R&D Tax Incentive for software development: what qualifies in Australia?

How does the R&D Tax Incentive treat software?

The R&D Tax Incentive (R&DTI) treats software like any other field: the technology doesn’t make work eligible, the experiment does. A software activity can be a core R&D activity if it resolves a technical hurdle that existing knowledge, methods or solutions can’t, even for experienced professionals, and the way through can only be found by testing a hypothesis.

The program is jointly administered. The Department of Industry, Science and Resources registers R&D activities, and the Australian Taxation Office processes the expenditure claim in your company tax return. It runs on self-assessment: registration confirms your activities have been registered, not that they are eligible. If the department reviews your claim, it assesses your activities against sections 355-25 and 355-30 of the Income Tax Assessment Act 1997.

The Government announced changes to the program in the 2026 to 27 Budget that would start from 1 July 2028, including removing supporting R&D activities from the offset and raising the minimum spend to $50,000; the ATO notes the measure is not yet law, and the current rules apply until then.

This guide explains the eligibility rules as they apply to software. It doesn’t tell you what your claim is worth. For the benefit calculation, talk to a registered R&D tax agent; for how the program interacts with project budgets, see how the R&D Tax Incentive affects the cost of building software.

Who is eligible for the R&D Tax Incentive?

Only an R&D entity can claim, and that means a corporation. business.gov.au lists three kinds: a company incorporated under an Australian law, a foreign company that is an Australian resident for tax purposes, and certain foreign companies carrying on business here through a permanent establishment under a double tax agreement. Sole traders, partnerships and most trusts don’t qualify in their own right.

Your R&D expenditure for the income year generally needs to be at least $20,000. That threshold doesn’t apply if you engage a registered research service provider or contribute to the Cooperative Research Centres Program.

Is the R&D Tax Incentive a tax credit or a rebate?

In Australia it is a tax offset, not a credit or a rebate, although many people search for it as the “R&D tax credit” or “R&D tax rebate”. The offset is claimed in the company tax return after the activities are registered.

business.gov.au describes two forms, depending on aggregated turnover:

Company	Type of offset
Aggregated turnover under $20 million	Refundable R&D tax offset
Aggregated turnover of $20 million or more	Non-refundable R&D tax offset

What a claim is worth depends on the company’s tax position, its eligible expenditure and how the rules apply to it, so we don’t quote a figure here. A registered R&D tax agent can work out what applies to your company. The “R&D tax credit for software development” material you’ll find online is often written for the US program, which has different rules.

What is a core R&D activity in software?

A core R&D activity is an experimental activity, conducted to generate new knowledge, whose outcome can’t be known or determined in advance and can only be determined by a systematic progression of work: hypothesis, experiment, observation, evaluation and logical conclusions.

In software terms, business.gov.au describes it as hitting a specific technical hurdle that stops progress, working with people who know the field to form a proposed solution, and then planning and running work to test it because nobody can say in advance whether it will work. The guidance is blunt about one common mistake: testing that doesn’t need a hypothesis to resolve a technical hurdle isn’t part of a systematic progression of work.

Three conditions, then, have to hold at the same time:

Condition	What it means for a software team	What usually fails it
Unknown outcome	No available information says whether your proposed solution will work	The answer exists in vendor docs, published research or a competent engineer’s experience
Systematic progression	You formed a hypothesis, designed an experiment, observed, evaluated and concluded	Trial and error with no stated hypothesis or record of results
New knowledge	The purpose is to learn something that wasn’t known	The purpose is only to ship a feature using known techniques

For a closer look at the first condition, read what counts as technical uncertainty.

What is a supporting R&D activity?

A supporting R&D activity is one that is directly related to a core R&D activity. Examples include a literature review to refine a hypothesis, building a test harness the experiment needs, or preparing the data an experiment will consume.

Some supporting activities have a second test. If the activity is on the excluded list, or it produces goods or services (or is directly related to producing them), it must also be done for the dominant purpose of supporting core R&D. business.gov.au defines dominant purpose as your “prevailing or most influential purpose”. Activities you would have done anyway, without any R&D, are unlikely to meet it.

This matters in software because a lot of the surrounding work, such as building the production version of a feature after the experiment answered the question, is producing a product. It may still be supporting R&D, but only if its main purpose was to support the experiment rather than to deliver the product.

Which software work usually isn’t core R&D?

Routine development, however difficult, is generally not core R&D. The software sector guide says development can be technically complex, have implementation challenges or be commercially novel and still involve applying existing knowledge, techniques and tools to reach a defined outcome.

The guide gives examples that are generally ineligible as core R&D, though some may still be supporting activities:

• Applying documented configuration options
• Integrating third-party services by following vendor documentation
• Assembling user interfaces from known components
• Building dashboards using established patterns
• Migrating data with known tools

Our R&D page lists the same shape of work from an engineering view: UI restyles, well-documented API integrations, bug fixes, maintenance and routine deployment rarely involve a technical hurdle.

What is the internal administration exclusion?

Developing, modifying or customising software for the dominant purpose of internal administration is excluded from core R&D. It is the Australian counterpart to what US guides call “internal use software”, but the test and wording are different, so don’t rely on US material. The exclusion covers software whose main use is the internal administration, including of business functions, of the company that develops it, a connected entity or an affiliate.

Two points in the official guidance narrow its reach. It is not intended to catch software developed in-house that is applied in nature, such as software forming part of an electrical or mechanical device. And it doesn’t capture software where the dominant purpose is to sell the product commercially, even if that product is business administration software.

Scenario	Likely treatment of the exclusion
A company builds an internal rostering and payroll tool for its own staff	Likely caught: dominant purpose is internal administration
A SaaS company builds rostering software to sell to other businesses	Not caught by this exclusion, though each activity still has to meet the core or supporting tests
A manufacturer builds control software that runs inside its own equipment	Not intended to be caught: applied software forming part of a device
A group builds a finance system shared by its related companies	Likely caught: the exclusion extends to connected entities and affiliates

An excluded activity can still be a supporting R&D activity if it is directly related to a core activity and done for the dominant purpose of supporting it. That is a narrow path. Take advice before relying on it.

What is the R&D Tax Incentive deadline, and how do you apply?

You must apply to register within 10 months of the end of the income year in which the R&D was done. For a company with a 30 June year end, that is 30 April the following year. You register every income year you want to claim, through the department’s R&DTI customer portal, then put your registration number in the R&D Tax Incentive schedule of your company tax return.

business.gov.au sets out four steps: self-assess your eligibility, conduct the R&D and keep records, apply to register within the deadline, and claim the tax offset with the ATO. The department’s “Registration: application form questions” guidance explains what the application asks, including how supporting activities can be grouped under the core activity they relate to.

Here is how one income year plays out for a company with a standard 30 June year end:

Date	What happens
Before or during the work	Optional: apply for an advance finding if you want the department’s view on eligibility first. Get an overseas finding before relying on any overseas R&D; the application must be made before the end of the income year in which the overseas work is done
1 July 2025 to 30 June 2026	Income year: run the experiments and create records as you go
From 1 July 2026	Apply to register the year’s activities with the department
30 April 2027	Registration deadline for that income year
After registration	Claim through the company tax return using the registration number
5 years after you claim	Earliest you can stop keeping the supporting records

If you miss the deadline, you can request an extension of time, but don’t plan around one.

What records does a software claim need?

The ATO requires records showing that you are claiming eligible core or supporting R&D activities and that the claim amount is correct and based on eligible expenditure, created at the time the work is done. It calls these contemporaneous records, keeps them in scope for 5 years after you claim, and notes that ordinary business and tax records often won’t cover everything.

business.gov.au’s software guide says records should show the technical hurdle and why existing solutions failed, the hypothesis-led experiments, and the purpose of the work. It names formats software teams already produce: issue trackers, spike tickets, architecture decision records, test plans and outputs, logs, performance graphs, design notes, chat messages and meeting notes.

A practical checklist for each work package you think might be R&D:

1. Write down the technical hurdle in one paragraph, including what you checked (docs, papers, vendor support, experts) and why it didn’t answer the question.
2. State the hypothesis before the work starts: what you’ll try, what result would prove or disprove it, and how you’ll measure it.
3. Tag the tickets, branches and pull requests for that experiment so the work is traceable.
4. Record each run: configuration, data, results, and what you concluded.
5. Log engineer time against the work package, separating experiment time from routine delivery time.
6. Keep supplier invoices split the same way, so expenditure maps to activities.
7. Note when the experiment ended and what new knowledge it produced.
8. Store it all somewhere your R&D tax agent can read it, in English, for at least 5 years after the claim.

How All Webbed Labs approaches R&D-heavy builds

We are software engineers, not a registered tax agent, so we don’t assess eligibility, prepare registrations or lodge claims. What we can do is run the project so the evidence exists. When a client tells us the R&DTI matters to them, we set up a technical uncertainty register at discovery, keep hypotheses, experiment logs and results alongside the code, track time per work package, and split invoices to match. The client’s R&D tax agent then works from records made at the time rather than reconstructing them afterwards.

Most of our builds contain plenty of routine work, and we say so. If an honest read of your project finds no real technical hurdle, that is useful to know before you budget around an offset. See how we document projects on our R&D Tax Incentive page, how we scope work in a discovery phase, or our custom software development service.