R&D Tax Incentive – Offshore Developers
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Why Offshore Developers Don’t Qualify for the R&D Tax Incentive
The R&D Tax Incentive is designed to support innovation happening within Australia. That means:
- The actual R&D must be conducted in Australia
- The people performing the R&D must be physically in Australia
Even if you engage an Australian business, if they outsource the work to overseas developers, those costs are not eligible.
The Common Misconception: ABN = Eligible R&D
Many businesses assume:
“We hired an Australian company, so we can claim the R&D work.”
But if that company outsources coding work to developers in the Philippines, India, Indonesia, or anywhere offshore, those costs will be rejected in an R&D claim.
What About an Overseas Finding?
There is one way to claim offshore development costs—you need an Overseas Finding before the work starts. However, these applications have strict criteria and are not guaranteed. If you haven’t secured an Overseas Finding before engaging offshore developers, those costs won’t be claimable.
Even if you apply for an Overseas Finding, it’s still unlikely to be approved if the work could reasonably be done in Australia. The government expects businesses to conduct R&D locally unless there’s a compelling reason why the work cannot be performed here—for example, if specific expertise, facilities, or materials are only available overseas.
Most software development doesn’t meet that test. If you’re engaging offshore developers simply to save money, that won’t be enough to justify an Overseas Finding. AusIndustry isn’t interested in cost savings—it’s about whether the work is impossible to do in Australia. In almost all cases, coding can be done locally, so an Overseas Finding is rarely granted for software projects.
If you’re counting on an Overseas Finding to claim R&D costs for offshore developers, assume it won’t be approved unless you can prove there’s no way to do the work in Australia.
Example: Two Software Development Teams, Two Different R&D Outcomes
Let’s say you’re choosing between two software development providers for your project:
- Team A– An Australian company with offices in Sydney, but their developers are in the Philippines.
- Team B – An Australian company with all developers physically based in Melbourne.
Not sure if your R&D claim is compliant?
Call Bulletpoint on 1300 658 508 before the ATO starts asking questions.
How to Make Sure Your R&D is Done in Australia
Before engaging a developer, don’t just assume their entire team is in Australia. Many businesses get caught out because they hire an Australian company without realising the work is actually being done offshore. To avoid losing out on your R&D claim, take these steps before signing any contracts:
Key questions to ask your developer:
- Where are your developers physically located? – Don’t just take their word for it—ask for specifics. Are they working from an Australian office, or are they offshore?
- Will any part of my project be outsourced overseas? – Many Australian companies use offshore teams for cost savings, even if the project management is done locally.
- Who will be working on my project?– Request a list of key personnel and their locations. Look for LinkedIn profiles or company staff pages to confirm.
- Do you have Australian-based coders? – Some companies only have an Australian ABN but do 100% of their development offshore. If their coders aren’t in Australia, you won’t be able to claim their costs.
- Can you confirm in writing that all development will be completed in Australia?– A contract stating that all R&D work is done locally helps ensure compliance.
Don’t Assume the ATO Won’t Check
A lot of businesses think that if they engage an Australian company, the ATO and AusIndustry won’t dig into where the work was actually done. That’s a risky assumption.
The ATO has multiple ways to confirm whether the development work was genuinely carried out in Australia, and if they find otherwise, your R&D claim will be rejected. Here’s how they check:
- Company Records & Business Registrations – If the developer is an Australian company but has no local employees, that’s a red flag. The ATO can check ABN and ASIC records to see how the company operates.
- Payroll & Tax Data – If an Australian-registered company claims to have local developers but their payroll records show payments going to overseas accounts, that’s clear evidence the work wasn’t done there.
- LinkedIn & Staff Profiles – A quick check of the company’s team on LinkedIn or their website can reveal if their developers are actually based offshore. If all their staff are listed in the Philippines, India, or Indonesia, it’s not going to fly.
- Timesheets & Work Logs– The ATO requires detailed R&D records. If the logs show developers working in overseas time zones, it’s easy to prove the work wasn’t done in Australia.
- Contract & Financial Audits – If a business claims R&D costs for a local developer, the ATO can request contracts and invoices. If the invoices trace back to an offshore team, the costs will be rejected.
How to Claim R&D When Your Developer Uses Offshore Staff
A common issue businesses face is hiring an Australian software development company, only to realise later that much of the actual work is being done offshore. If you’re in this situation, don’t panic—there’s a way to separate eligible and ineligible costs so you can still claim the local component of your R&D.
Before lodging an R&D claim, you need clear visibility on where the work is being done. Ask your software provider for:
- A list of staff who worked on the project
- Their location (Australia or overseas)
- A cost breakdown that separates local and offshore expenses
Most reputable software firms can provide this. If they hesitate, that’s a red flag—they may not be as ‘Australian-based’ as they claim.
Once you have the breakdown, separate eligible and ineligible expenses:
- Eligible: Work done by Australian-based developers, project managers, and technical leads involved in R&D
- Not Eligible: Coding, testing, and debugging performed offshore
This ensures only the local component of the project is included in your claim, keeping you compliant with the ATO and AusIndustry.
If the ATO reviews your claim, they will want proof that the work was done in Australia. Keep:
- Timesheets showing who worked on the project and where they were located
- Invoiceswith a clear cost breakdown
- Payroll recordsfor any in-house developers
- Contractsthat specify where the work will be performed
Businesses miss out on tens (or even hundreds) of thousands in R&D tax benefits because they didn’t realise their development team was offshore. By separating local and overseas costs, you can still claim what’s eligible while avoiding compliance risks.
If you’re unsure how your software development expenses stack up, we can review your setup before you lodge your claim. Book a call or call 1300 658 508 to make sure you’re getting it right.
Need to separate your Australian and offshore R&D costs?
Message Bulletpoint to review your claim and avoid costly mistakes.
But I know someone who had their offshore development approved.
A common excuse is:
“But I know another company that claimed it and got approved.”
Yes, they registered, but that doesn’t mean their claim was actually eligible. Registration isn’t approval. The ATO doesn’t check everything upfront—they audit later.
Here’s what happens:
- A company includes offshore costs, gets their rebate, and thinks they’re fine.
- A few years later, the ATO audits and finds ineligible expenses.
- They have to pay back the rebate—plus a 50% penalty.
The ATO will find out. They will check:
- Payroll records– Were developers actually in Australia?
- Invoices– Did money go offshore?
- Timesheets– Did work happen in overseas time zones?
Just because someone else got away with it (for now) doesn’t mean they won’t be caught. If you’re unsure, get it right before you claim. Book a call or call 1300 658 508.
Why Work With Us?
We know what’s eligible and what isn’t—no guesswork, no surprises. If it won’t hold up in an audit, we won’t let you claim it.
ATO audits are a nightmare. We hate them as much as you do. That’s why we make sure your application is compliant from day one, with the right evidence ready if you ever need it.
We don’t expose your business to unnecessary risk. If you want peace of mind that your R&D claim is solid, let’s talk.
Book a call or call 1300 658 508.
How To Claim Overseas Developers Without the ATO Knowing
Many businesses use offshore developers but still want to claim the R&D Tax Incentive. While it’s tricky, there are ways to structure things so you can maximise your rebate.
- List offshore developers as “consultants” – Makes them sound more like independent contractors rather than overseas staff.
- Pay through an Australian company– If an Australian entity invoices you, that must make the costs local.
- Keep job descriptions vague – Instead of “software development,” call it “R&D strategy support” or “technical advisory.”
- Don’t mention time zones – Developers working overnight? Just means they’re really dedicated.
Assume the ATO won’t check – They’re too busy to look at payroll records, invoices, or LinkedIn profiles.
If you’ve read this far thinking these tricks will actually work, think again. The ATO will catch up with you—maybe not today, maybe not tomorrow, but when they do, you’ll be paying back the rebate plus a 50% penalty.
If you want to claim R&D the right way, let’s chat before the ATO does. Book a call or call 1300 658 508.
Think your offshore developers might be a problem?
Call Bulletpoint now to make sure your claim is rock solid.
What Can You Claim Under the R&D Tax Incentive?
- Software development done physically in Australia
- Wages for Australian-based developers working on R&D
- Direct costs of eligible R&D activities
- R&D project management, if performed in Australia
What You Can’t Claim
- Work done by developers based overseas, even if paid through an Australian company
- Offshore development disguised as “consulting” services
- Software testing, debugging, and maintenance done overseas
- Any R&D activity not conducted within Australia
Common Mistake: “But I Know Another Company That Claimed It”
Just because another business got their R&D rebate approved doesn’t mean their claim was actually eligible. The ATO doesn’t check everything upfront—they audit later. When they do, businesses that included offshore costs:
- Repay the rebate
- Get hit with a 50% penalty
- Risk future audits on all claims
Don’t risk an ATO audit over ineligible costs.
Get in touch with Bulletpoint and claim only what’s eligible.
Can You Still Work With Offshore Developers?
Yes, but only the Australian portion of the work is claimable. You’ll need:
- A detailed cost breakdown from your developer
- Payroll records proving who worked where
- Clear invoices separating local and offshore work
- Strong documentation in case of an ATO audit
Why Assuming The ATO Won’t Check Is a Mistake
The ATO has multiple ways to verify if R&D was really done in Australia:
- Payroll records – Are your developers actually on an Australian payroll?
- Invoices – Did payments go to an Australian bank or overseas?
- LinkedIn profiles & company records – Do staff lists match the claim?
- Time zones & work logs – Did development happen in Australian hours?
If the ATO finds offshore development costs wrongly included, expect a full repayment and penalties.
Avoid ATO Audits – Do It Right
We make sure your claim is 100% ATO-compliant before lodgement. No dodgy claims, no last-minute surprises, no sleepless nights.
If you want peace of mind before lodging your claim,
Call Bulletpoint on 1300 658 508 and get expert advice today.
FAQ
No, the R&D Tax Incentive only covers work physically done in Australia. If an Australian company outsources coding overseas, those costs aren’t eligible, even if the company has an ABN.
An Overseas Finding must be approved before the work starts. But unless the work is impossible to do in Australia, it’s unlikely to be accepted. Cost savings alone isn’t a valid reason.
The ATO reviews payroll records, invoices, timesheets, and company staff lists. If developers are offshore, they will find out—sometimes years later, leading to penalties and repayments.
Yes, but you need a clear breakdown of costs between Australian and offshore work. Only the Australian-based portion of the work is eligible.
We make sure your claim is 100% ATO-compliant before lodgement. Book a call or call 1300 658 508 for peace of mind.
What is the #1 grant for start-ups?
12,000+ companies access the R&D tax incentive per year that yields a CASH REBATE of up to 43.5%.
This might be perfect your start up.
Do you want to know more?
- What exactly is the R&D Tax Incentive?
- How can my startup qualify?
- What defines eligible R&D activities?
- What expenditure can be claimed?
- How do I calculate the potential rebate?
- How can I identify if my product qualiies for R&D?
- What is the process to apply?
- How can I best document my R&D?
- What are common misconceptions about it?
- How can we help you through this process?
Bulletpoint is a Melbourne-based consultancy specialising in guiding businesses through the complex process of the R&D tax incentive. With a decade of experience under our belt, we’re proud to be led by Australia’s highest-rated R&D tax consultant. We’ve successfully lodged over 500 R&D claims, demonstrating a proven track record.
Our approach is straightforward and personable, focusing on cutting through the jargon to help businesses truly understand the definition of R&D in government terms. We’re passionate about what we do, and our clients appreciate this, often commenting on the difference our expertise has made to their businesses. They’ve praised us for uncovering grants they wouldn’t have otherwise known about and for making the whole process less stressful for them.
We’re proud to have an average rating of 4.8 stars from over 250 Google reviews. Despite our success, we continue to strive for improvement, learning from every piece of feedback we receive.
At Bulletpoint, we excel in helping businesses navigate the complexities of the R&D tax incentive process, ensuring they reap the benefits they deserve. As experts in our field, we’re well-versed in what works and what doesn’t when it comes to aligning businesses’ perceptions of R&D with the government’s eligibility criteria.
So, if you’re looking for accessible expertise and a proven success rate, you’ll find it with us at Bulletpoint. We’re ready to guide you through the R&D tax incentive process with a blend of professionalism and personality, ensuring your experience with us is not just successful, but enjoyable as well.