Who can claim the R&D Tax Incentive? Eligible R&D entities explained

Understanding who can claim the R&D Tax Incentive matters a great deal if you are setting up a new research project or looking back at work you have already done. The rules are precise and the Australian Taxation Office (ATO) and AusIndustry expect claims to be made by the right type of entity, for the right activities, with the right documentation. This guide walks through the entity-level requirements step by step, using the latest guidance from the ATO and business.gov.au. It is general information only, not tax, financial, or legal advice. You should always confirm your position with a registered tax agent before lodging.

Many countries use R&D tax incentives to support private innovation, from the UK’s R&D relief to the U.S. research credit and Canada’s SR&ED program. The OECD provides cross-country analysis of these policies, and Australia’s framework shares many common design features. Here, however, we focus entirely on the Australian incentive and the critical question: which entities may be eligible.

Prerequisites: what you need before you start

Before diving into the steps, gather a few core facts about your business and its R&D. Having these ready will help you avoid spending time on a claim the entity itself cannot make:

• Your Australian Business Number (ABN) and the legal structure you trade under (company, trust, partnership, sole trader).
• Your aggregated turnover for the current income year (and the previous year if you are close to a threshold).
• A clear description of the activities you believe may be eligible R&D, including who carried them out, where, and under what arrangement.
• Your accounting data in a system such as Xero, MYOB, or QuickBooks, which will later be used to identify and substantiate the costs if you proceed.
• Access to a registered tax agent who can review any claim before lodgement.

Pro tip: Even a rough-and-ready scoping of these prerequisites can save weeks of wasted effort. If you are a first-time claimant, start by talking to your accountant or bookkeeper about whether the entity structure fits the rules below.

Step 1: Confirm your entity type-only certain businesses can claim

The first filter is the legal form of your business. Not every entity that does R&D can register and claim the incentive. The law restricts eligibility to specific entity types, and getting this wrong will mean your application is rejected.

1.1 Companies are the primary claimants

In almost all cases, the eligible R&D entity is an Australian company. According to business.gov.au, a company incorporated under the Corporations Act 2001 (Cth) and registered with an Australian Business Number is the typical qualifying entity. This includes proprietary limited companies, public companies, and companies limited by guarantee. If you run your R&D through a company structure, you are on the right track.

GrantsMAX works with a wide range of Australian companies, from technology firms developing software platforms to manufacturers improving production processes and small businesses experimenting with new products. The common thread is a company structure that satisfies the entity test.

1.2 Trusts, partnerships, and individuals are generally ineligible

If you operate as a sole trader, a partnership, or a trust, you cannot claim the incentive directly. The ATO’s eligibility page makes this clear: the R&D Tax Incentive is available to R&D entities, and under the Income Tax Assessment Act 1997, those entities must be companies. There are a couple of narrow exceptions for corporate limited partnerships and approved research institutes, but a standard discretionary trust or a partnership of individuals is not an eligible R&D entity.

This often surprises founders who have set up a trading trust with a corporate trustee. Even though a company sits in the structure, the trust itself is not the entity conducting the R&D on its own behalf. We will discuss the “on behalf” rule in Step 3, but the short answer is that you may need to restructure or specifically ensure a separate R&D company holds the activities. Always seek professional advice before changing structures.

1.3 Special cases: co-operatives and corporate limited partnerships

Some co-operatives and corporate limited partnerships may also be eligible if they meet the statutory definition of an R&D entity. The ATO guidance notes that a corporate limited partnership can be an eligible entity if it is treated as a company for tax purposes. If you are part of one of these less common structures, speak with a registered tax agent who understands the R&D Tax Incentive to confirm whether you can register.

Step 2: Understand what qualifies as ‘R&D’ under the Incentive

Entity type is only half the picture. Even a company can only claim if its activities meet the legislative definition of eligible R&D. The incentive is not a broad innovation subsidy; it is a tightly scoped program that applies to specific work undertaken in a systematic way.

2.1 Core R&D activities

Core R&D activities are experimental activities whose outcome cannot be known or determined in advance on the basis of current knowledge, information, or experience. They must be conducted for the purpose of generating new knowledge (including new or improved materials, products, devices, processes, or services). Business.gov.au describes these as activities that involve a hypothesis-driven approach and a systematic progression of work.

For example, R&D-active startups writing a novel machine-learning algorithm to predict crop yields are likely performing core R&D. Similarly, a manufacturer experimenting with a new composite material that has never been tested in its application may be performing core R&D. The key is the technical risk and the attempt to resolve it through a scientific or engineering method.

2.2 Supporting R&D activities

Supporting R&D activities are activities directly related to core R&D activities. They might include laboratory setup, equipment acquisition, prototyping, software coding directly supporting the experiment, and even certain project management or record-keeping work that is integral to the R&D project. The ATO expects there to be a direct, close, and relatively immediate relationship between the supporting activity and the core R&D.

When GrantsMAX reads your accounting data, it looks for both core and supporting activities across your operations. The Eligibility Assessment and Risk Flags feature helps highlight which cost centres may link to eligible work, so you can focus the narrative where it counts.

2.3 What does not qualify

Routine work, market research, management studies, artistic projects, and activities carried out overseas by a non-Australian resident are generally not eligible. The ATO’s guidance also excludes activities where the outcome would be obvious to a competent professional in the field. Many business improvement projects, even if they involve technical tools, do not rise to the level of eligible R&D. If in doubt, you may request an advance finding from AusIndustry to confirm before you lodge, though this is not a required step.

Step 3: Identify if the entity is conducting the R&D ‘for itself’

The R&D entity must be the one that carries on the R&D activities for itself. This concept is easy to misunderstand, especially when contractors are involved.

3.1 The ‘on own behalf’ rule

To be eligible, the company must be conducting the R&D activities on its own behalf. This means the company bears the financial risk, has control over the project, and owns the results. A company that simply funds research carried out by a university or a third party without active involvement and ownership may not meet the test. The ATO and AusIndustry look at who decides what experiments to run, who directly employs or engages the personnel, and who will commercialise or use the new knowledge.

GrantsMAX’s Accountant Review and Lodge Workflow respects this boundary. The platform prepares a pack from your data, but your registered tax agent will confirm that the entity is indeed the one carrying on the activities before the claim proceeds. The business owns the claim; the accountant reviews and lodges.

3.2 Contracted R&D: who can claim?

If you engage an Australian contractor to perform R&D services for you, and you retain the ownership of the IP and control the direction, you may still be the eligible entity. However, the contractor cannot claim the incentive for the same work. The rules prevent double dipping. If you are a contractor performing R&D for another entity, you typically cannot claim, because you are not doing it on your own behalf.

This is a critical point for many technology companies that build bespoke software for clients. Custom development for a client under a services agreement is unlikely to qualify for you, because the client is the one that receives the benefit and controls the outcome, even if they do not understand the code.

3.3 Foreign resident entities and Australian registration

An R&D entity must generally be an Australian resident for tax purposes or, if it is a foreign resident, it must carry on the R&D activities through a permanent establishment in Australia. The business.gov.au eligibility checker asks about residency early, and for good reason. If your company is incorporated overseas and does not have a taxable presence in Australia, you cannot claim the incentive, regardless of how innovative your work is.

Step 4: Check your aggregated turnover and refundable offset eligibility

Even an eligible R&D entity may find that the nature of the benefit changes depending on its size.

4.1 Refundable vs non-refundable offset

For companies with an aggregated turnover of less than $20 million (for income years up to 2025-26-but always verify current rules), the R&D tax offset is generally refundable for certain corporate tax entities. This means if the offset exceeds the company’s tax payable, the ATO can refund the balance. For companies with aggregated turnover of $20 million or more, the offset is non-refundable, so it can reduce tax payable to zero but cannot generate a cash refund.

These are well-established structural features of the incentive, but the ATO publishes updated thresholds each year, and you should check the ATO’s R&D Tax Incentive page for the current income year.

4.2 2026 proposed turnover threshold change

The Australian Government has announced a proposal to lift the refundable-offset turnover threshold from $20 million to $50 million. As of the date of this article, this change is proposed, not enacted. If passed, it would mean more growing companies could receive a refundable offset. However, until the law changes, the $20 million threshold remains. Always base your planning on enacted legislation, not on announcements.

Step 5: Confirm you meet the notional deductions test and registration requirements

An eligible R&D entity can only claim the incentive in respect of notional deductions: generally, expenditure incurred on eligible R&D activities that the entity can deduct under the ordinary tax rules (such as employee salaries, consumables, contractor costs, and depreciation). You must also register your R&D activities with AusIndustry within ten months after the end of your income year. Without registration, no claim is possible, even if everything else is in order.

The Audit-Ready Evidence Trail that GrantsMAX constructs helps tie each cost line to the underlying emails, invoices, and timesheets, so your accountant can quickly see whether the notional deductions meet the substantiation standard required by the ATO and whether the registration deadline is approaching.

Pro tips and common pitfalls

Warning: Even a well-established company can have its claim rejected if the entity fails the control test. For example, a group structure where a holding company funds R&D but a subsidiary conducts it can be problematic if the holding company cannot demonstrate it carries on the activities on its own behalf. Structure matters.

Pro tip: If you are a founder or CFO considering the incentive for the first time, ask your registered tax agent to document why your entity satisfies each of the above steps. Having that memo on file will support the pack when GrantsMAX prepares it from your cloud accounting data.

Pro tip: Many small businesses worry that using a tool like GrantsMAX might be seen as audacious. The opposite is true. Because the platform reads your data read-only and then hands a draft pack to your accountant for review, the claim remains squarely in the hands of a registered professional who can stand behind it. Your business owns the claim; the accountant lodges.

Common pitfalls include mistaking a one-off technical fix for eligible R&D, failing to register on time, and not maintaining contemporaneous records. Keep a lab notebook, a project management log, or an equivalent digital trail. The ATO expects evidence that is created at the time the work is done, not reconstructed months later.

How GrantsMAX helps you navigate entity eligibility and prepare your claim

GrantsMAX is designed to work alongside your existing accounting workflow, not replace it. The platform connects to your accounting data, discovers government grants and R&D tax incentives you may be eligible for, and prepares a complete, evidence-backed application pack. That pack then moves into the Accountant Review and Lodge Workflow, where your registered tax agent refines, reviews, and lodges.

The Annual Refresh and Accountant Channel means the incentive can be revisited each financial year without starting from scratch. For accounting firms, the white-label capability lets them run the workflow across their entire client base, making R&D claims a consistent, scalable service line.

Because the platform does not lodge claims (only a registered tax agent does), it aligns with the Tax Practitioners Board’s expectations and the division of responsibility set out by the ATO. For first-time claimants, this can make a daunting process feel manageable and clear.

Conclusion and key takeaways

Eligibility for the R&D Tax Incentive turns on three core pillars: the entity type, the nature of the activities, and the way the entity conducts them. The main points to remember are:

• Only companies (and a few comparable structures) may be eligible. Trusts, individuals, and most partnerships cannot claim directly.
• The activities must be systematic, experimental, and aimed at generating new knowledge that could not be determined in advance.
• The entity must carry on the R&D on its own behalf and bear the risk and control.
• Turnover affects whether the offset is refundable, and the future $50 million threshold is still proposed, not law.
• Registration with AusIndustry is mandatory, and notional deductions must be substantiated.

No matter where you sit in the journey, confirm your position with a registered tax agent. If you want to see what grants and incentives your business may be eligible for and have a complete, evidence-backed pack prepared for your accountant’s review, join the GrantsMAX waitlist at grantsmax.com.