larger claims are regularly reviewed. If the ATO asks for further information, having a structured evidence index makes responding far easier. GrantsMAX’s evidence trail is designed to give your accountant the documentation they need to present a clear, defensible claim.

Important: The non‑refundable offset must be carried forward if it cannot be used in the current year. Your accountant will track any carried‑forward amounts in your tax returns. The ATO publishes detailed guidance on carrying forward non‑refundable R&D tax offsets; consult the ATO’s R&D Tax Incentive page for the current rules.

Step 7: Accountant role and division of responsibility

It is worth repeating: GrantsMAX is not a registered tax agent and does not lodge claims. The platform prepares a complete, evidence‑backed application pack from your own data, but a registered tax agent is always responsible for reviewing that pack, refining it if needed, and lodging. The business remains the claimant.

This division is particularly important for larger companies, where the intensity premium involves complex calculations, group structures, and interactions with other parts of the tax law. By providing a well‑structured pack that an accountant can quickly assess, GrantsMAX reduces the manual effort, but the professional judgement and lodgement sit squarely with the accountant. If you’re a firm that advises multiple clients, the Annual Refresh & Accountant Channel allows you to white‑label the process and run it across a whole client base each financial year.

If you are a larger company used to working with a Big 4 or boutique R&D consultant, you might be curious how GrantsMAX compares. The GrantsMAX vs Big‑four advisory page explains the trade‑offs: large advisory firms bring deep expertise but at a premium cost and with long timelines, while GrantsMAX drafts packs from your data in hours and hands them to your existing accountant. For a broader comparison across the market, see the Compare page.

Special considerations: intensity premium and the proposed 2026 reform

The Government has announced its intention to increase the refundable‑offset turnover threshold from $20 million to $50 million. If passed, this would move some larger companies out of the non‑refundable camp and into a refundable regime, potentially altering the value of the intensity premium. However, until the legislation is enacted, the current law remains in place. Do not make business decisions based on proposed changes without professional advice.

The intensity premium itself is not going away, it remains a key feature of the incentive for companies above the relevant threshold. If your business grows past $20 million (or $50 million once legislated), the shift from a refundable to a non‑refundable offset changes your cash‑flow profile, and the intensity premium becomes critical for maximising the benefit.

Pro tips, common pitfalls, and warnings

  • Pitfall: Using a total business expenditure number that is too low overstates intensity. The ATO may review claims where intensity appears unusually high relative to the industry. Solution: let your accountant calculate the denominator rigorously.
  • Pitfall: Treating all expenditure as eligible R&D expenditure when it does not meet the legislative tests. Only activities registered with AusIndustry and meeting the definition of core or supporting R&D activities count. The Eligibility Assessment & Risk Flags feature helps you spot areas a reviewer would scrutinise.
  • Pitfall: Assuming the offset will generate a cash refund. The non‑refundable offset can only reduce tax to zero. If your company is in a loss position, the offset may not provide an immediate cash benefit.
  • Pro tip: If your R&D intensity is close to 2%, review your total business expenditure carefully. A small adjustment in the denominator could shift you into the higher premium tier, but only if the numbers are correct.
  • Warning: Do not artificially inflate R&D expenditure to chase the premium. The ATO looks for “uncommercial” behaviour and may deny the claim and apply penalties. R&D activities must be genuine and conducted in a systematic way.
  • Pro tip: Because the premium rates are tied to the company tax rate, changes to the corporate tax rate (for example, if a future Government reduces the base rate entity rate) will directly affect your R&D offset. Keep in touch with your accountant to model the impact.

Summary and key takeaways

  • Larger companies with aggregated turnover of $20m+ receive a non‑refundable R&D tax offset with a two‑tier intensity premium.
  • The standard premium is 8.5% on R&D expenditure up to an intensity of 2%, and the enhanced premium is 16.5% on expenditure above that level, as documented on business.gov.au and the ATO website.
  • Your R&D intensity is calculated as eligible R&D expenditure divided by total business expenditure, get that right, and you can quantify the offset uplift.
  • The offset is not a cash refund; it can only reduce tax payable. Any unused offset may be carried forward to a later year.
  • A registered tax agent must review and lodge your claim. The business remains the owner of the claim.
  • The proposed 2026 change to the refundable‑offset threshold is not yet law; plan based on current rules and stay informed.

Understanding the intensity premium puts you in a stronger position to talk to your accountant about your R&D planning. If you want a system that pulls your numbers together, maps them to eligibility rules, and drafts a complete pack so your accountant can focus on review and lodgement, GrantsMAX is built for exactly that workflow.

Ready to see how it works? Join the GrantsMAX waitlist and be among the first Australian businesses to use an AI grant agent that connects to your own data and prepares evidence‑backed packs, reviewed and lodged by your registered tax agent.