R&D Tax Incentive determination on clinical trials

The Australian Government Department of Industry, Science, Energy and Resources has consulted in relation to a proposed tax incentive in relation to unapproved therapeutic goods (R&D Tax Incentive).  Such incentive is proposed to enable innovation and growth to relevant companies conducting R&D activities by offsetting the costs of eligible research and development.

The R&D Tax Incentive at a glance

Companies conducting R&D activities with an aggregated turnover of less than $20 million may receive a refundable R&D offset rate equal to their corporate tax rate plus an 18.5% premium.  Companies in the same circumstances but with an aggregated turnover of $20 million or more may receive a non-refundable R&D tax offset rate equal to their corporate tax rate plus an incremental premium.  That premium is based on the intensity of the R&D expenditure as a proportion of total expenditure.

Where that company’s R&D is up to 2% of total expenditure the tax offset will be equal to the company tax rate plus an 8.5% premium.  Where the expenditure is more than 2% the offset will be the company tax rate plus 16.5%. Current as at 1 July 2021.

The legal framework to the R&D Tax Incentive

The Industry Innovation and Science Australia (Board) may make certain findings under the Industry Research and Development Act 1986 (Cth) (Act).  In making such findings, the Board, per section 32A of the Act, will be constrained by the decision-making principles as established by the Industry Research and Development Decision-making Principles 2022 (Cth) (Principles).

There are various key elements to the Principles, listed in part 2.2 as follows:

            2.2 Proper decision-making process

  • The Board must give an interested person an opportunity to present the person’s case in a manner approved by the Board.
  • The Board must give proper consideration to the case before it by:
  • considering the evidence and any explanation given by or for the interested person about the case; and
  • taking all relevant considerations into account, including the interested person’s past or present behaviour; and
  • not taking an irrelevant consideration into account; and
  • considering relevant precedents from similar cases.
  • The board must consider the case in good faith and in an unbiased manner.

These findings may be critical to whether a corporation is entitled to the R&D Tax Incentive.  They may relate to whether the company has registered itself appropriately as an R&D entity or address the more critical aspect of the nature of the company’s activities and, in particular, whether they constitute eligible R&D activities.  Pursuant to section 28A of the Act:

28A Advance findings about the nature of activities

  • The Board must, on application by an R&D entity for a finding under this subsection about an activity, do one or more of the following:
  • find that all or part of the activity is a core R&D activity.

The most relevant question is therefore what types of activities will constitute an eligible R&D activity?

Board determinations

Various determinations are now able to be made in respect of the administration of the R&D Tax Incentive.  This result is brought about by the Industry Research and Development (clinical trials, Phase 0, I, II, III for an unapproved therapeutic good) Determination 2021 (Determination).

Section 5 of the Determination sets out which activities will constitute R&D activities:

“Subject to section 6 of this instrument, for the purpose of the Industry Innovation and Science Australia Board (the Board) exercising its power or performing its duty to make a finding pursuant to sections 27B, 27J or 28A of the Industry Research and Development Act 1986, phase 0 clinical trials, phase I clinical trials, phase II clinical trials, and phase III clinical trials for an unapproved therapeutic good that are:

are core R&D activities.”

Current as at 30 March 2022.

R&D Activities

In short, the above provision ensures that phase 0-III clinical trials utilising the following unapproved therapeutic goods will be considered as R&D activities:

  • therapeutic goods used solely for experimental purposes in humans;
  • medical devices, including a specified medical device, to be used solely for experimental purposes in humans; and/or
  • a specified biological for use solely for experimental purposes on humans.

It must be noted however, that these goods and devices have a myriad of other stringent conditions attached to them prior to their use – an entirely separate consideration from whether they qualify for the R&D Tax Incentive.

There are also various exclusions to the above section however, including:

  • any clinical trials of generic products;[1]
  • phase IV clinical trials;[2]
  • activities that come within the scope of subsection 355-25(2) of the Income Tax Assessment Act 1997;[3] and
  • activities that are not, or will not be, conducted in accordance with all applicable approvals, regulator requirements, and standards that are in force at the time the phase 0 clinical trials, phase I clinical trials, phase II clinical trials, or phase III clinical trials are being conducted.[4]


The Determination has expanded the definition of an R&D activity to include certain unapproved therapeutic goods being utilised in phase 0-III clinical trials in humans.  This may mean that companies engaged in this type of activity are eligible for an R&D Tax Inventive which could be as much as an 18.5% premium on top of their corporate tax rate.

Links and further references

Related articles

What entities are eligible for the R&D Tax Inventive?

What is the proposed ‘patent box’ tax incentive?


Industry Research and Development Act 1986 (Cth).

Industry Research and Development (clinical trials, Phase 0, I, II, III for an unapproved therapeutic good) Determination 2021.

Therapeutic Goods Act 1989.

Therapeutic Goods (Medical Devices) Regulations 2002.

Therapeutic Goods Regulations 1990.

Further information

If you need advice on Research and Development Incentives, contact us for a confidential and obligation free discussion:

Malcolm BurrowsMalcolm Burrows B.Bus.,MBA.,LL.B.,LL.M.,MQLS.

Legal Practice Director

Telephone: (07) 3221 0013 (Preferred)

Mobile: 0419 726 535

e: mburrows@dundaslawyers.com.au



Written by:

Roisin Featherstone - Lawyer - Dundas LawyersRoisin Featherstone B.Biomed.Sc.,M.Med.Lab.Sci.,LL.B.,GDLP.,MQLS.


Telephone: (07) 3221 0013

e: rfeatherstone@dundaslawyers.com.au






This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.


[1] Determination s 6(a)

[2] Determination s 6(b).

[3] Determination s 6(c).

[4] Determination s 6(d).

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