Will You Pass the New R&D Intensity Test — or Lose Your Tax Offset?
What Is the R&D Intensity Test?
It’s a new rule that decides whether you get the 43.5% refundable tax offset or not. Introduced in 2023, the R&D Intensity Test measures how much of your total business expenses are actually spent on eligible R&D.
If your R&D spend is more than 2% of total expenses (excluding depreciation), you qualify for the full refund. If not, you may be limited to a lower, non-refundable offset — or miss out completely.
Understanding the R&D Intensity Test
The R&D Intensity Test measures how much of your total business expenses are dedicated to eligible R&D — and determines the tax offset rate you receive under the R&D Tax Incentive.
If your company has over $20 million in aggregated turnover, you’ll need to meet one of two thresholds:
- Less than 2%: You’ll receive a reduced, non-refundable base rate tax offset.
- More than 2%: You qualify for a higher tax offset, tiered based on how intensive your R&D activity is.
Missing the 2% mark can significantly reduce your refund. That’s why it’s critical to calculate your R&D intensity correctly — and get advice before you claim.
How to Calculate Your R&D Intensity
To work out your R&D intensity, divide your total eligible R&D expenditure by your total company expenses — excluding depreciation.
For example, if you spent $500,000 on R&D and your total expenses (minus depreciation) were $20 million, your R&D intensity would be 2.5% — meaning you pass the threshold and qualify for the higher tax offset.
- Only eligible R&D expenditure counts — not marketing, admin or capex
- Expenses must be “incurred” in the financial year (not just forecasted)
- Excluding depreciation is mandatory when calculating the threshold
Need help checking the numbers? We can model different scenarios so you know where you stand — and how to improve your position.
Common Mistakes with the R&D Intensity Test
Plenty of companies miss out on thousands in R&D refunds — not because their work isn’t eligible, but because their intensity calculation is off or poorly structured.
Here are the most common traps we see:
- Including depreciation: You must exclude depreciation from total expenses — the ATO won’t do it for you.
- Counting ineligible costs: Marketing, sales, admin and overheads don’t count as R&D spend.
- Claiming unpaid or accrued work: Only “incurred” costs count — future work doesn’t qualify.
- Getting the timing wrong: Late invoices or adjustments after 30 June can shift your ratio below the line.
If you’re unsure whether you pass the 2% threshold, we’ll run the numbers for you and make sure you’re claiming safely — and strategically.
R&D Intensity FAQs
What is the formula for R&D intensity?
R&D Intensity = Eligible R&D Expenditure ÷ Total Business Expenses (excluding depreciation). If the result is over 2%, you meet the threshold for a higher offset.
Does depreciation count toward the 2% threshold?
No. Depreciation must be excluded from your total company expenses when calculating R&D intensity.
What happens if I’m under the 2% threshold?
If you’re under 2% and your turnover is over $20 million, you’ll only receive a reduced non-refundable tax offset — not the full 43.5% rebate.
Is the 2% threshold based on the current year only?
Yes. R&D intensity is calculated using figures from the same income year — so timing and accurate record-keeping are critical.
Can I restructure to increase my R&D intensity?
In some cases, yes. We can help you assess your spend mix and explore ways to improve your position before year-end.
Worked Example: Do You Pass the 2% Test?
Let’s say your company spent $400,000 on eligible R&D this year. Your total business expenses (excluding depreciation) were $18 million.
To calculate your R&D intensity:
- Divide $400,000 by $18,000,000 = 2.22%
- You’re above the 2% threshold
- Result: You qualify for the higher refundable tax offset
But if your total expenses were $22 million instead? Your R&D intensity drops to just 1.82% — and you’d miss out on the full rebate.
Not Sure If You Pass the 2% Test?
We’ll run the calculation, explain what it means for your rebate, and show you how to position your R&D claim correctly — before the ATO or AusIndustry step in.
Fast, practical advice from the R&D experts trusted by 250+ Australian businesses.