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This follows the release of Ambitious Australia: the Strategic Examination of Research and Development (SERD), a wide-ranging review of Australia’s R&D system and broader innovation ecosystem. The SERD was a significant examination of Australia’s R&D settings, commissioned in response to long standing concerns about declining national innovation and R&D performance. Data cited in the SERD shows that Australia’s gross expenditure on R&D declined to 1.66 per cent of GDP in 2021-22, compared to an OECD average of 2.73 per cent.
The Minister for Industry and Innovation, the Hon Tim Ayres MP, response to the report was that Government will carefully consider the findings of the SERD. The Federal Budget will be the first opportunity to see what direction the Government might take.
The SERD spanned public research funding, universities and research institutions, collaboration between industry and researchers, commercialisation pathways, workforce capability, and private sector incentives. The R&D Tax Incentive is recognised as a core element of Australia’s approach to encourage business led R&D investment.
The overall assessment from the review was that there need to be significant coordinated reset, including lifting overall R&D investment, strengthening incentives for private sector participation, improving research‑industry collaboration, and aligning funding to national priorities. Without decisive action, Australia risks entrenching low productivity growth and missing opportunities to build new, globally competitive industries.
The SERD highlights a number of challenges associated with the current design and operation of the incentive, including:
The SERD makes 20 recommendations aimed at strengthening Australia’s research, development and innovation system overall. In relation to R&D recommendations, they included:
Collectively, these themes reflect a desire to move the R&D incentive to be congruent with broader system.
The Minister indicated that the Government will consider the findings carefully, with any response expected to follow further internal assessment and consultation. At the time of writing, no formal indications have been dropped as to the direction the Government might take, and the Budget will be watched with interest to see if any consultation are flagged.
Recent media reporting suggests potential changes to key program settings. The Australian Financial Review has noted that the Treasurer may consider increasing the current $150 million cap on eligible R&D expenditure to support international competitiveness, with any expansion potentially offset by savings elsewhere in the program, including proposals to lift the minimum claim threshold from $20,000 to $150,000.
For now, the R&D Tax Incentive remains unchanged in relation to eligibility offset rates, registration processes, and compliance obligations. Budget night will nonetheless be an important milestone for understanding whether the Government intends to progress aspects of the SERD relevant to business led R&D, either through near term announcements or future consultation processes.
In the meantime, businesses should continue to focus on bedding down fundamentals under the existing regime. This includes maintaining robust governance and oversight of R&D claims, ensuring alignment between business activities and eligibility requirements, and keeping high quality contemporaneous documentation to support R&D activities and expenditure.
The R&D Tax Incentive is a critical enabler of innovation, productivity, and long term economic growth. It plays a clear role in supporting business confidence to invest in higher risk R&D activities, particularly in an environment of ongoing cost pressure and global competition.
This impact is at all stages of business growth. For early stage and scaling businesses, it unlocks cash flow for development to continue and for many companies accelerate the commercialisation. For more established organisations, it helps underpin sustained internal R&D investment, workforce development, and commercialisation pathways that drive productivity improvements.
In our view, any future evolution of the R&D Tax Incentive should build on its strengths as a broad based and accessible program. Ensuring policy settings encourage additional R&D investment, rather than discouraging it through uncertainty or excessive complexity, will be critical.
Australia’s innovation performance and future productivity will depend on businesses having the confidence and capability to invest in R&D and innovation over the long term. A well designed and stable R&D Tax Incentive remains a key part of that equation.
The SERD has reignited important discussion about Australia’s R&D performance and the role of policy in supporting innovation driven growth. While the R&D Tax Incentive remains a critical pillar of the current framework, the review highlights opportunities to evolve the system over time to better drive additionality, integrity, and long-term economic impact.
Businesses should stay informed, but remain grounded in the existing rules. A disciplined, well governed approach to R&D activities and claims will continue to be essential, regardless of how future policy settings develop. With renewed focus on R&D policy, now is a good time to revisit your approach. Our team can assist with R&D eligibility, governance and claims under the current framework – contact us to discuss your circumstances.
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