Accounting impact of changes to non-refundable R&D incentives from 1 July 2021

Entities undertaking R&D activities with turnover greater than or equal to $20 million should note that the amount of R&D incentive you may be entitled to is changing for income years beginning on or after 1 July 2021. You may not be entitled to the same amount you have claimed in previous years for your tax credit/offset, i.e. 38.5% of your eligible R&D expenditure. There is now a new method for determining the amount of your R&D tax offset.

Two-tiered premium depends on R&D intensity

For income periods beginning on or after 1 July 2021, entities with turnover greater than or equal to $20 million are subject to a two-tier system based on the entity’s R&D intensity for determining the non-refundable R&D incentive.

Tier R&D intensity R&D premium over normal company tax rate
1 Up to 2% 8.5%
2 >2% 16.5%
Excess N/A Excess over $150 million is at company tax rate

What is R&D intensity?

R&D intensity is the intensity of R&D expenditure as a proportion of total expenditure for the year. It is calculated as follows:

R&D intensity = Eligible R&D expenditure
                                 Total company expenditure

For R&D intensity up to 2% of total company expenditure, the entity will receive an R&D incentive of 8.5% above the company tax, and for R&D intensity above 2%, it will receive an R&D incentive of 16.5% above the company tax rate.


Entity ABC incurs total R&D expenditure of $1 million. Its total expenditure is $10 million; therefore, its R&D intensity is 10%.

Its aggregate turnover is $50 million so its company tax rate is 25% for the tax year ended 30 June 2022.

Entity ABC is entitled to a non-refundable R&D incentive of $399,000 (to be set-off against its income tax liability) which is calculated as follows:

R&D expenditure
Normal company tax rate plus R&D premium
R&D incentive
(A X B)
Amount if ordinary deduction @ 25% tax rate Incremental benefit of R&D incentive compared to 25% company tax rate (as an ordinary deduction)
$   $    
$200,000 33.5% (25% + 8.5%) 67,000 50,000 17,000
$800,000 41.5% (25% + 16.5%) 332,000 200,000 132,000
Total   399,000 250,000 149,000


As the new intensity measures only affect the quantum of the R&D incentives, there should be no change to the accounting for the non-refundable R&D incentives. Please refer to our November 2020 Accounting News article for detailed examples on the different methods that can be used to account for non-refundable R&D incentives.

More information

If you would like to access to more detailed information regarding R&D incentives (how they work and accounting for them), we have a two-hour recorded session available at a cost of $150. Please contact Aletta Boshoff for more information.

Need help?

If you need assistance with accounting for R&D incentives, please contact BDO’s IFRS Advisory Team and for in-depth advice on the R&D incentive, please contact your local R&D tax expert.

Subscribe to Corporate Reporting Insights


This publication has been carefully prepared, but is general commentary only. This publication is not legal or financial advice and should not be relied upon as such. The information in this publication is subject to change at any time and therefore we give no assurance or warranty that the information is current when read. The publication cannot be relied upon to cover any specific situation and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact the BDO member firms in Australia to discuss these matters in the context of your particular circumstances.

BDO Australia Ltd and each BDO member firm in Australia, their partners and/or directors, employees and agents do not give any warranty as to the accuracy, reliability or completeness of information contained in this article nor do they accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it, except in so far as any liability under statute cannot be excluded. Read full Disclaimer.