Australia: Government report and issue papers from strategic examination of R&D system
Recommendations that would fundamentally change the R&D tax incentive
The federal government in 2024 initiated a strategic examination of Australia's research and development (R&D) system (across all sectors and industries) (also known as SERD).
SERD in July 2025 released a report summarizing its findings, and following that, released six issue papers for consultation.
Several of the issue papers contain recommendations that would fundamentally change the R&D tax incentive (RDTI). For instance, SERD recommends changes to what qualifies, the benefits rates, and even which companies can access it. The papers are light on detail, but if even half the recommendations are implemented, whole subdivisions of the underlying legislation would need to be repealed and replaced—the biggest change to the program since the RDTI replaced the R&D tax concession in 2011.
For instance, some of the more significant changes proposed:
- Create three levels of access based on company size/age: start-ups (<$4m* ARR), SMEs and large firms. The threshold between SME and large firm is not specifically addressed but could stay with the current $20 million aggregated turnover threshold or perhaps align with the $50 million aggregated turnover threshold used for income tax. There is also a suggestion that RDTI access may be time limited or outcome limited for some.
- Provide for a premium R&D rate if the R&D falls within the proposed five national focus areas (agriculture, health, defense, energy, and resources). It is unclear whether this would mean a corresponding decrease in the benefit or exclude R&D in non-priority areas.
- Remove some of the existing limitations / clawbacks (i.e., remove the cap, remove grant clawback, and remove the impact on franking credits). The way these have been presented implies they would be removed for some but not others.
- For startups, simplify access by aligning with the ESIC rules (e.g. points-based test), enable quarterly payments, and expand eligibility to include development and deployment activities.
For more information, contact a KPMG tax professional in Australia:
Georgia King-Siem | gkingsiem@kpmg.com.au
*$=Australian dollar