8 Most Common Areas for R&D Tax Incentive Claims in Australia

The Australian R&D Tax Incentive (R&DTI) is often associated with cutting-edge innovation. In practice, claims tend to come from a fairly consistent set of industries and activity types.

Eligibility is not determined by the industry itself. It is determined by whether the work involves genuine technical uncertainty, a systematic process of experimentation, and the generation of new knowledge. That test, set out in section 355-25 of the Income Tax Assessment Act 1997, applies equally to a SaaS platform and a feedlot, a fintech and a mine site.

According to the ATO's R&D Tax Incentive Transparency Report 2022-23, more than 12,900 companies claimed the R&DTI in that income year, with eight activity areas accounting for the overwhelming majority.

What qualifies as R&D for tax purposes in Australia?

Two activity types are recognised by the legislation. Core R&D activities are the experiments themselves. Supporting R&D activities (s.355-30 ITAA 1997) are activities directly related to core R&D, or carried out for the dominant purpose of supporting it. Both must be registered annually with AusIndustry through business.gov.au.

Who is eligible to claim the R&D Tax Incentive?

The offset rate depends on aggregated turnover. Companies under $20 million receive a refundable offset at the corporate tax rate plus 18.5% (effectively 43.5% for base rate entities). Companies at or above $20 million receive a non-refundable, intensity-based offset, set out in the ATO's rates of R&D tax incentive offset guidance.

If your company is still being formed, our guide to company structures in Australia covers the entity rules that determine R&DTI access.

The 8 most common areas for R&D Tax Incentive claims

Across the claims data published in the ATO's R&DTI Transparency Reports, eight activity areas come up consistently.

1. Software development (advanced or experimental)

Software is one of the largest categories of R&D claims, but only where the work goes beyond standard development. Eligible activity typically involves new algorithms or data processing methods, performance optimisation where the technical limits are not known in advance, novel system architectures, or real-time and high-scale constraints that existing solutions cannot satisfy. The line is sharp: not all software qualifies, only the parts where genuine technical uncertainty existed and experimentation was needed to resolve it.

For SaaS and tech businesses, our tech and SaaS accounting service page sets out how we structure R&D claims alongside revenue recognition and grant compliance. The ultimate guide to accounting for SaaS and IT businesses goes deeper into the operating-model questions.

2. New processes and methodologies

Many businesses innovate not by creating new products, but by changing how things are done. Common examples include new data processing workflows, novel engineering or production methods, improved system architectures, and operational methods that require technical validation. This category is frequently overlooked but is relevant across software, manufacturing, logistics, and services. It applies anywhere the approach to solving a problem is what is being developed and tested.

3. Engineering and manufacturing (product development)

This is one of the most consistent and well-accepted areas of R&D activity, with manufacturing alone accounting for $3.57 billion in claimed expenditure in 2022-23. Typical work includes designing new physical products, modifying existing products for new applications, developing components or assemblies, and improving durability, performance, or efficiency where the outcome cannot be predicted in advance. Physical systems tend to introduce real-world variables (materials, tolerances, environmental conditions) that need to be tested rather than assumed.

4. Prototyping and iterative testing

Prototype development sits at the heart of many successful claims. The work usually involves building early-stage prototypes, conducting stress or destructive testing, iterating designs based on the results, and trialling alternative materials or configurations. This activity aligns directly with the program's concept of systematic experimentation, which is part of why it is so commonly claimed. Early-stage companies should review startup accounting advisory guidance to understand how prototype costs interact with the R&DTI.

5. Construction and civil engineering

Less obvious, but a meaningful area of R&D activity in Australia, with $265 million in claimed expenditure in 2022-23. Examples include developing solutions for difficult ground conditions, designing structures under unusual constraints, solving site-specific engineering challenges, and creating new construction methodologies.

A note of caution: not every site-specific problem is R&D. The work qualifies only where the solution genuinely cannot be determined upfront by a competent engineer using existing knowledge. For builders and trade businesses, our construction and trades accounting service helps separate routine site engineering from genuine R&D.

6. Agriculture and AgTech

Australia's agricultural sector generated $399 million in R&D claims in 2022-23. Common areas include crop yield optimisation, soil and nutrient treatment methods, irrigation and environmental systems, and livestock health and performance. Many of these projects involve field trials by their nature, which makes them inherently experimental and gives them a strong fit with the program's evidentiary requirements.

7. Food and beverage development

This is one of the most under-recognised areas of eligibility. Activities that may qualify include novel product formulations, shelf-life extension, texture and stability challenges, and scaling recipes from small-batch to commercial production. Routine recipe development on its own is not R&D. The work qualifies where there is a genuine technical problem (for example, a stability or preservation challenge that existing methods cannot solve) and multiple trial-and-error cycles are required to resolve it.

8. Mining, energy and resources

Given Australia's industry mix, this sector contributes a significant share of R&D claims, with $1.48 billion in claimed expenditure in 2022-23. Eligible activities typically include new extraction or processing methods, equipment performance in harsh environments, energy efficiency improvements, and resource recovery techniques.

An important caveat: prospecting, exploring, and drilling for minerals or petroleum are statutorily excluded from being core R&D activities under s.355-25(2) ITAA 1997. Where these companies tend to have eligible work is in the experimental development of new refining, processing, or recovery techniques. In some cases, related drilling or sampling work can be claimed as a supporting activity if its dominant purpose is to support an eligible core experiment.

What these eight areas have in common

Ineligible work, by contrast, applies known solutions to predictable problems, follows routine production or development practices, and produces outcomes that a competent professional could have determined upfront. The program is designed to fund risk-taking that genuinely advances technical knowledge, not work that is merely complex, expensive, or commercially novel.

What changed for income years from 1 July 2025

Activities related to gambling and tobacco are now excluded from the R&D Tax Incentive for income years starting on or after 1 July 2025, per business.gov.au. Documentation expectations have also tightened, with AusIndustry and the ATO emphasising contemporaneous records of hypotheses, experiments, observations, and evaluations.

Companies that integrate R&DTI planning with broader tax planning and business advisory and forecasting tend to capture more eligible expenditure and avoid late-stage scoping issues.

Key takeaway

The most common R&D claims in Australia are not necessarily the ones that look the most innovative on the surface. They are the ones where the business was forced to ask: "Will this actually work, and how do we prove it?" When that question cannot be answered without experimentation, you are in R&D territory.

42 Advisory provides end-to-end R&D Tax Incentive advisory, from eligibility assessment and AusIndustry registration through to ATO schedule lodgement and audit support. We also support clients with business tax services and CPA accounting to keep R&D claims aligned with broader compliance.

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