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The RDTI remained unchanged throughout FY25, offering businesses stability for planning and compliance.
Key FY25 developments included the release of the first R&D Tax Transparency Report, increased guidance from DISR, and legal rulings from the ARTA and the Federal Court that clarified eligibility criteria.
Looking ahead, we are expecting a revamped Application Form, increased compliance activity, and the findings of the Strategic Examination aimed at boosting national innovation and global competitiveness.
The 2025 financial year marked a dynamic chapter for Australia’s Research & Development Tax Incentive (RDTI), with notable shifts in policy, compliance, and industry engagement.
As innovation continues to drive economic growth, staying informed on the evolving R&D landscape has never been more critical for Australian businesses.
The RDTI remained structurally unchanged throughout FY25, with no significant legislative amendments introduced. This welcomed sense of stability has provided businesses with more certainty for planning and compliance activities. This steady state is expected to hold for now, at least until the government wraps up its Strategic Examination of R&D, which could pave the way for future updates.
To help you navigate the year that was, we have compiled a concise timeline of the major developments affecting the RDTI throughout FY25. Whether you are a seasoned claimant or exploring the incentive for the first time, this overview will bring you up to speed on what has changed in the last year, and what it means for your business.
In July, DISR released an updated version of the Advance / Overseas Finding Application Form, which provides assurance that your registered R&D activities will be eligible to claim under the RDTI. This form is required for claiming eligible overseas R&D activities and associated costs in a company’s annual R&D Application.
The revised form better aligns with the structure and content of the annual R&D Application Form. In addition, new questions have been introduced to confirm that the applicant is the proper claimant of the R&D activities. The form also requires applicants to upload supporting documentation to substantiate expenditure estimates, demonstrate compliance with the core R&D activity eligibility criteria and the requirements for an overseas finding.
In August, DISR released a hypothetical case study illustrating how the R&D Tax Incentive applies to artificial intelligence and machine learning activities. The case study provides practical guidance to help companies distinguish between eligible R&D work and routine AI development. It emphasises the importance of establishing the current state-of-the-art, identifying the core technical uncertainty being addressed, and demonstrating that the outcome could not be known in advance without experimentation. Additionally, it highlights the need for thorough documentation to support R&D claims, including evidence of unknown outcomes, a systematic approach to experimentation, and a nexus between the R&D activities and associated expenditure.
Access the hypothetical machine learning case study here.
The ATO published its R&D Tax Transparency Report for the 2022 financial year. This initiative stems from the R&D reforms brought into effect from 1 July 2021, along with the increased focus on corporate tax transparency and is designed to provide a new level of transparency into the RDTI program. The report provides public insight into R&D claim data, including the name, ABN, and claimed expenditure (excluding feedstock adjustments) of each entity.
The report delivers valuable insights into the state of R&D and innovation in Australia. In FY22, over 11,500 entities collectively declared an R&D expenditure of $11.2 billion. The average R&D expenditure claimed was just below $1 million, while the median was slightly above $300,000.
View the full report here, and the ATO’s related guidance here.
The Federal Court affirmed the AAT’s original decision in Active Sports Management Pty Ltd and Industry Innovation and Science Australia that a sports apparel company’s development of a custom basketball shoe was ineligible for the R&D Tax Incentive. The Federal Court noted that "the claimed activities consisted of the modification of previously known athletic shoe design features to suit the personal preferences or requirements of an individual player." Accordingly, the activities were found to not have been undertaken for the purpose of creating new knowledge, involving a systematic process of work (rather than trial and error), or resolving technical uncertainty.
This case reinforces the importance of maintaining contemporaneous documentation to show that before undertaking the experiment the company developed a hypothesis, planned an experiment which tested the hypothesis, and ultimately generated knowledge that did not previously exist in the public domain.
Further, the court also dismissed claims that the AAT misapplied the law or failed to consider evidence adequately.
In the case of Commissioner of Taxation v Bakarich (No 2) [2024] FCA 1448, the Federal Court imposed $13.6m in penalties on a business coach, company co-director, former tax agent, and related entities for promoting unlawful R&D tax schemes between 2014 and 2017. The ATO and DISR jointly found that between 2014 and 2017, the R&D advisor ‘promoted unlawful tax schemes encouraging clients to lodge over-inflated, inaccurate or unsubstantiated R&DTI claims.’
This landmark case marks the first application of the promotor penalty laws outlined in Division 290 of Schedule 1 to the Taxation Administration Act to the RDTI. The promoter penalty laws are in place to deter the promotion of tax avoidance and tax evasion schemes by tax agents. This demonstrates the importance of carefully selecting an R&D advisor and as an R&D claimant, understanding the R&D eligibility criteria, and the activities and costs included in your R&D claims.
Further details and analysis are available on the ATO website.
As part of the Mid-Year Economic and Fiscal Outlook 2024-25, the Government announced plans to exclude gambling and tobacco related activities from the RDTI program for income years starting on or after 1 July 2025.
This move follows public concern over large claims by companies such as Tabcorp and Aristocrat Leisure and aims to redirect public funding toward socially responsible innovation. Legislative changes will be required to implement this amendment.
In its first ruling since replacing the AAT, the Administrative Review Tribunal of Australia (ATRA) upheld DISR’s decision that Body by Michael’s R&D claim did not meet the definition of core R&D activities. This case highlighted the importance of experimentation to be conducted in a systematic manner, alongside a logical progression of work. Further, the Tribunal emphasised the importance of clearly identifying a specific technical unknown and establishing a hypothesis at the outset of experimentation.
Additionally, it also provided further guidance on the social sciences exclusion set out in section 355-25(2) ITAA 1997. This concluded that mental health and physical health do not fall within the concept of social sciences.
On 12 February 2025, the Government released its discussion paper for the Strategic Examination of Australia’s R&D system, following its announcement in the 2024–25 Federal Budget.
The discussion paper highlights a continued decline in Australia’s investment in R&D, as a proportion of GDP, in comparison to the OECD average. Specifically, over the last 15 years, Australia’s R&D investment fell to 1.66 per cent of GDP in 2021-22 compared to the OECD’s R&D intensity of 2.73 per cent. As part of the wider R&D landscape, the RDTI is referenced in the discussion paper as part of the Federal Government’s strong ‘bottom up’ funding approach.
Public consultations closed on 11 April 2025, with final findings expected by the end of 2025.
The 2025-26 Australian Federal Budget, handed down on 25 March, confirmed no changes to the RDTI program affirming the certainty of the program to plan long-term R&D investments. While investment in the RDTI is expected to increase by $55.8m in 2025–26, it is projected to decrease by $640.6m over five years due to lower-than-expected claimants.
Beyond the RDTI, the budget allocated $20m to the ‘Front Door’ initiative for high-tech industries, $22.7 billion to clean energy, advanced manufacturing and innovation through the expansion of the “Future Made in Australia” agenda, and sector-specific innovation funding for green metals and the CSIRO.
The budget also allocated additional funding of $999m to the ATO over four years to strengthen the fairness and sustainability of Australia’s tax system. This signals the potential for increased compliance activity and scrutiny by the ATO.
Explore the 2025-26 Australian Federal Budget analysis here.
As part of the 2024-25 Mid-Year Economic and Fiscal Outlook, the Government announced changes to the shortfall interest charge on refundable tax offsets. This means companies are now liable to pay shortfall interest charges on repayments of overclaimed refundable R&D tax offsets to the ATO. This applies to amendments to income tax assessments made after 1 April 2025.
On 3 May, the Australian Labor Party was re-elected. While no changes to the RDTI were announced, the outcome could impact future innovation policy and funding priorities
FY26: What’s ahead for the R&D Tax Incentive?
As the new financial year is now upon us, several important changes and developments are set to shape the RDTI landscape.
Updated R&D Application Form – Coming 15 August 2025 – DISR has advised it will release a revised R&D Application Form via the RDTI Customer Portal on 15 August 2025. From this date, all applicants are required to use the new form and any existing draft forms will no longer be available. Some of the key changes include:
Reordering of sections for improved flow.
New or restructured questions (with some questions split into parts).
Increased character limits to allow for more detailed responses.
More prefilled fields, including pre-populated project/activity data.
Enhanced usability with dropdowns, buttons, and tick boxes replacing some text fields.
Increased compliance activity – We have observed a noticeable uptick in review and audit activity from DISR and the ATO. This aligns with the increased funding allocated to the ATO announced in Federal Budget to strengthen the fairness and sustainability of Australia’s tax system.
DISR also announced it will streamline its review process and apply a more efficient approach to conducting examinations. This will include being more systematic in limiting the use of examinations to circumstances where eligibility risks appear highest and reducing instances of applications being held ‘in review’ prior to registration.
Transparency Report for 2023 claims – The next R&D Tax Transparency Report, covering the 2022-23 financial year, is expected to be released in September 2025. Based on previous reports, we anticipate similar insights into the scale and distribution of R&D activity across Australian businesses.
Strategic Examination findings on the horizon – Beyond the RDTI, we eagerly await the release of the Strategic Examination findings with recommendations of ways to improve Australia’s competitiveness on a global innovation scale. With Australia continuing to lag behind the OECD average in both public and private R&D investment, there is a growing need for more long-term and strategic R&D investment to enhance our national productivity and prosperity, and to maintain our global competitiveness.
We’re here to help
At Grant Thornton, our Innovation Incentives team stays at the forefront of R&D developments, leveraging evolving guidance and case law to deliver practical, tailored advice. If you’d like to understand how these changes might impact your claim, reach out to Grant Thornton’s R&D Tax experts today.
Article contributed to by Katie Edwards – Innovation Incentives
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On 12 February 2025, the Australian Government released its Strategic Examination of Research & Development (R&D) discussion paper. Public consultations on the discussion paper are officially open, with written submissions due by 11 April 2025.
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