Yes, software development can qualify for the R&D Tax Incentive, but only if your project meets strict ATO criteria around technical uncertainty and structured experimentation. Too many teams miss out or risk audit penalties by assuming basic dev work counts as innovation.
If your work involves building new algorithms, solving non-obvious system challenges, or experimenting with scalable infrastructure in ways that push technical boundaries, you may be eligible for up to a 43.5% refundable tax offset. The key is understanding what the ATO considers real R&D, and proving it with clear documentation.
We specialize in helping software companies identify claimable activities, separate core R&D from supporting tasks, and structure submissions that stand up under ATO review. In this guide, we break down eligibility requirements, core activity examples, and the mistakes that disqualify claims. Whether you’re building AI tools or complex backend systems, this will help you clarify what counts, what doesn’t, and how to claim with confidence.
What Is the R&D Tax Incentive and Why Does It Matters for Software Development?
The R&D Tax Incentive is an Australian Government program designed to reward businesses that invest in innovation and problem-solving through eligible research and development. For software teams, this incentive can significantly improve cash flow, especially if you’re a growing business developing new technology, improving system architecture, or building complex tools from scratch.
The incentive offers a 43.5% refundable offset for eligible companies with less than $20 million in turnover, and a non-refundable offset for larger businesses. It applies to a wide range of industries, but software development is one of the most commonly misunderstood.
We work closely with clients to help them claim confidently, especially those involved in backend engineering, AI/ML development, data pipelines, and enterprise SaaS systems. To start the claim process, you must register your project with AusIndustry and meet compliance obligations set by the ATO, both areas where our tax advisory team offers hands-on support.
Yes, Software Projects Can Qualify, But Only If They Meet These Criteria
Not all software development qualifies for the R&D Tax Incentive. To claim successfully, your project must go beyond routine programming and involve genuine experimentation and technical uncertainty. The ATO requires you to demonstrate that you’re solving a problem that couldn’t be resolved using existing knowledge or industry practice.
To meet the criteria, your work must include:
- Core R&D activity: one where the outcome couldn’t be known in advance and can only be resolved through a structured, scientific approach (hypothesis → test → evaluate).
- Technical uncertainty: meaning that a competent software professional wouldn’t easily be able to predict the solution.
- Systematic experimentation: not over thinking, but a planned process, documented and tracked.
If your team is developing a new algorithm, creating scalable architecture, or engineering complex data solutions, there’s a strong likelihood that your activities meet the test. We help businesses clarify this every day through tailored advice and specialised R&D claim services grounded in practical tech understanding.
Core vs Supporting R&D Activities in Software, Real Examples
To maximise your claim, and stay compliant, it’s essential to understand the difference between core and supporting R&D activities. Many businesses incorrectly bundle routine tasks into their claims, increasing their audit risk. The ATO expects clear separation and solid documentation of both types.
Core activities typically include:
- Developing a novel algorithm or data model
- Designing new system architecture to solve performance constraints
- Creating AI models with unpredictable outcomes
- Solving unknown technical challenges with a structured testing method
Supporting activities might include:
- Creating test environments to validate experimental changes
- Documenting experimental results
- Cleaning or preparing data for training machine learning models
- Technical meeting notes or sprint documentation directly tied to core activities
What doesn’t qualify:
- UI/UX design with no backend innovation
- Integration of off-the-shelf APIs or tools
- Routine bug fixes and feature updates
- Project management or commercial planning
We help clients distinguish these boundaries clearly, often using tools like Git logs, technical documentation, and ticketing systems to map eligible work. If you’re unsure how to define or structure your dev tasks, our bookkeeping experts can also assist in tracking and tagging time appropriately to support a future R&D claim.
Common Mistakes Software Companies Make When Claiming R&D
Many software businesses lose out on legitimate refunds, or risk ATO scrutiny, because they misunderstand what actually qualifies under the R&D Tax Incentive. The difference between a successful claim and a rejected one often comes down to documentation, definition, and discipline.
Some of the most common missteps include:
- Claiming routine development work (e.g. bug fixes or UI tweaks) as R&D
- Lack of evidence to support experimentation or uncertainty
- Overclaiming salaries or contractor time without clear time tracking
- Reverse-engineering or duplicating known solutions
- Forgetting to register the project with AusIndustry before the deadline
- Confusing commercial goals with technical ones, your marketing team’s vision isn’t enough
We’ve seen these pitfalls play out across startups and established tech teams. That’s why our clients rely on us not only to identify eligible activities, but to build their claim around a strong technical narrative. When combined with our tax compliance expertise, this approach lowers audit risk and increases refund certainty.
What Counts as ‘Technical Uncertainty’ in Software?
The cornerstone of any valid R&D claim is technical uncertainty, but many software teams overestimate or mislabel it. To qualify, the uncertainty must be technical in nature and not reasonably solvable by a competent software professional using publicly available information.
Examples of qualifying uncertainty include:
- Will this new algorithm scale efficiently under high-load conditions?
- Can we build a solution that handles distributed data with sub-second latency?
- Is it technically feasible to optimise this process using AI/ML within known infrastructure limits?
What doesn’t qualify:
- Uncertainty about budget, client feedback, or product-market fit
- Challenges that relate only to aesthetic design, UI, or feature prioritisation
- Making a system “better” without proving why current approaches won’t work
We help our clients define these boundaries through structured analysis, ticket review, and clear experiment logs. Our tax advisory team works closely with developers to translate technical efforts into claimable R&D language, so your work is understood and defensible in the eyes of the ATO.
What the ATO Looks for in Your Software R&D Claim
ATO reviews are increasingly data-driven, and software R&D claims are under greater scrutiny. A successful claim isn’t just about what you did; it’s about how well you can prove that your activities were experimental, systematic, and technically uncertain.
Here’s what the ATO typically expects to see:
- A clear separation of core vs supporting activities
- Documentation showing a structured approach (hypothesis → test → result)
- Evidence of technical unknowns at the project’s start
- Git logs, sprint notes, and technical meeting summaries aligned with R&D phases
- Claims that align with AusIndustry registration guidelines
Red flags include vague project descriptions, recycled templates, or overly commercial language. We assist clients with both technical articulation and audit readiness. Our experience in navigating ATO queries, and resolving issues with poorly framed claims, means we bring more than paperwork to the table.
If your software project is under consideration, it’s worth speaking to our tax compliance team early to review your current documentation setup.
Our Smart Approach to Software R&D Claims (Why We Do It Differently)
We don’t take a cookie-cutter approach to R&D tax claims, especially when it comes to software. Our advisory process is hands-on, strategic, and rooted in deep technical understanding. Every claim is framed by specialists who speak both your dev team’s language and the ATO’s.
Here’s how we help:
- Translate complex software builds into structured R&D narratives
- Work with your developers and engineers to map core vs supporting activities
- Build claims backed by strong evidence, code logs, experiments, sprint records
- Guide you on how to track future work for ongoing claim cycles
- Avoid the common triggers that lead to ATO review or rejection
We’ve supported clients across AI, SaaS, enterprise tools, marketplace apps, and backend systems, helping them claim confidently and receive significant refunds. Our integrated model also links R&D strategy with broader tax structuring, virtual CFO services, and government grants like EMDG, creating a more robust financial outcome.
If you’ve been told your software “probably doesn’t qualify,” we’d strongly suggest getting a second opinion. You might be surprised at what’s eligible when framed the right way.
Get Clarity Before You Lodge, Validate Your Software R&D Claim with Expert Help
Before you commit to an R&D claim, it’s crucial to know where your project stands. Lodging without a proper eligibility check can lead to rejected applications, or worse, an audit that ties up your team and delays funding.
We offer a complimentary 30-minute strategy session to help you:
- Identify whether your software development qualifies as core R&D
- Clarify how to structure your claim with the ATO and AusIndustry
- Discover overlooked activities that may be eligible
- Understand what documentation you need to support your refund
- Avoid the most common risks and errors in software-related claims
If your business spent over $20,000 on custom builds, experimentation, backend systems, or AI workflows, you could be eligible for a significant cash refund. We’ll help you find out, before it’s too late.
Whether you’re building from scratch or improving existing systems, let’s assess your position and uncover the potential value of your claim.
Questions Software Founders Are Asking
Technical founders and startup teams frequently turn to Reddit for clarity around the R&D Tax Incentive, and their questions reveal how confusing the rules can be. We’ve reviewed dozens of threads and compiled the most relevant, world concerns software leaders are asking.
Can I claim if we outsourced the software development overseas?
In most cases, only R&D work conducted in Australia is eligible, unless you’ve secured an Advanced Overseas Finding from AusIndustry. This is a niche area where we provide direct assistance through our R&D Tax Advisory process.
We used open-source libraries, does that disqualify our project?
Using public libraries isn’t an automatic exclusion. What matters is whether your use of those tools involved technical experimentation beyond known applications. Integration ≠ innovation.
Is MVP development considered R&D?
Only if the MVP involves solving a technical uncertainty with no predictable outcome. Building standard app features, login flows, dashboards, CRMs, won’t qualify unless there’s real experimental work involved.
Do I need IP or a patent to qualify?
No. There’s no requirement to commercialise or patent your work. The incentive supports technical development regardless of whether IP is formally registered.
Can I still claim it if I didn’t track hours?
Time-tracking is strongly recommended. If you don’t have precise logs, it becomes harder to justify salary-related claims. We help clients implement compliant tracking systems through our bookkeeping services.
Schedule a FREE 30-minute consultation today to discover how we can help you make strategic decisions and streamline your business operations.
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Disclaimer: We endeavour to make sure the information provided in this guidance is up to date and accurate. Please note, that the information is only intended to be a guide, with a general overview of information. This guidance is not a comprehensive document and should not be interpreted as legal advice or tax advice. The information is general in nature. You should seek the assistance of a professional opinion for any legal and tax issues related to your personal circumstances.
