Increasing regulatory burden for R&D tax claims


Updated: 
Authors: Dave Smith

This article will be published in the September 2025 edition of CONNECTOR by the Australian Information Industry Association.

The recent report ‘Unlocking Australia’s R&D Potential’, commissioned by the Business Council of Australia, reveals that improved R&D policies could have a positive spillover to the economy and increase productivity growth. Despite this, recent regulatory and administrative changes may have the unintended effect of adding complexity and compliance costs for claimants of the R&D Tax Incentive (RDTI) program, Australia’s flagship innovation program.

The changes introduced by the Department of Industry, Science and Resource (DISR) contrast with calls from the Productivity Roundtable to reduce regulatory burden where possible. While the original intention of the RDTI program was to streamline administrative processes, ensure consistent public support for business R&D, and deliver value for money for taxpayers, these changes may contradict this goal by increasing regulatory burden.

New R&D application form

The new R&D application form was released by DISR with immediate effect on the 15 August 2025 with minimal consultation from industry. Additional questions were added, some existing questions were split, and character limits were expanded with the aim of making it easier for users to self-assess the eligibility of R&D activities against the legislation. Whilst the expansion of character limits is welcomed, many of the additional questions are identical to those in the Advanced Finding form. However, the purpose of the Advanced Findings form is to formally examine activity eligibility, whereas the primary function of the R&D application form is to register R&D activities in the context of a self-assessment program.

Many of the questions are superfluous or not relevant for most claimants, such as whether the activities are covered by a Determination when there is only one Determination related to clinical trial activities that exists, or provides the FTE of the primary contractor. The new form also contains several questions where the relevance to self-assessment is unclear, such as ‘how much did the RDTI influence whether you went ahead with this project?’ with limited response options of ‘significantly’, ‘somewhat significantly’ or ‘not at all’. Several new questions such as the ‘beneficiary’ question are more relevant to the Australian Tax Office (ATO). The form also encourages applicants to provide stronger evidence of the documentation types maintained to substantiate their claim. This fails to consider the recent Administrative Review Tribunal (ART) Body By Michael case, which emphasised there is no statutory requirement for contemporaneous documentation under the legislative criteria.

Whilst many industries seek to embrace new technologies and innovations that improve business efficiencies, DISR’s new R&D application has added layers of compliance that many view as duplicative, overly prescriptive, and misaligned with the self-assessment nature of the RDTI program without any clear benefit. 

Streamlining of R&D activity reviews

In mid-2025, DISR, who is tasked with determining activity eligibility, announced that informal risk assessments and education visits that were part of the former Integrity Framework will no longer occur or be offered. Instead, only formal examinations of R&D activities will be conducted where DISR are concerned that the taxpayer has a 'high risk of ineligibility'. Of particular concern is the announcement that if DISR finds that one statutory element of an activity is not satisfied or substantiated (such as the ‘outcome could not be known' requirement), then the activity will be rejected without further analysis of the activity in terms of the statutory eligibility criteria. Whilst this new risk-based approach is reasoned to streamline the activity examination process and remove duplication, there is currently no guidance as to what may constitute a ‘high risk of ineligibility’ or non-compliance. This uncertainty is compounded by the additional questions and detail requested in the new application form, some of which as noted above, seem to be irrelevant or at odds with recent case law. Whilst streamlining the review process is welcomed, additional practices that improve transparency are encouraged to support business R&D.

Proposed gambling and tobacco exclusions

As part of its 2024-25 Mid-Year Economic and Fiscal Outlook, the Federal Government announced its intention to exclude R&D activities relating to gambling and tobacco from RDTI eligibility for income years starting on or after 1 July 2025. Whilst a Bill introducing the proposed changes is yet to be introduced into Parliament, there is an expectation that R&D activities focused on reducing addiction or health risks, like self-exclusion tools for gamblers or dependency reduction for tobacco users, may still qualify. Nonetheless, it raises the concern of the policy shift from an ‘industry agnostic’ to a sector-specific approach that reduces R&D stability and business confidence.

How will the changes impact you?

Although these changes to the regulatory and administrative framework of the RDTI are new and somewhat more burdensome, the activity eligibility criteria have not changed since the program was introduced in 2012. In recent years, DISR’s interpretation of R&D activity eligibility for software claims has aligned more with industry practice and case law, as demonstrated in their recent software R&D guidance. The apparent acceptance by DISR of Jira tickets, code repositories and software versions as evidence of eligible software R&D suggests that claimants of the RDTI in the technology sector may already be retaining suitable evidence that they are undertaking eligible R&D activity.

How BDO can help

BDO’s R&D and Government Incentives team has significant experience in supporting clients in the technology sector successfully claim their activities under the RDTI. Contact us for advice today.

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