Reforms to the Research and Development Tax Incentive announced by the federal government in late 2025 took formal effect from 1 April 2026, and the Australian technology sector is now working through what they mean in practice. Industry response in the early weeks of the new regime has been mixed, with some operators welcoming the increased clarity around eligible activities while others have raised concerns about the practical impact on smaller technology businesses.

The R&D Tax Incentive remains the largest single program of government support for technology innovation in Australia, with the latest published figures from the Department of Industry indicating program expenditure of approximately $4.3 billion in the most recent reporting year. Changes to its operation are consequential for a meaningful share of the Australian tech sector.

The core changes

The 2026 reforms make four substantive changes to the program’s operation.

The first is a tightening of the definition of core R&D activities for software development claims, with revised guidance materials issued by AusIndustry in March 2026 that narrow the circumstances in which routine software engineering work can be claimed. The new guidance places greater weight on the hypothesis-and-experiment structure of claimed activities and requires more detailed documentation of the technical uncertainty being addressed.

The second is an increase in the refundable tax offset for eligible companies with aggregated turnover below $20 million, from the previous 43.5 percent to 45 percent. The change is modest in percentage terms but represents a meaningful cash outcome for early-stage technology businesses operating at a tax loss.

The third is the introduction of a new collaboration premium, providing an additional offset rate for R&D activities conducted in partnership with publicly funded research organisations. The premium is set at 5 percentage points above the standard rate and is intended to address long-standing concerns about the relatively low rate of industry-research collaboration in Australia compared to peer economies.

The fourth, and most contested, is a revised feedstock adjustment regime that has implications for technology businesses that consume significant cloud computing resources as part of their R&D activities. The new approach changes how cloud infrastructure costs are treated in the eligibility calculation, with practical effects that vary substantially depending on the structure of an individual claim.

Industry response

Response from the Australian technology sector has fallen into roughly three camps.

Larger established technology businesses, with internal R&D claim infrastructure and access to specialist advisers, have generally been positive. The increased clarity around eligible software activities, while narrowing the available scope, also reduces the audit risk that had been a persistent concern under the previous guidance. The collaboration premium has been welcomed as creating useful incentives for the kinds of academic-industry partnerships that several of these businesses had been pursuing in any case.

Mid-stage technology companies — particularly those between Series A and Series C funding stages — have been more cautious. The narrowed software activity definition is expected to reduce eligible expenditure for some businesses in this segment, partially offset by the higher refundable rate for those still below the $20 million turnover threshold. The net effect varies by business, and several advisers contacted for this article indicated that they are working through revised forecasts with clients on a case-by-case basis.

The most concerned response has come from earlier-stage technology businesses and the venture capital community supporting them. Industry advocacy bodies including the Tech Council of Australia and StartupAUS have raised concerns in submissions and public statements that the practical effect of the narrower software activity definition will be to reduce program access for the businesses least able to afford specialist tax advice. Coverage in the Australian Financial Review through April 2026 has tracked these concerns in some detail.

The compliance dimension

A separate element of the reform package, less discussed in industry commentary but potentially more significant in operational terms, is a strengthening of the AusIndustry compliance and review function. The 2025-26 federal budget allocated additional resources to program integrity activities, and early signals suggest these resources are being directed toward more frequent and detailed reviews of mid-sized claims.

Specialist R&D tax advisers report a noticeable increase in information requests on claims lodged in the final months of the previous regime, with several characterising the current review intensity as the highest they have observed in five years. Whether this represents a temporary uplift associated with the regime transition or a persistent shift in compliance posture remains to be determined.

What it means for the broader ecosystem

The Australian Industry Group and the AIIA, in separate briefings during April, have argued that the cumulative effect of the reforms is to shift the distribution of R&D Tax Incentive support away from software-only businesses and toward businesses combining software with hardware, biotechnology, advanced manufacturing, or research collaboration components. Whether this shift is desirable depends substantially on one’s views about the relative strategic importance of software innovation versus other categories of technical work.

The reforms also create new strategic considerations for Australian technology businesses choosing where to base their R&D operations. The collaboration premium, in particular, creates incentives for partnership structures with universities and CSIRO that some businesses had previously found administratively burdensome relative to the available benefit.

Practical effects on R&D spending decisions will only become clear through the second half of 2026, when affected businesses lodge their first claims under the new regime. Until then, much of the sector is in a watching brief, working through revised models with their advisers and waiting to see how the new guidance is interpreted in practice.