Beyond the Budget: R&D Tax Incentive reform alignment with the Ambitious Australia recommendations

9 July

‍Author: Shaun van Dijk

The recent 2026-27 Federal Budget was one of the most significant in recent memory, announcing reforms and changes to established economic programs and schemes in the name of long-term economic resilience. Following our immediate takeaways from the 2026-27 Budget, Intellect Labs’ Beyond the Budget series will dive into specific areas of the budget announcements to analyse the immediate impacts and advise the long-term takeaways for Australian businesses and SMEs.

Today’s edition delves deeper into the proposed R&D Tax Incentive reforms and reviews the connection these major program reforms have to the recommendations provided in the Ambitious Australia Report, the primary output from the Strategic Examination of Australia’s R&D system, released earlier this year.‍ ‍

The Federal Government's 2026–27 Budget delivered the most significant proposed changes to the Research & Development Tax Incentive (RDTI) in almost a decade. These changes represent the first substantive response of the Government to the Ambitious Australia – Strategic Examination of R&D report (the ‘Ambitious Australia Report’), released earlier this year. The Strategic Examination represented the most significant review of Australia's innovation system in recent time and included a raft of recommendations to improve the operation of the $3 billion RDTI program in an effort to drive greater business investment in R&D and commercialisation.

So how closely do the Budget reforms align with the recommendations handed down in the Ambitious Australia Report? And were there any recommendations not yet actioned that could find their way into future changes to the RDTI program?‍ ‍

Overall, it’s a mixed bag in terms of how the Ambitious Australia Report and preceding R&D system review has aligned with the practical RDTI reforms proposed in the Federal Budget. While several of the Strategic Examination's headline recommendations have clearly influenced the Budget measures, many of the more ambitious reforms have either been softened, deferred or omitted altogether.

We’ve provided an analysis of the proposed RDTI reforms (which if enacted will commence from 1 July 2028) and an assessment of the alignment each reform has with the recommendations identified in the preceding Ambitious Australia Report.

    
                Federal Budget RDTI reform
                Proposed RDTI changes
                Ambitious Australia recommendation link
                Alignment Rating
            
                    1. Increased support for Core R&D Activities
                
                    The Government has proposed higher R&D offset rates, increased by 4.5% from current rates, for core R&D expenditure, specifically:
                    Corporate tax rate +23% for start-ups and SMEs, currently +18.5%.
Corporate tax rate +13% and +20% for large entities depending on their R&D intensity, currently +8.5% and +16.5%.

                    The Ambitious Australia Report recommended providing access to a higher refundable offset rate of the corporate tax rate +23.5%, but restricted to high-potential startups only as part of establishing a new premium RDTI stream.
                    
                    Recommendation 5b.
                
                    4 out of 5
                    
                    The Government has embraced the recommendation of increasing the R&D tax offset for start-ups, but expanded this to include a higher offset rate for all SMEs and large companies.
                
                    2. Reduce the R&D intensity threshold from 2 per cent to 1.5 per cent
                
                    The Government has proposed to reduce the R&D intensity threshold that is used to determine the R&D tax offset rates for large entities from 2% to 1.5%.
                
                    The Ambitious Australia Report proposed removing the R&D intensity calculation entirely for large businesses and providing a standard offset rate as part of recommendations to reduce complexity of the RDTI scheme for claimants.
                    
                    Recommendation 5d.
                
                    2 out of 5
                    
                    The Government has elected to modify the R&D intensity test that is used currently to determine the tax offset entitlement for large firms, rather than removing the measure entirely as proposed in the Ambitious Australia Report.
                    
                    This will enable large firms that engage in substantial core R&D to qualify for higher R&D tax offset rates.
                
                    3. Removal of Supporting R&D Activities & costs
                
                    The Budget removes the eligibility of Supporting R&D Activities and related expenditure.
                
                    The Ambitious Australia Report recommended reducing RDTI complexity by introducing a deemed rate for Supporting Activities, simplifying the process of claiming expenditure for these types of eligible R&D activities.
                    
                    Recommendation 5a.
                
                    0 out of 5
                    
                    The Government has announced removing Supporting R&D Activities entirely from the program. This reform has no basis in the Ambitious Australia Report.
                    
                    The impact is likely to entirely offset the positive impact of increasing the R&D tax offset rates for most companies.
                
                    4. Increasing the Refundable R&D Tax Offset Threshold
                
                    The Budget increases the annual turnover threshold for premium SME treatment and refundability from $20 million to $50 million.
                
                    The Strategic Examination recommended that the RDTI be increasingly focused on growth-oriented SMEs and scaleups, and as part of this proposed expanding the refundable R&D offset to include companies with a turnover of up to $50 million.
                    
                    Recommendation 5c.
                
                    5 out of 5
                    
                    This is a clear example of direct alignment between the Strategic Examination of R&D recommendations and the Budget.
                    
                    The Government has accepted the premise that scaling businesses require greater support and adopted the recommendation to expand access to premium refundable R&D offset.
                
                    5. Limiting Refundable R&D Tax Offset Access to 10 Years
                
                    While the Budget proposes expanding access to the refundable R&D tax offset via the increased turnover threshold, it also introduces a new approach of limiting access to a refundable tax offset to the first 10 years of operations.
                
                    The Ambitious Australia Report called for changes to the operation of RDTI to better target the program to growth-oriented SMEs with the aim of focusing support on firms actively scaling their innovation activities.
                    
                    To achieve this, it was proposed that a growth-based eligibility test could be introduced where achieving annual revenue growth over the preceding three years would be required to maintain access to the refundable R&D tax offset.
                
                    2 out of 5
                    
                    The Government has accepted the principle of better targeting the refundable R&D tax offset, but not the proposed delivery model.
                    
                    The RDTI reforms put forward in the Budget adopt a time-limited approach to improving the targeting of refundable R&D tax offsets, rather than the growth-based eligibility that the Ambitious Australia Report recommended.
                
                    6. Increase in the Maximum R&D Expenditure Threshold
                
                    The Budget proposes to increase the cap for R&D expenditure from $150 million to $200 million.
                
                    The Ambitious Australia Report called for the removal of the $150 million R&D expenditure cap on the basis that Australia must remain internationally competitive for corporate and multinational R&D investment and recommended stronger incentives for larger firms undertaking R&D in Australia.
                    
                    Recommendation 5d.
                
                    3 out of 5
                    
                    This measure has a clear nexus to the Ambitious Australia Report recommendations, albeit with the Government preferring to maintain an expanded expenditure cap rather than removing it entirely.
                
                    7. Increased Minimum R&D Expenditure Threshold
                
                    The Budget proposes to increase the RDTI entry threshold from $20,000 to $50,000 in eligible R&D expenditure.
                
                    The Ambitious Australia Report proposed a more significant change to the minimum R&D expenditure proposal, recommending that this be increased to $150,000, which would exclude approximately 24% of businesses based on the most recent 2022-23 RDTI Tax Transparency Report data.
                    
                    Recommendation 5a.
                
                    4 out of 5
                    
                    Once again, this measure has a clear nexus to the Ambitious Australia Report and, once again, the Government has preferred to modify the recommendation rather than adopting it as proposed.
                    
                    The outcome, however, will be better for those companies with smaller annual claims of $50,001-$150,000 R&D expenditure.

Federal Budget RDTI reform	Proposed RDTI changes	Ambitious Australia recommendation link	Alignment Rating
1. Increased support for Core R&D Activities	The Government has proposed higher R&D offset rates, increased by 4.5% from current rates, for core R&D expenditure, specifically: Corporate tax rate +23% for start-ups and SMEs, currently +18.5%. Corporate tax rate +13% and +20% for large entities depending on their R&D intensity, currently +8.5% and +16.5%.	The Ambitious Australia Report recommended providing access to a higher refundable offset rate of the corporate tax rate +23.5%, but restricted to high-potential startups only as part of establishing a new premium RDTI stream. Recommendation 5b.	4 out of 5 The Government has embraced the recommendation of increasing the R&D tax offset for start-ups, but expanded this to include a higher offset rate for all SMEs and large companies.
2. Reduce the R&D intensity threshold from 2 per cent to 1.5 per cent	The Government has proposed to reduce the R&D intensity threshold that is used to determine the R&D tax offset rates for large entities from 2% to 1.5%.	The Ambitious Australia Report proposed removing the R&D intensity calculation entirely for large businesses and providing a standard offset rate as part of recommendations to reduce complexity of the RDTI scheme for claimants. Recommendation 5d.	2 out of 5 The Government has elected to modify the R&D intensity test that is used currently to determine the tax offset entitlement for large firms, rather than removing the measure entirely as proposed in the Ambitious Australia Report. This will enable large firms that engage in substantial core R&D to qualify for higher R&D tax offset rates.
3. Removal of Supporting R&D Activities & costs	The Budget removes the eligibility of Supporting R&D Activities and related expenditure.	The Ambitious Australia Report recommended reducing RDTI complexity by introducing a deemed rate for Supporting Activities, simplifying the process of claiming expenditure for these types of eligible R&D activities. Recommendation 5a.	0 out of 5 The Government has announced removing Supporting R&D Activities entirely from the program. This reform has no basis in the Ambitious Australia Report. The impact is likely to entirely offset the positive impact of increasing the R&D tax offset rates for most companies.
4. Increasing the Refundable R&D Tax Offset Threshold	The Budget increases the annual turnover threshold for premium SME treatment and refundability from $20 million to $50 million.	The Strategic Examination recommended that the RDTI be increasingly focused on growth-oriented SMEs and scaleups, and as part of this proposed expanding the refundable R&D offset to include companies with a turnover of up to $50 million. Recommendation 5c.	5 out of 5 This is a clear example of direct alignment between the Strategic Examination of R&D recommendations and the Budget. The Government has accepted the premise that scaling businesses require greater support and adopted the recommendation to expand access to premium refundable R&D offset.
5. Limiting Refundable R&D Tax Offset Access to 10 Years	While the Budget proposes expanding access to the refundable R&D tax offset via the increased turnover threshold, it also introduces a new approach of limiting access to a refundable tax offset to the first 10 years of operations.	The Ambitious Australia Report called for changes to the operation of RDTI to better target the program to growth-oriented SMEs with the aim of focusing support on firms actively scaling their innovation activities. To achieve this, it was proposed that a growth-based eligibility test could be introduced where achieving annual revenue growth over the preceding three years would be required to maintain access to the refundable R&D tax offset.	2 out of 5 The Government has accepted the principle of better targeting the refundable R&D tax offset, but not the proposed delivery model. The RDTI reforms put forward in the Budget adopt a time-limited approach to improving the targeting of refundable R&D tax offsets, rather than the growth-based eligibility that the Ambitious Australia Report recommended.
6. Increase in the Maximum R&D Expenditure Threshold	The Budget proposes to increase the cap for R&D expenditure from $150 million to $200 million.	The Ambitious Australia Report called for the removal of the $150 million R&D expenditure cap on the basis that Australia must remain internationally competitive for corporate and multinational R&D investment and recommended stronger incentives for larger firms undertaking R&D in Australia. Recommendation 5d.	3 out of 5 This measure has a clear nexus to the Ambitious Australia Report recommendations, albeit with the Government preferring to maintain an expanded expenditure cap rather than removing it entirely.
7. Increased Minimum R&D Expenditure Threshold	The Budget proposes to increase the RDTI entry threshold from $20,000 to $50,000 in eligible R&D expenditure.	The Ambitious Australia Report proposed a more significant change to the minimum R&D expenditure proposal, recommending that this be increased to $150,000, which would exclude approximately 24% of businesses based on the most recent 2022-23 RDTI Tax Transparency Report data. Recommendation 5a.	4 out of 5 Once again, this measure has a clear nexus to the Ambitious Australia Report and, once again, the Government has preferred to modify the recommendation rather than adopting it as proposed. The outcome, however, will be better for those companies with smaller annual claims of $50,001-$150,000 R&D expenditure.

What other Ambitious Australia recommendations were omitted?

While the Budget adopts several elements of the Strategic Examination's RDTI recommendations, many of the report's more transformative ideas remain absent. These are important to note as it is possible these will be revisited in the future.

Dedicated Startup RDTI Stream

The Ambitious Australia Report recommended a premium startup stream with simplified administration and tailored support.

Not adopted.

Quarterly RDTI Payments

The Ambitious Australia Report proposed quarterly payments to improve startup cashflow and reduce financing constraints.

Not adopted.

Commercialisation and Translation Incentives

One of the report's most significant proposals was broadening support beyond traditional R&D activities to better encourage translation and commercialisation outcomes.

Not adopted.

Collaboration Incentives

The Strategic Examination highlighted the value of offering enhanced incentives for collaboration between industry, universities and research organisations.

Not adopted. No collaboration premium or enhanced offset mechanism has been proposed.

Industry PhD Incentives

The report specifically suggested using the innovation system, including the RDTI, to encourage greater industry participation in PhD programs and researcher mobility.

Not adopted.

Final Thoughts

The Budget demonstrates that the Government has considered the Strategic Examination of Australia’s R&D system. In fact, most of the headline RDTI reforms can be traced in some way back to recommendations in the Ambitious Australia Report that concluded this review process.

However, through the changes that are proposed to the RDTI program, the Government seems to have largely focused on adjusting existing program settings rather than pursuing the more ambitious structural reforms proposed by the expert Strategic Examination panel. There are also examples of the Government proposing reforms that have little to no connection to the Ambitious Australia recommendations and which seem misaligned with the intention of better targeting RDTI benefits, in particular the arbitrary decision to exclude Supporting R&D Activities from the program. This seems little more than a budget balancing exercise to ensure other more generous reforms are able to be offset.

For innovative businesses, it seems that whilst the Government remains committed to the RDTI as Australia's primary innovation incentive, future support will be increasingly directed toward younger firms which will derive maximum value from the program through a 10-year entitlement window for accessing refundable R&D tax offsets.

It is disappointing to see that more transformative and ambitious reforms put forth in the Ambitious Australia Report have been ignored, particularly those aimed at expanded commercialisation, collaboration and early-stage startup support. Hopefully, these are considered in future Budget cycles. In the meantime, we await the outcomes of the ongoing debate of the proposed RDTI reforms and recommend innovative businesses remain informed on how these proposals are ultimately legislated.

Intellect Labs

Beyond the Budget: R&D Tax Incentive reform alignment with the Ambitious Australia recommendations

Final Thoughts

R&D Tax Facts 2026 Issue 2