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FY26 was a defining year for Australia's Research and Development Tax Incentive (RDTI), and for the wider conversation about how Australia funds innovation.
With the most substantial package of proposed reforms since 2021, the release of the Ambitious Australia Strategic Examination report, targeted legislative changes and updated administrative guidance, the year set the stage for a new chapter in Australia's innovation policy landscape.
With innovation, productivity and global competitiveness firmly on the national agenda, the message for businesses investing in innovation and R&D is clear: strong governance, contemporaneous documentation and a deep understanding of eligibility have never mattered more.
To help you navigate the year that was, here is a timeline of the major developments affecting the RDTI throughout FY26.
Effective from 1 July 2025, DISR announced a series of changes aimed at streamlining the administration of the RDTI, including:
The announcement signalled a continued focus on balancing program integrity with administrative efficiency.
On 15 August 2025, DISR released a revised R&D application form through the RDTI Customer Portal. The updated form introduced:
The changes were designed to better align the application process with the legislative requirements of the program and reflect a growing regulatory focus on contemporaneous documentation and wider eligibility considerations, such as ‘on own behalf’.
The ATO released its second R&D Tax Transparency Report, covering the 2022-23 income year. Highlights included:
The report forms part of ongoing transparency measures introduced under the 2021 RDTI reforms. The full report is available here.
The Administrative Review Tribunal (ART) handed down its decision in Ultimate Vision Inventions Pty Ltd, finding that the claimant's software development activities were not eligible under the RDTI. The decision reinforced that developing a new product or generating new data is not, by itself, sufficient to satisfy the eligibility criteria.
Claimants must demonstrate that the outcome could not be known or determined in advance based on existing knowledge, information, or experience. For software companies, the case is a timely reminder that novelty alone is insufficient: genuine technical uncertainty and systematic experimentation remain central to eligibility.
The Government publicly released the final report of the Strategic Examination of Australia's R&D system, titled ‘Ambitious Australia’. The culmination of a year-long review, the report set out 20 recommendations aimed at strengthening national research, development and innovation performance.
Key themes included:
The recommendations are expected to help shape Australia's future innovation policy settings, including reforms to the RDTI and other innovation support programs. The full report is available here.
As part of the 2026-27 Federal Budget, the Government announced a proposed reform package for the RDTI. The reforms draw on many of the key findings from Ambitious Australia and are designed to better target R&D support while moderating the long-term fiscal cost of the program. The measures are intended to apply from 1 July 2028 and represent the most significant changes to the RDTI since 2021.
Key measures include:
If enacted, the reforms may considerably reshape the RDTI, placing a greater emphasis on core R&D activities, targeting refundable support towards younger companies, and encouraging larger businesses to undertake more R&D activity in Australia.
A simplified comparison of the proposed RDTI offset rates is included below:
Aggregated turnover <$20 million
Aggregated turnover $20 million to <$50 million
Aggregated turnover >$50 million
In May 2026, the ATO released guidance reminding companies to exercise caution when engaging advisers who undertake high risk practices in relation to RDTI claims. The ATO expressed concern about promoters using aggressive sales tactics to encourage claims for ineligible activities or expenditure, including ordinary business costs and overheads not directly linked to eligible R&D activities.
The guidance warned that promises of significantly increased refunds can leave claimants exposed to repayments, penalties and ongoing compliance action.
The release, followed a series of high-profile promoter penalty actions, including Commissioner of Taxation v Perez (No 2) [2026] FCA 658, where the Federal Court found that an entity had contravened the promoter penalty provisions by marketing R&D tax offset claims that were not reasonably arguable under the law. Together with the earlier Bakarich promoter penalty case, these cases highlight a growing focus on protecting the integrity of the RDTI program.
The ATO encouraged businesses to:
Businesses should also be cautious of advisers who describe the RDTI as a ‘grant’ rather than a tax offset, or who structure their remuneration in a way that may encourage inflated claims. The RDTI is a self-assessment tax program governed by specific legislative requirements, and companies remain responsible for the accuracy of their claims. A good advisor will take the time to understand your business and provide comprehensive guidance on eligibility, documentation and substantiation requirements, not simply focus on maximising the potential refund.
In June 2026, Parliament passed legislation excluding gambling, gambling-like practices, tobacco and nicotine-related activities from eligibility under the R&D Tax Incentive.
The amendments are intended to ensure public funding is not used to support R&D that promotes gambling participation or tobacco and nicotine consumption. A limited exception remains for activities undertaken solely for harm-minimisation purposes, such as research aimed at reducing addiction or mitigating associated harms.
Applying from 1 July 2025, these exclusions mark one of the most significant industry-specific eligibility changes to the RDTI.
DISR released new guidance outlining how the RDTI eligibility criteria apply to AI activities, reflecting the growing prevalence of AI across Australian industries.
The guidance confirms that the use of AI alone does not make an activity eligible. AI-related projects are subject to the same legislative requirements as any other R&D activity, meaning claimants must demonstrate a technical unknown, a hypothesis and a systematic program of experimentation to satisfy the core R&D activity requirements.
Eligible AI activities may include the development and testing of new AI models, machine learning algorithms and techniques where experimentation is required to resolve genuine technical uncertainty. In contrast, activities such as routine model deployment, integration, standard data preparation, software testing and performance monitoring are unlikely to qualify where known methods and existing knowledge can be applied to achieve the desired outcome. The guidance is available here.
As FY27 gets underway, several developments are expected to shape the future direction of the RDTI and Australia's broader innovation policy landscape.
The most significant development on the horizon is the Government's proposed reform package announced in the 2026-27 Federal Budget, intended to apply from 1 July 2028. We will closely monitor these measures as they move through Parliament, including any further consultation or guidance on how the new rules may operate in practice and how they may affect different categories of RDTI claimants.
The Government's response to the 20 recommendations in the Ambitious Australia report will be closely watched. These recommendations are expected to inform future innovation policy, the governance of Australia's innovation system, and potentially further changes to innovation incentives beyond the RDTI.
DISR and the ATO are expected to maintain a strong focus on program integrity throughout FY27, through targeted compliance activities, risk-based reviews and ongoing guidance. Attention is likely to remain on areas that have been the subject of regulatory focus in recent years, including software development activities, ‘on own behalf’ arrangements, foreign owned R&D, expenditure eligibility and the adequacy of supporting documentation.
With Ambitious Australia complete and proposed RDTI reforms now on the agenda, FY27 is shaping up as a pivotal year for Australia's innovation ecosystem. Businesses undertaking R&D should closely monitor developments as government considers how best to incentivise business investment, support commercialisation, and improve Australia's long-term innovation performance.
At Grant Thornton, our Innovation Incentives team stays at the forefront of R&D developments, drawing on evolving guidance, case law and policy signals to deliver practical, tailored advice. If you would like to understand how these changes coming out of FY26, or the reforms proposed, might affect your business, reach out to our R&D Tax specialists today.
Article contributed to by Alana Bayliss - Senior Manager - R&D Tax (Innovation Incentives)
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