R&D Tax Incentive exclusions: Gambling and tobacco

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The proposed exclusions of gambling and tobacco related activities from the R&D Tax Incentive (RDTI) program have since passed through the Senate and introduced into law as of 29 June 2026. While the breadth of the exclusions and potential unintended consequences were subject to stakeholder concerns raised during the consultation process, the legislation received royal assent with minimal amendment, applying to income years on or after 1 July 2025.

Key concerns were raised from industry surrounding the potential scope attributed to the use of the terms ‘related to’ and ‘gambling like practices’ in the legislation, and the potential unintended impacts on R&D activity resulting in products used in adjacent industries including the gaming industry. Although there is a carve-out for R&D activities conducted for the purposes of generating new knowledge about harm minimisation, those activities must be ‘conducted solely’ for that purpose, introducing further uncertainty around the scope of ‘harm minimisation’.

The legislation also limits the binding effect of Advance Findings in relation to the new gambling and tobacco exclusions. Consequently, where an activity previously found eligible under an Advanced Finding falls within the scope of the new exclusion provisions, the Commissioner is no longer bound by that existing Advance Finding for relevant income years on or after 1 July 2025.

BDO comment

As provided by BDO in response to Treasury's consultation on the draft legislation in January 2026, our main issues with these legislative changes are:

  • The new legislation represents a significant change to the industry-agnostic approach that the RDTI has historically taken, acting as a mechanism by which the Government can choose to exclude industries entirely
  • The breadth of the exclusions is too broad, with the terms ‘related to’ and ‘gambling like practices’ threatening to exclude eligible R&D activity conducted adjacent to gambling and tobacco such as gaming, but which do not contribute to the delivery or promotion of these products or services
  • Unlike other excluded activities from the R&D Tax Incentive, which may still qualify as supporting R&D activities when undertaken for the dominant purpose of supporting eligible core R&D activities, the gambling and tobacco exclusion prevents these activities from qualifying as supporting activities. This represents a significant departure from the industry-agnostic intention of the legislation and establishes a precedent where access to the regime could be restricted for other industries based on government policy objectives at the time rather than the nature of the R&D activity being undertaken
  • The exclusion of activities relating to tobacco may also extend to the development of products that incorporate tobacco-derived materials or tobacco products as inputs, such as certain cosmetics or flavourings, despite the final products not intended to encourage, promote or facilitate tobacco consumption
  • The introduction of ‘sole purpose’ into legislation is inconsistent with existing legislation and case law that recognise there is often more than one purpose for industry R&D
  • The removal of the binding of the Commissioner to Advance Findings sets a worrying precedent, possibly deterring companies from committing to long-term planning and investment in R&D
  • These changes will do little to impact on the incidence, or profitability of gambling and tobacco businesses, with the more likely option being reduced investment in Australia, and jobs for Australian software engineers being relocated offshore.

While it is currently unclear how these legislative changes will play out in practice, the main issues will be faced by companies undertaking R&D activities that are adjacent to or have applications within the affected sectors. The broad nature of the exclusions creates uncertainty as to where the boundary lies between eligible and excluded activities, potentially forcing companies to either adopt a conservative position and forgo otherwise claimable expenditure, or claim in full and face increased scrutiny during a review. In such cases, the ambiguity surrounding the scope of activities considered to be ‘related to’ the excluded sectors may result in unfavourable outcomes for claimants.

How BDO can help

BDO is closely monitoring how the legislative changes will impact claimants of the R&D Tax Incentive.

If you would like to discuss how these changes may affect your organisation or explore strategies for managing R&D investment under evolving policy settings, please contact BDO’s R&D and government incentives specialists.

Key takeaways

R&D Tax Incentive exclusions for gambling and tobacco are now law
  • The exclusion of gambling and tobacco related activities from the R&D Tax Incentive applies to income years starting on or after 1 July 2025. The changes also limit the binding effect of existing Advance Findings where activities fall within the scope of the new exclusion provisions.
Broad exclusion definitions create uncertainty for adjacent industries
  • Industry concerns focused on the breadth of terms such as ‘related to’ and ‘gambling-like practices’, which may affect R&D activities connected to, or with applications in, sectors adjacent to gambling and tobacco. The scope of the exclusions has raised questions about where the boundary sits between eligible and excluded activities.
Businesses may need to reassess R&D eligibility and claim positions
  • The broad nature of the exclusions creates uncertainty for organisations undertaking activities adjacent to the affected sectors, potentially affecting how they assess eligibility and R&D claims. Businesses may need to consider whether activities previously regarded as eligible are impacted by the new provisions.

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