Quick answer: Reformulating a recipe is not automatically R&D. If the change hits a cost, flavour or marketing target using techniques a competent food technologist already knows, it fails the R&D Tax Incentive test. It may be eligible only where the outcome could not be known in advance and you resolve that genuine technical unknown through a documented, systematic experiment. The unknown — and the failed batches — must be recorded from the first trial. You self-assess.
20 July 2026 — the 2026–27 Federal Budget proposed R&DTI changes for income years starting on or after 1 July 2028. These are not yet law, and this article describes the current rules unless stated otherwise.
Every food and beverage manufacturer reformulates. You swap a supplier, cut a cost, chase a cleaner label, or push a shelf life. So a fair question lands on a lot of NPD managers' desks: if we ran trials all year, is that claimable under the R&D Tax Incentive?
The honest answer is "it depends" — and not on how many batches you ran. It depends on whether there was a real technical unknown, and whether you wrote it down. This article draws the line between cooking and experimenting, and shows what turns the second into a defensible claim.
The Short Answer: When a Recipe Change Is — and Isn't — R&D
Start with the verdict, because it saves a lot of wishful thinking.
Usually not eligible: reformulating to hit a price point, match a competitor's taste, tweak to a sensory or marketing target, substitute an ingredient using established techniques, or run standard quality control. These resolve knowledge already available to a competent professional in the field.
Potentially eligible: reformulation that requires you to generate new technical knowledge to overcome an outcome you genuinely could not determine in advance — and where you resolve it through a systematic progression of experimental work.
The deciding factor is a real technical unknown plus a documented hypothesis. Running lots of trials, on its own, is not evidence of R&D — a busy test kitchen and an R&D laboratory can look identical from the outside. What separates them is whether the outcome was uncertain to a competent food technologist at the start, and whether the work was structured to resolve that uncertainty. Using an R&D Tax Incentive adviser or RSP for food & beverage does not change that test; it just helps you apply it honestly.
The Core-Activity Test, Applied to a Mixing Bowl
Under the R&D Tax Incentive, the strongest claims rest on core R&D activities. The legislation — Division 355 of the Income Tax Assessment Act 1997 — defines core R&D activities as experimental activities whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, and that can only be determined by applying a systematic progression of work based on established science, proceeding from hypothesis to experiment, observation and evaluation, and leading to logical conclusions — and that are conducted for the purpose of generating new knowledge. The unknown outcome, the systematic progression and the new-knowledge purpose are all required.
Limb 1 — the outcome is genuinely unknown
Ask the "competent professional" question: could a competent food technologist, drawing on published science and normal industry experience, have known the answer before you started? If yes, it fails. Substituting cane sugar for a known bulk sweetener at a known ratio is not unknown. Whether a specific hurdle combination will hold a particular pathogen below a safety threshold in your matrix, at your pH and water activity, over a target shelf life — that can be genuinely uncertain.
Limb 2 — a systematic progression of work
A hunch and a taste test is not enough. The work has to move from a stated hypothesis through designed experiments, recorded observations, evaluation of results — including the ones that failed — and a conclusion. business.gov.au's guidance on checking eligibility frames this same hypothesis-to-conclusion structure. If your process would look the same whether or not you were claiming, that is a good sign; if the "experiment" only exists on paper after year-end, it is a weak one.
What Usually Fails: Routine Tweaks, Taste Panels and Cost-Downs
Naming the disqualifiers honestly protects you more than a generous read does. The following, on their own, generally do not qualify:
• Substituting an ingredient using known formulation techniques.
• Reformulating to a flavour, texture or marketing target.
• Routine cost reduction or value engineering.
• Standard quality control and standard testing of products or processes.
• Cosmetic or packaging changes.
• Consumer taste panels and market-style sensory testing done to gauge preference.
Sensory work sits in a grey zone people over-claim. A consumer panel run to find out which of three formulations shoppers prefer is market research, not experimentation into a technical unknown. An analytical sensory measurement used to evaluate the result of an experiment — for example, confirming whether a hypothesised process change caused a measurable off-note — can form part of the systematic progression, but usually as a supporting piece rather than the core itself.
What Can Qualify: Genuine-Unknown Cases
Where reformulation does earn its place, it is almost always because a technical outcome was uncertain and had to be resolved experimentally. Common food and beverage patterns:
Shelf-life extension where the microbiological or chemical outcome cannot be predicted — you cannot say in advance whether the product will hold safely and stably to the target date without the additive current knowledge says you would need.
Novel preservation or new hurdle combinations — for example applying high-pressure processing, or combining pH, water activity and mild thermal hurdles in a way whose effect on both safety and quality is untested in your matrix.
Allergen removal that must retain structure and function — taking egg, gluten or dairy out while preserving the emulsification, aeration or network the protein was doing, where no established substitute reliably reproduces that role.
Clean-label reformulation replacing an additive whose functional role cannot be predictably reproduced with permitted alternatives.
Scale-up and new-process work where validated bench results do not carry to plant, and the reasons are not predictable in advance.
A critical caveat: these qualify only for the experimental portion that resolves the unknown — not the whole commercial project. Once the answer is known and you are simply making product to a settled recipe, the R&D has ended even if the production line runs on.
Supporting Activities and Where the Line Sits
Around a core experiment sit supporting R&D activities — work directly related to a core activity. For activities that produce goods or services, or that fall in the excluded categories, a stricter dominant-purpose test applies: the activity must be undertaken for the dominant purpose of supporting the core R&D, not for the dominant purpose of producing saleable product. That dominant-purpose test for supporting activities is in s 355-30(2) of the ITAA 1997.
In a food plant this matters a lot. Trial production runs, analytical lab testing and sensory evaluation are frequently supporting rather than core — and where those runs also yield sellable stock, the dominant-purpose test decides whether the cost is claimable at all. Selling the trial batch does not automatically disqualify it, but if the dominant purpose of the run was to make product to sell, it is not a supporting R&D activity. This is one of the most common places a food claim is overstated.
Worked Example: A Shelf-Life Extension Trial, Batch by Batch
An Adelaide chilled-meals manufacturer wants to extend the shelf life of a ready meal from 14 to 28 days without adding a chemical preservative that current knowledge says would be required to hold Listeria risk down over that window. Whether a reformulated hurdle combination — a lower water activity plus an adjusted pH plus a mild post-pack thermal step — will achieve the target safely is not something a competent food technologist can determine in advance for this specific matrix.
Here is roughly how the activities split:
Activity
Likely classification
Why
Forming the hypothesis about the hurdle combination and target
Core R&D
States the unknown and the experimental approach
Designing and running trial batches to test the hypothesis
Core R&D
Systematic progression resolving the unknown
Microbiological challenge testing of each batch, including failures
Supporting
(evaluation of the experiment)
Directly related; evaluates experimental results
Trial production of experimental batches
Supporting
subject to dominant-purpose test
Only if the dominant purpose is the R&D, not selling stock
Routine production once the recipe is validated
Not claimable
The technical unknown is resolved; this is ordinary manufacture
The batches that fail micro testing are not wasted from a claim perspective — a documented failed experiment is often the clearest evidence that the outcome was genuinely unknown. What sinks claims is the opposite: no dated hypothesis, no batch-level records, and results reconstructed from memory after year-end. Contemporaneous records from batch one are what make this defensible. None of this guarantees eligibility — you still self-assess against the law and your own facts.
Records, Timing and Getting It Registered
Records. An RSP or adviser will expect a dated hypothesis, experiment and batch logs, test results including failures, and a clear link between the spend and the experiment. Reconstructing records after the fact is the single most common reason a genuine claim gets weakened.
Timing and the AusIndustry / ATO split. Registration of activities is with AusIndustry, while the offset is claimed in your company tax return with the ATO — two different bodies, two different steps. Activities are registered per income year, and you must apply to register your eligible activities with AusIndustry within 10 months after the end of your company's income year in which the activities took place. Registration does not confirm eligibility — the program is self-assessed.
A Note on Thresholds and Offset Rates
The current minimum R&D expenditure threshold is $20,000 in notional deductions. Importantly, RSP-conducted eligible R&D activities can be claimed even where the usual $20,000 R&D expenditure threshold is not met — relevant for smaller producers who engage a Registered Research Service Provider to conduct the research. Using an RSP does not guarantee eligibility — you still self-assess.
According to the ATO, if your activities are eligible, your aggregated turnover is under $20 million, and you are not controlled by one or more income-tax-exempt entities, the benefit takes the form of a refundable offset at your company tax rate plus 18.5 percentage points — for a 25% base-rate entity, that is 43.5%. An entity controlled by income-tax-exempt entities gets the non-refundable offset regardless of turnover.
For turnover of $20 million or more, a non-refundable offset applies: your company tax rate plus 8.5 percentage points on R&D expenditure within the 2% R&D-intensity threshold, and plus 16.5 percentage points on expenditure above it. A non-refundable offset reduces the tax you would otherwise pay — or is carried forward to later years — and does not necessarily produce a cash payment. The $150 million figure is an R&D-expenditure threshold, not a cap: expenditure above it is generally offset at your company tax rate rather than being lost.
Forward-looking flag: the 2026–27 Federal Budget set out proposed changes to the R&D Tax Incentive, described by the Government as applying to income years starting on or after 1 July 2028. The proposals include lifting the turnover eligibility threshold for the higher, refundable offset to $50 million, raising the maximum R&D-expenditure threshold from $150 million to $200 million, replacing the offset on supporting activities with a higher offset for core activities, and requiring projects under $50,000 to be conducted with recognised research organisations. These are proposed and subject to legislation; they are not current law.
Frequently Asked Questions
Q: Does changing a recipe count as R&D for the R&D Tax Incentive in Australia?
A: Not by itself. A recipe change is eligible only if the outcome could not be known in advance by a competent food technologist and you resolve that technical unknown through a documented, systematic experiment. Changes made to hit a cost, flavour or marketing target using known techniques do not qualify. You self-assess.
Q: Is taste testing or a sensory panel an eligible R&D activity?
A: A consumer panel run to gauge preference is market research, not R&D. Analytical sensory measurement used to evaluate the result of a genuine experiment can form part of the work, but usually as a supporting activity rather than a core one.
Q: Can shelf-life extension or a new preservation method be claimed under the R&DTI?
A: It may be, where the microbiological or chemical outcome is genuinely uncertain and you test a hypothesis systematically — for example a novel hurdle combination whose safety and stability you cannot predict. Only the experimental portion qualifies, not routine production once the answer is known.
Q: What records does a food manufacturer need to keep to claim reformulation as R&D?
A: A dated hypothesis, experiment and batch logs, test results including failed batches, and a clear link between spend and the experiment — all created contemporaneously. Reconstructing records after year-end is the most common reason a genuine claim is weakened.
Sources & Further Reading
Overview of the R&D Tax Incentive (business.gov.au)
Check if you are eligible for the R&DTI (business.gov.au)
Apply for the R&D Tax Incentive (business.gov.au)
Budget 2026–27: what it means for your business (business.gov.au)
Getting help from a Research Service Provider (business.gov.au)
Rates of R&D tax incentive offset (ato.gov.au)
Income Tax Assessment Act 1997, Division 355 (legislation.gov.au)
Related: R&D Tax Incentive for food & beverage
Related: What does not qualify
Related: Registered Research Service Provider
Before you spend a year of test-kitchen and plant time undocumented, get the line drawn properly. As a Registered Research Service Provider based at Lot Fourteen in Adelaide, Ignition Research helps food and beverage manufacturers structure the experiment, identify the genuine technical unknown, and set up contemporaneous records from batch one — so a real claim is not weakened by hindsight.
This article is general information from a Registered Research Service Provider about the R&D Tax Incentive. It is not tax, legal or financial advice; eligibility depends on your circumstances and you should self-assess and seek your own advice.
