"Ambitious Australia”: Unlocking the potential of a bold R&D reform for economic growth

In brief:

• Australia’s research, development and innovation (RD&I) system is fragmented, under-scaled, and underperforming, contributing to declining productivity and future risks to living standards.
• The Ambitious Australia report proposes bold reforms to revitalise the R&D Tax Incentive (RDTI) and strengthen the broader innovation ecosystem - themes reinforced by Senator the Hon Tim Ayres, Minister for Industry and Innovation and Minister for Science, in his 25 March 2026 National Press Club address.
• Key proposed reforms include simplifying the RDTI, creating a premium startup stream, reforming SME and scale-up eligibility, and enhancing incentives for larger companies.
• Additional recommendations focus on future tax reforms to improve Australia’s competitiveness and streamlining grants to reduce bureaucracy.
• These reforms aim to reposition the RDTI as a strategic growth tool prioritising high-growth firms and improving economic returns on public investment.

Australia stands at a pivotal moment in its innovation journey. The newly released Ambitious Australia report (Ambitious Australia: A Strategic Examination of Research & Development) outlines a strategic reform agenda aimed at revitalising the nation’s research, development, and innovation ecosystem to secure long-term economic prosperity and reinforce Australia’s competitiveness as a location for innovation, scale and investment. The independent expert panel concludes that Australia’s current RD&I system is fragmented, under-scaled, and underperforming, contributing to declining productivity and a projected reduction in future living standards. Bold, system-wide reform is required.

Key challenges

The report acknowledges that business expenditure on research and development (R&D) is low. The RDTI program is seen as core to incentivising private sector investment in Australian RD&I. However, the current system’s administrative complexity means it does not always deliver the intended outcomes for growth-focused businesses. The report emphasises the need to increase private sector investment, extend eligibility to translation and commercialisation activities, and reduce bureaucracy and funding leakage to administrative tasks.

The report's key recommendations for the R&D Tax Incentive Program

Australia must be an internationally competitive location for high-value RD&I and attract RD&I-intensive corporates and multinational corporations. The RDTI should encourage businesses to increase their Australian RD&I activities.

1. Simplify and refocus the RDTI

• Introduce a deemed rate for supporting activities.
• Raise the minimum annual R&D expenditure threshold from AUD 20,000 to AUD 150,000.
• Remove clawback rules where companies also receive government grants.

2. Introduce a premium startup RDTI stream

• Create a dedicated startup stream with simplified eligibility using a points-based test.
• Provide a higher refundable offset rate for qualifying startups (proposed as company tax rate plus 23.5%).
• Allow quarterly cash-flow payments instead of annual refunds.
• Extend eligible expenditure to include development, deployment, and early commercialisation.
• Apply time limits on access (generally three years), with longer access for deep-technology firms.

3. Reform the SME and scale-up RDTI

• Link ongoing eligibility to demonstrated revenue growth.
• Introduce “on-ramp” and “off-ramp” mechanisms based on performance.
• Increase the turnover threshold for refundable offsets from AUD 20 million to AUD 50 million.
• Remove long-term access for low-growth companies.

4. Enhance larger company incentives

• Remove the AUD 150 million cap on eligible R&D expenditure.
• Remove the R&D intensity test and apply a standard offset rate aligned with smaller companies.
• Incentivise local R&D activity and ecosystem participation.
• Exclude the RDTI offset from franking credit calculations.
• Introduce a “corporate citizen” test to reward firms that strengthen the broader R&D system.

Future tax reform to make Australia a competitive location for investment

The report recommends future tax reform to prioritise a more competitive effective corporate tax rate for RD&I-intensive companies. Australia’s comparatively high corporate tax settings have reduced its attractiveness as a location for globally mobile R&D and innovative business activity. The intent is to create a more enabling tax environment that helps retain and attract RD&I-driven firms, particularly larger companies that anchor innovation ecosystems, and to support greater onshore investment, scale, and commercialisation of R&D in Australia.

Streamline grants and funding processes

The report also recommends improving the effectiveness and impact of public RD&I funding by simplifying and modernising grants and funding processes, which have become overly complex, bureaucratic, and risk-averse over time. It calls for greater standardisation, streamlined processes, and better use of technology to reduce administrative burden, speed up decision-making, and improve accessibility, particularly for businesses and smaller innovators.

Why it matters

From an RDTI perspective, the proposed reforms fundamentally reposition the RDTI from a broad, compliance-driven tax concession into a targeted strategic tool designed to drive growth, scale, and global competitiveness. The changes would sharpen who benefits, prioritising high-growth startups, scaling SMEs, and R&D-intensive corporates while deliberately reducing support for low-impact or stagnant activity. They could also improve cashflow certainty for early-stage firms and make Australia more competitive for globally mobile R&D. In doing so, the RDTI becomes less about entitlement and more about outcomes, anchoring R&D, commercialisation, and associated jobs in Australia, increasing the economic return on public support, and materially changing the risk, eligibility, and strategic value of the incentive for businesses that rely on it.

Next steps

An important indicator will be how the Government chooses to engage with the report’s findings, including whether it signals a broader, system-wide reform agenda or a more incremental response. While the report is not government policy, it sets out a coherent framework that may inform future reform directions, including themes referenced by Senator the Hon Tim Ayres, Minister for Industry and Innovation and Minister for Science, in his 25 March 2026 National Press Club address following report release. EY will continue to monitor developments, including public commentary and responses from Treasury, Industry, Science and Resources, and Education, to understand how the Government may approach implementation over time.

If you would like to discuss how these recommendations could affect your business or explore opportunities for growth through RD&I, please reach out to an EY Government Incentives Partner here

Summary

The Ambitious Australia report provides a comprehensive roadmap to revitalise Australia’s RD&I ecosystem through targeted reforms to the R&D Tax Incentive and broader innovation policies. By simplifying incentives, supporting startups and scale-ups, and enhancing incentives for larger companies, these reforms seek to boost productivity, foster economic growth, and secure Australia’s competitive position globally. Our EY team remains committed to providing insights and guidance to help businesses adapt and thrive in this evolving landscape.