R&D Tax Incentive and grants: can you use both?

You are growing a business that does genuine research and development. You may have heard about the R&D Tax Incentive and you have likely spotted grants offered by federal, state, or industry bodies. A common question from founders and CFOs is: can you access both, or do you have to choose?

The short answer is that in many cases you can access both, but grants often change the way the R&D Tax Incentive is calculated. The interaction is governed by two important rules: the clawback rule for the non‑refundable offset and the at‑risk rule for the refundable offset. If you do not account for these, you may end up with a smaller benefit than you expected, or worse, a claim adjustment on review.

This article steps through the mechanics so you can assess your position accurately. It is general information only, not tax, financial, or legal advice. The rules have nuance and the numbers change with each income year, so you should always confirm your situation with a registered tax agent before lodging any claim.

Pro tip: GrantsMAX reads your Xero, MYOB, or QuickBooks data and surfaces what you may be eligible for across the R&D Tax Incentive, EMDG, and state innovation grants, then prepares an evidence‑backed pack for your accountant to review and lodge. See how it discovers opportunities.

Prerequisites

Before diving into the steps, make sure you have a working understanding of these concepts.

• The R&D Tax Incentive: a self‑assessment program administered jointly by the ATO and AusIndustry. It provides a tax offset for eligible R&D expenditure. The offset can be refundable or non‑refundable depending on your aggregated turnover and your corporate structure. If you need a refresher, read our plain‑English guide to the R&D Tax Incentive.
• Government grants: one‑off or periodic funding rounds from bodies like the Department of Industry, Science and Resources, state innovation agencies, and Austrade (for EMDG). Grants almost always come with conditions, including how you must account for the grant income and any restrictions on claiming other government support.
• Eligible R&D expenditure: your claim for the R&D Tax Incentive is built on eligible costs such as employee salaries, contractor fees, consumables, and overhead allocations. The ATO publishes detailed guidance on what can be included; the ATO’s R&D Tax Incentive page is the authoritative starting point.
• Your accounting data: the interplay between grant receipts and R&D spending is rarely obvious in a general ledger. GrantsMAX reads your own data to map both, which is why an eligibility assessment powered by your actual numbers changes the conversation.

Step 1: Understand the R&D Tax Incentive and how it works

The R&D Tax Incentive is not a grant. It is a tax offset, meaning it reduces your income tax liability. For some businesses, part of the offset may be refundable, allowing you to receive a cash refund from the ATO if the offset exceeds your tax payable.

Broadly, the program has two tiers:

• Refundable offset: generally available to eligible entities with aggregated turnover below $20 million (as of the 2023‑24 income year, but thresholds can change; confirm the current threshold with the ATO). The company must not be a tax‑exempt entity.
• Non‑refundable offset: available to all other eligible entities. The offset reduces tax payable but cannot generate a refund.

To access either tier, you must:

1. Register R&D activities with AusIndustry within 10 months of the end of your income year (or a further extension if granted).
2. Lodge a company tax return that includes the R&D schedule.

Both the activities and the expenditure must meet the definition of eligible R&D under the Income Tax Assessment Act 1997. The business.gov.au eligibility checker sets out the self‑assessment questions you must work through.

Pro tip: Do not confuse registration with automatic entitlement. AusIndustry registers the activities, but the ATO adjudicates the expenditure. Many claims are adjusted on review because the expenditure cannot be clearly linked to the registered activities. That is why GrantsMAX builds an audit‑ready evidence trail that ties each cost line back to emails, invoices, and timesheets.

Step 2: Understand government grants and their conditions

Government grants come in many shapes: innovation‑specific programs, state‑based rebates, industry matching funds, and export market development grants. A common feature is that the grant agreement will specify what the money can and cannot be spent on, and what you must report back.

From the perspective of the R&D Tax Incentive, the critical question is whether the grant is a "recoupment" of your eligible R&D expenditure or whether it is directed to something else. Many R&D‑adjacent grants are given precisely to support the same activities you might include in your R&D claim. When that happens, the interaction rules apply.

If you are exporting and exploring the EMDG, GrantsMAX can organise the spend from your accounting data and prepare the pack for your accountant to lodge. For technology companies, the overlap between a development grant and an R&D claim is common; we help technology companies draft a defensible narrative from their data.

Step 3: The clawback rule-how grants reduce R&D expenditure

The first interaction to understand is the clawback rule. The Income Tax Assessment Act 1997 requires you to reduce the amount of eligible R&D expenditure you can claim for a project if you have received a government grant, recoupment, or other government assistance attributable to that expenditure.

In simple terms: if a grant funded part of your R&D, you cannot also claim the R&D offset on exactly the same dollar. The clawback operates by subtracting the grant amount from your notional R&D expenditure, after which you calculate the offset on the reduced amount.

This rule is not unique to Australia. The United States has a similar exclusion; the IRS Research Credit page explains that research funded by a grant is generally not eligible for the federal research credit. The same principle appears in the UK under the R&D relief rules and in Canada’s SR&ED program. The underlying logic is simple: the taxpayer should not receive two government incentives for identical expense.

For the non‑refundable offset, this mechanical reduction can substantially alter the economics of your claim. If you were expecting a 38.5% non‑refundable offset on $400,000 of expenditure (as a rough illustration, but rates change and you must verify the current rate with the ATO), and a grant covered $150,000 of that, your eligible expenditure drops to $250,000, and your non‑refundable offset is calculated on the lower amount. The grant may still be valuable, but you need to model it.

Warning: Do not assume you can simply allocate the grant to different activities to avoid the clawback. The ATO looks at whether the grant is attributable to eligible R&D activities, not just whether you wrote separate line items in your ledger. Proper attribution requires a careful, documented rationale, which is exactly what the audit‑ready evidence trail in GrantsMAX supports.

Step 4: The at‑risk rule for the refundable R&D tax offset

For companies that get the refundable offset (generally those with aggregated turnover below $20 million), a separate rule applies: the at‑risk rule. This rule can remove or limit the refundable portion if your R&D expenditure is not considered "at risk".

Spending is at risk if you would not receive any other financial benefit (such as a grant) that could compensate you for the R&D expenditure. If a grant substantially covers the costs of an R&D activity, the ATO may find that the expenditure is not fully at risk. The refundable offset may then be reduced to the non‑refundable amount on that portion.

This means that for smaller entities, a grant can have two effects: it reduces the total eligible expenditure under the clawback rule, and it may also downgrade part of the remaining offset from refundable to non‑refundable. The ATO has issued detailed guidance on this topic; again, the ATO’s R&D Tax Incentive page is the primary source.

Pro tip: If your business is R&D‑active and you are targeting both a grant and the refundable offset, model the combined outcome early. GrantsMAX can assess your eligibility and flag at‑risk areas before your accountant reviews the claim, so you are not caught off guard.

Step 5: Assess eligibility when accessing both programs

Now that you understand the two rules, here is a practical framework for assessing whether you can, and should, pursue both a grant and the R&D Tax Incentive in the same year.

1. Identify the eligible R&D activities and expenditure you would claim if there were no grant.
2. Review the grant agreement carefully. Note whether the grant is tied to a specific project, a set of activities, or a broad purpose. Some state innovation grants are explicitly designed to complement the R&D Tax Incentive, while others may be silent or may impose conditions that affect your claim.
3. Determine whether the grant is attributable to the same expenditure. If the grant is for market development or capital equipment that is not eligible R&D expenditure, the interaction may be negligible. If the grant is for salaries of staff engaged in R&D, the clawback is likely to apply.
4. If the clawback reduces expenditure, calculate the net offset and compare it against the grant’s value. In some cases, the grant may be more beneficial than the lost offset, but the combined benefit is still worth it.
5. For refundable‑offset entities, consider whether the at‑risk rule will carve back the refundable portion. This often tips the scales if the grant is large relative to R&D spend.

A spreadsheet can help you run the numbers, but a spreadsheet discovers nothing and leaves every figure unsubstantiated. The real challenge is correctly attributing costs and building the narrative. That is where GrantsMAX differs from a simple calculator: it drafts a complete application pack that connects the numbers to the activities, which your accountant can then refine.

Step 6: Practical steps to navigate both programs

Here is a step‑by‑step workflow to keep you on the right path.

1. Gather all grant agreements and R&D plans

Before you prepare a claim, collect every grant agreement, funding deed, or letter of offer. Read the conditions carefully. Look for clauses that mention other government assistance, R&D, or intellectual property.

2. Map expenditure to activities and funding sources

Create a clear mapping of each cost item to a registered or planned R&D activity, and then note whether any grant receipt can be attributed to that activity. Where possible, design your R&D project plan and grant application to avoid overlap. For example, if a grant will cover prototype materials, consider claiming only the labour component of the same project on the R&D Tax Incentive, provided the ATO rules permit it.

3. Engage a registered tax agent early

A registered tax agent understands the interaction and can guide you through the attribution analysis. They will also review the final calculation and lodge the claim. GrantsMAX’s workflow is built for this: it prepares the pack and hands it to your accountant in a shared workspace to review, refine, and lodge. The business owns the claim, but the accountant is in control at every step.

4. Document your attribution rationale

If the ATO ever reviews your claim, you need contemporaneous evidence that shows why a particular cost was included or excluded after considering the grant. GrantsMAX’s evidence index ties each cost to emails, invoices, and timesheets, which helps your accountant build a robust defence.

5. Register R&D activities with AusIndustry on time

Regardless of grants, you must register each income year. Missing the 10‑month deadline can invalidate your claim. GrantsMAX does not lodge directly, but it can help you compile the activity information your accountant needs.

6. Model the net benefit and make an informed decision

Once your accountant has run the numbers under both the clawback and at‑risk rules, you can compare the net outcome with the stand‑alone grant benefit. Sometimes pursuing only the grant (and not the R&D Tax Incentive) is the cleaner path. Other times, you can indeed access both, albeit with the adjustments described.

Pro tip: If you are an R&D‑active startup, you may be eligible for the refundable offset while also exploring state innovation grants. GrantsMAX can help R&D‑active startups structure their claim from Xero data. For manufacturers, we turn process improvement and automation data into a substantiated claim. In both cases, the interaction rules are an integral part of the pack.

Step 7: The role of a registered tax agent-and where GrantsMAX fits

It is important to be precise about who does what. GrantsMAX is an AI agent, not a registered tax agent. It cannot and does not lodge claims, give tax advice, or guarantee an outcome. Instead, GrantsMAX does the heavy lifting of gathering evidence, drafting narratives, and structuring the claim. The final review, advice, and lodgement must be performed by a registered tax agent.

This division of responsibility is intentional. By the time your accountant receives the pack, the data has been pulled directly from your accounting software, matched against program rules, and presented with an evidence index. Your accountant can then focus on their professional judgment rather than on data entry.

Compare this with traditional R&D consultants who do everything by hand and typically charge a success fee, making the process theirs, not yours. Compare it with generic AI writing tools that "can draft a paragraph if you tell them what to say, but they do not read your accounting data, assess eligibility, or build an audit trail" (see the difference). And compare it with grant directories that list programs but stop there, leaving you to build the entire pack yourself.

For small businesses with no dedicated finance function, this matters even more. GrantsMAX makes funding within reach without a large back office. The same applies to exporters who need to combine an EMDG claim with an R&D claim; the data mapping works across both programs.

Key takeaways and final advice

Accessing multiple government programs is possible, but it demands careful analysis of the clawback and at‑risk rules. Here are the essential points to remember:

• The R&D Tax Incentive and government grants can often be accessed together, but you must adjust your R&D expenditure for any grant that is attributable to the same activities.
• For the non‑refundable offset, the clawback rule reduces total eligible expenditure on a dollar‑for‑dollar basis.
• For the refundable offset, the at‑risk rule may also limit the refundable component, effectively downgrading part of the offset.
• The precise operation of these rules depends on your aggregated turnover, entity structure, and the specific grant terms. Always check the latest ATO guidance, such as the ATO’s R&D Tax Incentive overview, and the eligibility tool on business.gov.au.
• This is general information only, not advice. A registered tax agent must be involved in your specific circumstances.

If you are weighing up an R&D claim alongside a grant, get your data organised early. GrantsMAX can help you assess what you may be eligible for and then build the evidence pack, ready for your accountant to review and lodge.

Ready to get started? Join the GrantsMAX waitlist to be among the first Australian businesses to have your own AI grant agent. You will stay in control, your data stays read‑only, and your claim stays yours.