BlogR&D Tax Incentive for Software Companies in Australia: What Actually Qualifies?

Many software founders assume the Australian R&D Tax Incentive applies only to laboratories, manufacturing, or scientific research.

In reality, software companies are among the most frequent participants in the program.

The determining factor is not whether you write code. It is whether your development involves genuine technical uncertainty that requires structured experimentation.

This guide explains how the R&D Tax Incentive for software companies in Australia works, what qualifies, and how to approach documentation properly.

Can Software Development Qualify for the R&D Tax Incentive in Australia?

Yes. Software development can qualify for the R&D Tax Incentive when it involves resolving technical uncertainty through systematic experimentation.

Routine coding does not qualify.

Activities may qualify when they:

• Attempt to resolve technical uncertainty
• Compare alternative technical approaches
• Generate new knowledge within the company
• Follow an iterative, hypothesis-driven process
• Have outcomes that cannot be determined in advance

The Australian Government defines eligible R&D activities as those conducted for the purpose of generating new knowledge, where the outcome cannot be known beforehand based on current industry knowledge.

For official guidance, refer to:

• Australian Government R&D overview
• ATO R&D Tax Incentive

What Is “Technical Uncertainty” in Software Development?

Technical uncertainty exists when a competent software professional cannot determine the solution using publicly available knowledge and must conduct experiments to resolve the issue.

Examples in software include:

• Determining which system architecture will scale under high load
• Benchmarking alternative databaseA database is a storage mechanism which allows you to store structured or unstructured data for future keeping. You can... structures
• Comparing AIArtificial Intelligence (AI) is a very large and broad spectrum of technologies which most people would be familiar with through... model outputs for reliability and consistency
• Designing novel algorithms
• Resolving data reconciliation inconsistencies
• Developing new performance optimisation techniques

If the answer is obvious or documented in standard practice, it is unlikely to qualify.

If experimentation is required to discover the answer, it may fall within the R&D framework.

Where R&D Typically Appears in Software Companies

In practical terms, software delivery usually unfolds across two streams:

1. Experimental Development (Potentially Eligible R&D)

• Prototyping new solutions
• Testing alternative architectures
• AIArtificial Intelligence (AI) is a very large and broad spectrum of technologies which most people would be familiar with through... model experimentation
• Performance benchmarking
• Structured comparison of approaches
• Iterative validation of uncertain outcomes

2. Routine Development (Generally Not Eligible)

• UI implementation
• Standard APIAn API is an Application Programming Interface. APIs are used to allow systems to retrieve data from other systems. It... integration
• DeploymentDeployment is the process of releasing your application or software out onto the specific environment where it will need to... workflows
• Feature expansion using known techniques
• BugA  is old computer term for something that happens in software or an application that is not as expected. Bugs... fixes

Understanding the difference between these streams is essential when claiming the R&D Tax Incentive for software development.

Quick Eligibility Checklist for Software Companies

Your software project may qualify for the R&D Tax Incentive in Australia if:

☐ The development work is conducted in Australia
☐ Your company is a registered entity (not a sole trader or partnership)
☐ Your company owns the resulting IP
☐ You are resolving genuine technical uncertainty
☐ You are conducting structured experimentation
☐ Outcomes were not known in advance
☐ You spend at least $20,000 on eligible R&D activities

If several of these apply, a detailed review is worthwhile.

What Software Expenses Can Be Claimed?

Eligible expenses may include:

• Software development salaries tied to R&D activities
• Contractor costs related to experimental work
• Prototyping and testing costs
• Depreciation of assets used in R&D
• Certain overhead allocations

Generally ineligible expenses include:

• Market research
• Routine administrative software
• Legal and compliance activities
• Standard internal IT upgrades
• Management studies

Eligibility depends on whether the expense directly relates to experimental R&D activity.

How Much Can Software Companies Claim?

For companies with aggregated turnover under $20 million:

• A refundable tax offset may apply if the company is operating at a loss
• A lower offset applies if the company is profitable

For companies over $20 million in turnover:

• A non-refundable offset applies
• The rate depends on R&D intensity

Current rates are published by the Australian Taxation Office.

Because tax structures can change, businesses should refer to the ATO website for the most up-to-date information.

Why Documentation Is Critical for Software R&D Claims

Strong delivery discipline naturally supports strong R&D evidence.

Companies should maintain:

• Technical design documentation
• Experiment records
• Prototype comparisons
• Performance benchmarks
• Decision logs
• Timesheets allocating staff to R&D tasks
• Contracts and invoices for third-party services

Documentation should clearly show:

• The technical objective
• The uncertainty involved
• The alternative approaches tested
• The outcomes measured
• The reasoning behind final decisions

Reconstructing experimentation after the fact is significantly more difficult than documenting it as it occurs.

Common Mistakes Software Companies Make

1. Treating all development as eligible R&D
2. Failing to distinguish experimentation from routine coding
3. Not documenting uncertainty clearly
4. Waiting until tax time to reconstruct evidence
5. Underestimating how often genuine R&D occurs in product builds

Many companies miss eligibility because their processes are informal rather than structured.

Why Structure Matters Early

Software companies building AIArtificial Intelligence (AI) is a very large and broad spectrum of technologies which most people would be familiar with through... products, scalable platforms, or technically complex systems frequently engage in eligible R&D activity.

When experimentation is intentional and documented from the beginning, both delivery outcomes and compliance outcomes improve.

Clarity around:

• Objectives
• Baselines
• Experiment design
• Technical decisions
• Work allocation

strengthens both product development and R&D claims.

Planning a Technically Ambitious Software Initiative?

If you are building:

• An AI-driven product
• A scalable SaaSThe term SaaS stands for Software as a Service. SaaS is an evolution of an application that runs on the... platform
• A technically complex system
• A new architectural approach
• A solution involving uncertain performance outcomes

structuring experimentation properly from day one can materially reduce risk.

At Aerion, we help software companies approach delivery with clarity, discipline, and measurable experimentation through our DevReady process.

👉 Book a free DevReady consultation: https://aerion.com.au/contact/

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