R&D tax reforms leave serious industry concerns unresolved

The Government has introduced the Treasury Laws Amendment (Tax Reform No. 4) Bill 2026 without materially addressing two central concerns raised about its proposed Research and Development (R&D) Tax Incentive changes: the removal of supporting R&D eligibility and time limits on access to refundable offsets. Although the Bill broadens aspects of the proposed startup capital gains tax (CGT) concession, its retention of these R&D restrictions leaves a substantial gap between consultation and substantive policy change.

Widespread industry concerns have not been materially addressed. Our experts raised objections via a submission to both restrictions during consultation. The Government, meanwhile, describes the reforms as better targeting support for business R&D and productivity while moderating growth in the incentive’s fiscal cost.

Startup capital gains tax concession

The proposed Innovative Business CGT Concession (IBCC) would provide eligible founders, employees and investors with a 50 per cent CGT discount on qualifying equity investments. The proposal retains a 15-year company eligibility window, a three-year investor holding period and a $50 million turnover ceiling, together with Australian workforce and asset requirements. The proposed lifetime cap remains removed.

The Bill reduces the predominant-activity threshold from more than 75 per cent to more than 50 per cent across at least two of three measures: assets, workforce and income. Contractors and other service providers may count towards the workforce measure, and assets held for future qualifying use may count towards the asset measure. Assessment would generally use the most recently completed financial year. Companies without a previous financial year would be assessed on reasonable expectations for their first year.

The period over which a company must intend to continue qualifying activities is reduced from five years to three years after registration. This requirement is separate from the three-year investor holding period. A company could also make an irreversible election to stop issuing IBCC-qualifying equity while preserving concessions for existing holdings, provided it meets the activity test from registration until three years after giving notice.

The relevant period for long-term activity protection is reduced from 20 years to 18 years, with revised wording intended to prevent automatic disqualification. Reporting failures or incorrect information could nevertheless result in cancellation. A public register would record registration status, suspensions and certain rulings. The Bill also removes some annual reporting obligations and adjusts transitional rules to avoid unnecessary retesting of existing companies against current age and turnover limits. However, fundamental issues remain, such as the inability to access the relief where a holding company is used. It also does not provide automatic preservation of IBCC status for certain restructures and scrip-for-scrip transactions.

R&D consultation leaves the central objections unresolved

The Bill retains the proposed removal of supporting activities whilst providing higher offset rates for core R&D activities. A higher rate on a narrower expenditure base does not necessarily mean greater support: businesses with substantial supporting expenditure could receive less assistance despite continuing the same research program. Retaining the exclusion leaves the central objection unanswered—whether separating experimental work from the activities that enable it reflects how business R&D is actually conducted.

A new power would allow the treasury minister, after consulting the industry minister, to designate activities integral to experimental research. This is not a general restoration of supporting R&D eligibility and does not, by itself, give affected businesses certainty about which activities will qualify. Leaving that question to subsequent ministerial determinations is a limited response to concerns about the scope of the exclusion, impacts on commercial investment decisions around R&D, makes Australia’s R&D support less globally competitive, and digresses from the original intention of the research and development tax incentive (RDTI) to be simpler and accompanied by improved administrative arrangements.

The proposed general limit on refundable-offset eligibility remains 10 years, with a 15-year limit for eligible therapeutic-goods research. The $50,000 minimum expenditure requirement also remains, subject to exceptions for Research Service Providers and Cooperative Research Centres. Older companies may retain access to higher rates through a non-refundable offset, but that is not equivalent to a cash refund for a loss-making business. The time limits and uncertainty around ‘carrying on an enterprise’ therefore leave unresolved the concern that company age is an inadequate proxy for either a business’s capacity to fund research or the merits of its R&D. Long development cycles do not necessarily end when refundable support does.

For therapeutic research, the Bill removes the proposed company-initiated finding process and an explicit reference to research into the therapeutic use of goods. Further consultation on activities including clinical manufacturing and specialised technology development is planned for early 2027, without a stated deadline for resolving those matters. Further consultation may help clarify the rules, but it does not answer the immediate concern that the legislation is advancing while important questions about eligibility remain unsettled.

Venture capital measures

The proposed higher fund and investee thresholds for venture capital incentives remain unchanged from the September draft. The Bill also clarifies the treatment of carried interest through trusts, with relief continuing to depend on qualifying investments.

Parliamentary scrutiny must address the substance

The Government has made changes to the proposed startup concession, but its response to the central R&D objections remains inadequate. Higher core offset rates and a ministerial designation power do not, on their own, resolve concerns about a narrower eligible expenditure base or the loss of refundable support for older, loss-making innovators. On the Bill as introduced, the consultation process has not produced substantive changes to these contested restrictions. Parliamentary scrutiny should now test whether the proposed savings and targeting benefits justify those consequences, rather than treating further consultation as a substitute for resolving them before passage.

How BDO can help

BDO’s R&D and Government Incentives team can help you assess how the proposed reforms may affect your eligibility, funding position and future R&D investment decisions. Contact our team to discuss the potential impact on your business and the practical steps you can take to prepare.