Diverging approaches to R&D support across the Tasman

Handed down only weeks apart, the 2026 Budgets in Australia and New Zealand propose some significant changes to each country’s respective research and development tax incentive (RDTI) regimes.

Whilst both governments present the reforms as a way to improve how public support is targeted, the proposed changes move in notably different directions. Australia’s package is significantly broader and more structural, combining stronger headline benefit rates with tighter eligibility and refundability settings. New Zealand’s package is narrower, focusing on administrative flexibility, improved cashflow timing and sector-specific expansion, while also tightening support for internal software development.

In this article, we compare the current regime settings and proposed changes between the jurisdictions.

Summary of the proposed changes

Australia has proposed reforms to apply from 1 July 2028. The key measures include:

• An increase in the rate of offset by 4.5 per cent
• A reduction in the threshold for the intensity premium from 2 per cent to 1.5 per cent
• Removal of eligibility of expenditure incurred on supporting R&D activities
• Lifting the maximum turnover threshold for accessing the refundable tax offset from $20 million to $50 million
• Limiting refundability to companies less than 10 years old
• Increasing the minimum spend from AUD $20,000 to $50,000.

New Zealand has announced changes principally intended to apply from the 2027/28 income year. The key measures include:

• Introducing in-year payments to allow eligible claimants to access cash on a quarterly basis
• Expanding eligibility for mining expenditure
• Introducing administrative flexibility to correct minor errors and accept late returns
• Reducing the cap on non-administrative internal software development from $25 million per year to $3 million per year.

Comparison at a glance

	Australia		New Zealand
	Current Setting	Proposed	Current Setting	Proposed
Benefit available	18.5 per cent if below AUD $20 million aggregated turnover 8.5 per cent to 16.5 per cent if above AUD $20 million aggregated turnover	23 per cent if below AUD $20 million aggregated turnover 13 per cent to 21 per cent if above AUD $20 million aggregated turnover	15 per cent	No proposed change
Treatment of base tax deduction	Tax deduction replaced by a tax credit	No proposed change	Tax deduction supplemented by a tax credit	No proposed change
Qualifying activities	Core and supporting activities	Core activities only	Core and supporting activities	No proposed change
Minimum spend	AUD $20,000	AUD $50,000	NZD $50,000 No minimum spend if using an approved research provider	No proposed change
Refundable	Yes, if below AUD $20 million aggregated turnover. Can include timing benefit of cashing out losses	Yes, if below AUD $50 million aggregated turnover and company is less than 10 years old. Can include timing benefit of cashing out losses	Yes, capped at labour related taxes, paid Losses may be cashed out under the separate R&D Loss Tax Credit regime	No proposed change
In-year payments available	No	No proposed change	No	Yes

 

Comparing the Australian and New Zealand approaches

At a high level, both reform packages seek to ‘better target’ fiscal support and improve the cost effectiveness of government spending on business innovation.

However, the balance of measures differs materially. Australia’s proposed reforms seek to fundamentally reshape the structure of the incentive by increasing the benefit available for a narrower subset of activities. The proposed increase in offset rates and lower intensity threshold should improve the value of the incentive for some claimants, particularly medium to large or more established businesses undertaking substantial core R&D activities.

Lowering the threshold for the intensity premium will reduce the R&D spend required to access the premium rate for companies with high overheads or cost of goods sold, such as those in the manufacturing sector. Increasing the aggregated turnover threshold from $20 million to $50 million for the non-refundable tax offset will also bring the program in better alignment with the broader tax system. However, these gains are accompanied by significant restrictions. Removing supporting R&D expenditure from eligibility would narrow the practical scope of claimable activities, while restricting refundability to younger companies less than 10 years old could materially reduce cash support for more mature but still research-intensive businesses.

By contrast, New Zealand’s changes are more incremental, with the most business-friendly measures aimed at improving administration and cashflow, while the principal tightening measure is directed at a specific category of expenditure, being internal software development.

In New Zealand, the proposed in-year payment mechanism could improve cashflow timing, especially for early-stage businesses, although the cashflow benefit is limited by the amount of labour-related taxes paid. The proposed expansion of eligible mining expenditure also removes a sector-specific constraint and brings mining more closely into line with other industries. The administrative changes should reduce inadvertent non-compliance and lower the consequences of minor filing errors. The principal negative change is the sharp 88 per cent reduction in the internal software development cap, which may affect digital businesses and other companies investing in internal software to improve automation, productivity, products and services.

BDO insights

We acknowledge some advantages to the proposed reforms in both jurisdictions. In Australia, we welcome the higher offset rates, reduced threshold for the intensity premium, and increasing the aggregated turnover threshold. We are, however, concerned about the potential impact of removing eligibility for supporting activities. This diverges from the accepted definitions of R&D posed by the Frascati manual, which is used by the Organisation for Economic Cooperation and Development (OECD) as a common guideline for R&D tax regimes.

We also disagree with the proposal to limit refundability to companies less than 10 years old, as this does not align with the likely benefit of innovation and does not account for R&D progressing at different rates. This measure also stands to effectively punish an existing business which may choose to invest in R&D at any time in its journey.

In New Zealand, we welcome the introduction of in-year payments, as well as the additional administrative flexibility for Inland Revenue, and the expansion of eligible mining expenditure. These measures overall should improve access to the program, along with benefits to fairness and practical administration. We note that continued support for broad refundability in New Zealand now diverges from the Australian approach, particularly for larger businesses as well as established R&D-intense businesses.

Nevertheless, the New Zealand Government’s decision to reduce the internal software development cap is disappointing, particularly given evidence from the Government’s five-year evaluation of the RDTI indicating strong additionality from the incentive and broader economic gains. The Government’s own modelling highlights the importance of software and digital technologies to New Zealand’s economy, and this change may discourage claimants from making significant investments in digital technology.

How BDO can help

For businesses considering undertaking R&D in Australia or New Zealand, the rules are becoming more nuanced. The right structure, documentation and timing can make a difference to the value of available incentives.

Whether you are assessing where to undertake R&D activity, reviewing the eligibility of planned expenditure, or preparing for proposed reforms, BDO’s R&D and government incentive specialists can help you understand how the changing rules may apply to your business. We work with clients to identify eligible activities, strengthen contemporaneous documentation, assess cross-border structuring considerations and support claims with confidence in both jurisdictions. If your business is investing in innovation, contact us to review your approach and ensure you are well positioned for the changes ahead.