Bringing Forward the R&D Tax Incentive and The Role of R&D Financing
Author: Matthew McLean
The R&DTI and the Timing Challenge
For many Australian innovators, research and development is both the lifeblood of their business and one of its largest expenses. Whether it’s a biotech company working towards a clinical milestone, a medtech start-up refining a device or a software developer rolling out a complex new platform, the pathway to commercialisation can be long and resource-intensive.
The R&D Tax Incentive (R&DTI) is designed to offset some of these costs, returning up to 48.5% of eligible expenditure to small and medium enterprises as a refundable tax offset. However, the timing of this refund can present a challenge. In most cases, payment is received well after the expenditure is incurred, sometimes more than a year later. For businesses with tight cash flow, this gap can slow project progress or limit scope.
How R&D Financing Works
R&D financing has emerged as a way to address this timing gap. It involves borrowing against the expected value of an R&DTI refund, using the anticipated payment as security. In practice, this means companies can access part of their refund months before the ATO processes their claim. The funds can then be applied to project costs, potentially allowing a business to progress work sooner than would otherwise be possible.
Providers of R&D financing offer these advances at intervals throughout the year. This structure can allow companies to “recycle” their R&D investment multiple times within a financial year. For example, by reinvesting early accessed funds into additional eligible activities, which in turn increase the value of the next claim.
Risks and Trade-offs
As with any form of borrowing, R&D financing has trade-offs. While it can accelerate project timelines, it also concentrates reliance on the ongoing eligibility and substantiation of R&D claims. If a claim is reduced or rejected, the loan must still be repaid, which can put pressure on cash flow. As such, strong documentation and clear alignment with R&DTI eligibility rules are essential to reduce the risk of disputes or clawbacks.
How SERD Reforms Could Impact R&D Financing
The future role of R&D financing may be reshaped by potential reforms to the R&DTI. The Australian Government’s Strategic Examination of R&D (SERD) Issues Paper (September 2025) highlights the fact that some firms rely on third-party loans to fund early-stage R&D, and that this reliance can limit the program’s impact. One reform option under consideration is to enable advanced payments on a quarterly basis directly through the R&DTI.
This is a potential reform that has been raised in previous reviews over the decades and never acted upon. If implemented however, it may reduce the need for third-party financing, as companies could receive more frequent and timely refunds directly from government.
While for some businesses, such a change would make external R&D loans unnecessary, others, particularly those seeking more flexibility or higher advance rates, would still be attracted to the option.
What This Means for Business
Whether you choose to use third-party financing or wait for your refund, understanding the options available will help you make the right call for your business. Regardless of this decision, the key for claimants is to ensure your R&DTI claims are well-documented and compliant.
At Intellect Labs, we help businesses not only prepare strong R&DTI claims but also understand the funding options available to keep projects moving. If you’re considering R&D financing, or simply want to make the most of your tax incentive, reach out to our team to discuss the best approach for your circumstances.