Is Your Business Developing Something New? You Could Be Missing a Tax Opportunity
Written by: Melissa Cunliffe (CA)
The question worth asking
Have you ever spent money testing a new product, improving equipment or trying to solve a problem that existing technology cannot fix? You may have been doing research and development (R&D) without calling it that. But not every improvement qualifies for a tax incentive, and proposed changes could affect which costs count.
This tax opportunity may be worth exploring if your business undertakes eligible research and development activities.
Tax Opportunity for Businesses Developing Something New
What is the R&D Tax Incentive?
The R&D Tax Incentive is a federal program designed to encourage businesses to undertake eligible research and development. Depending on the business and its circumstances, eligible costs can produce a tax offset. An offset reduces tax otherwise payable; some eligible businesses may receive a refundable offset. It is not an automatic grant for every new idea or piece of equipment.
What is changing?
In September 2026, Treasury consulted on draft reforms proposed to start on 1 July 2028. Among the proposals: raise the minimum eligible expenditure threshold to $50,000; increase the turnover threshold for the refundable offset to $50 million; increase offsets for eligible core R&D activities; and remove supporting R&D activities from eligibility. Refundability would generally be limited by business age, with specific exceptions. These are proposals, not current law, and the final rules may change.
What counts as genuine R&D?
Buying a new machine, introducing standard software or improving a process through normal trial and error does not automatically qualify. The central question is whether the business is conducting eligible experimental activities to resolve a technical uncertainty and create new knowledge. The work needs to be supported by records, not just an invoice showing what was spent.
What we’re seeing in practice
Imagine a regional manufacturer developing a specialised piece of farm equipment. It spends $90,000 across design, prototype construction, testing, marketing and installation. The owner understandably thinks: “We spent $90,000 developing something new — surely all of it counts?” Not necessarily. The experimental work may need to be separated from routine production, sales and other costs. Under the proposed reforms, this distinction becomes even more important. This is an illustrative scenario, not a client case or eligibility assessment.
Three things to check before you spend more
First, write down what problem you are trying to solve and why the answer is not already known. Second, record your tests, failures, changes and results as you go. Third, separate project expenditure into meaningful categories rather than leaving everything in one general ledger account. Keep contemporaneous records such as design notes, timesheets, test data and supplier invoices.
A question for your business
Are you investing in something genuinely new but treating every dollar as an ordinary business expense — without ever checking whether R&D eligibility should be considered? Equally, have you been assuming any new equipment purchase qualifies? Both assumptions can be costly.
How 4P’s can help
The best time to assess a project is before the paperwork becomes difficult to reconstruct. We can help you identify questions to raise with an R&D specialist, organise financial records and understand the cashflow and tax-planning implications. Eligibility and registration need to be assessed under the rules applying to your activities.
Investing in a new product or improving a business process?
Contact 4P's Future Accounting to discuss your financial records, tax planning considerations and questions to raise with an R&D specialist.
Disclaimer
This article does not constitute financial advice and is for general information only. It does not take into account any individual’s personal objectives, situation or needs, and is not intended as professional advice. Any similarity to an individual’s personal circumstances and the examples provided in this article is purely coincidental. Any person acting upon such information without receiving specific advice, does so entirely at their own risk.
Authorisation under an Australian Financial Services Licence (AFSL) is not required in the provision of this article and the author plus Future Accounting Group Pty Ltd is not acting in its capacity as an Australian Financial Services Licence holder
Liability limited by a scheme approved under professional standards legislation.
