R&D tax incentive time limit does not reflect realities

In its submission to Treasury’s consultation on how to better target the research and development (R&D) tax incentive, the Australian Academy of Technological Sciences and Engineering (ATSE) welcomed several elements of the package that would support growing R&D-incentive businesses, such as raising the turnover threshold for the refundable offset from $20 million to $50 million, which it said would allow scaling companies to retain access as they grow.

However, the submission focused on companies that could be worse off under the proposed package, particularly older, pre-profit, deep tech and life sciences companies and companies whose R&D relies on activities such as prototyping and trial manufacture.

It also considered targeted adjustments to address these impacts.

The amendments in the Treasury Laws Amendment (Tax Reform No. 5) Bill 2026: Better Targeting the Research and Development Tax Incentive Bill state that it would restrict access to the refundable offset for entities in the first 10 years of carrying on an enterprise or from the point of first registration for the R&D tax incentive, as well as the first 15 years for entities conducting R&D activities related to therapeutic goods.

ATSE recommended that the government allow for time horizons to support innovation by targeting the refundability limit more precisely by measuring the 10-year period from first R&D tax incentive registration only. It also called for the extension of the 15-year period to other long-horizon R&D, and the removal of the requirement for therapeutic goods entities to register within their first 10 years.

“Limiting access to the refundable offset to the first ten years after an entity first carries on an enterprise or registers for the R&DTI (or 15 years for R&D related to therapeutic goods) does not reflect the time many R&D-intensive companies take to reach profitability,” the submission said.

It further noted that companies beyond this period would retain the highest offset rate, but as a non-refundable offset, which only has value once the company is in tax profit.

Additionally, it said, unused offsets are carried forward subject to the loss recoupment rules, and as such, venture-backed companies that raise new equity or are acquired may lose them altogether. Pre-profit deep tech and life sciences companies could lose the incentive rather than its deferral.

“There is no publicly available evidence supporting ten years as a suitable timeframe, and 15 years is more commonly associated with the translation of research outcomes in the life sciences sector,” ATSE said in its submission.

“Product development in therapeutics can take well over a decade, with part of this being trials and regulatory approvals – activities that are critical to resulting in robustly tested, safe products,” it said.

“Long timeframes are also typical in the deep tech sector.”

While acknowledging the government’s concern that ongoing refunds to long-established loss-making entities could result in limited additional R&D, it argued that a blunt age limit risks catching companies whose R&D is genuinely long-horizon.

“A more targeted design would: measure the period from first R&DTI registration only, rather than the earlier of registration and first carrying on an enterprise, which disadvantages companies that trade before beginning R&D; extend the 15-year period beyond therapeutic goods to other long-horizon R&D, such as engineering biology, quantum technologies, advanced materials and space, and remove the requirement for therapeutic goods entities to have registered within their first 10 years, which excludes companies that move into therapeutics later,” the submission said.

Another recommendation was to create a simplified set of administrative requirements for start-ups and small companies in the next stage of the government’s response.

“Creating separate streams for start-ups and small companies, as proposed in the Ambitious Australia report based on the authors’ extensive consultations with the sector, would be a more effective way to stimulate innovation investment in early-stage businesses,” the submission said.

“These streams would ideally be administratively simple enough that these companies do not need to spend large sums on consultants.”