Quick answer: The R&D Tax Incentive may apply to specific experimental activities within a cleantech project — such as electrolyser efficiency trials, novel cell or membrane chemistry, and degradation or failure-mode work whose outcome could not be known or determined in advance. It does not make an entire plant eligible merely because the plant is new or first-of-a-kind. Standard construction, commissioning, procurement and commercial production are generally not core R&D activities, although particular activities may qualify as supporting R&D where the applicable requirements are met. Where R&D activities transform or process feedstock inputs and produce tangible outputs, the feedstock rules in Subdivision 355-H may also apply if their specific conditions are satisfied. Eligibility is self-assessed, and the key is to distinguish the specific experimental activities from the surrounding commercial build.
As at 20 July 2026, the Australian Government had announced reforms to the R&D Tax Incentive in the 2026–27 Federal Budget, intended to apply to income years starting on or after 1 July 2028. Until those changes take effect, the program continues to operate under the current legislation.
If you are a founder, project developer or CFO staring at a first-of-a-kind electrolyser or a 200 MWh battery, the tempting logic goes like this: the whole thing is unprecedented, first in Australia, nobody has built exactly this before — so surely the whole capex is R&D.
It is a potentially costly assumption in cleantech. The R&D Tax Incentive does not test whether the overall project is novel. It tests whether specific activities satisfy the core or supporting R&D requirements. Commercial plant construction and routine engineering do not become eligible merely because the project is first-of-a-kind, and saleable outputs may require separate assessment under the feedstock rules where the statutory conditions are met.
Treating the whole build as R&D may increase eligibility and review risk, while identifying the specific experimental activities can support a more accurate self-assessment. This article is written from the perspective of a Registered Research Service Provider. It is general information, not tax advice, and eligibility must be self-assessed.
The Short Answer: The Experiment May Qualify; the Plant Does Not Automatically Qualify
For practical scoping, the project's activities and associated expenditure can be considered across three categories.
Core R&D activities — experimental activities whose outcome cannot be determined in advance on the basis of current knowledge, and that proceed through a systematic progression of work for the purpose of generating new knowledge.
Supporting R&D activities — activities directly related to a core R&D activity. A stricter dominant-purpose test applies to activities that produce, or are directly related to producing, goods or services, and to activities that are excluded from being core R&D activities.
Routine and commercial work — standard construction, commissioning, procurement of commercial equipment, routine scale-up and commercial production are generally not core R&D activities. Particular activities may qualify as supporting R&D activities where the applicable direct-relationship and, where required, dominant-purpose tests are met.
The key distinction: a first-of-a-kind demonstration plant is a vehicle for experiments. It is not, merely because it is new, a core R&D activity in its entirety.
What the R&DTI Actually Tests: The “Unknown Outcome” Bar
The statutory test is not “is this new to us?” or “is this the first in Australia?” It is whether the outcome of the activity could have been known or determined in advance by a competent professional applying existing knowledge.
If a competent electrolyser engineer, reading the current literature and vendor data, could reasonably predict the result, it is not core R&D — however expensive or novel-feeling the build.
A genuine technical unknown — for example, a hypothesis about membrane durability under variable renewable input that current knowledge cannot resolve.
A systematic progression of work — designed experiments, instrumentation, recorded observations, evaluation and conclusions that inform the next iteration.
Generation of new knowledge — the purpose is to learn something not already reasonably available, not merely to prove a known design works at your site.
This is the Australian test under Division 355. It is self-assessed and hypothesis-driven. The excluded-core rules in s 355-25(2) are separate from the supporting-activity dominant-purpose test in s 355-30(2), and they should not be conflated.
Green Hydrogen: Which Electrolyser Activities Are Core, and Which Are Supporting?
Hydrogen projects may contain candidate core R&D activities, while also involving substantial balance-of-plant, construction and commercial work that must be assessed separately.
Likely candidate core activities — self-assess against the unknown-outcome bar
• Experiments to raise stack or cell efficiency beyond what current data predicts.
• Novel catalyst, membrane or electrode chemistry development and testing.
• Stack degradation, contamination and failure-mode studies under real, variable renewable input.
• Control-strategy experiments where the response to intermittent power is a genuine unknown.
Typically non-core; may be supporting depending on the facts
• Balance-of-plant piping, compression, gas handling and water treatment performed as standard engineering.
• Standard EPC construction and civil works.
• Commissioning and reliability runs that confirm a known design performs.
• Routine scale-up of a design already demonstrated at pilot stage.
The dividing line is the hypothesis. Building a compression skid to a known specification is engineering. Running an instrumented experiment because you genuinely cannot predict how a new membrane degrades under Australian solar variability is a candidate core activity.
Grid-Scale Batteries: Novel Chemistry and Degradation Modelling vs Buying and Installing Cells
Grid-scale storage compresses the same lesson. Procuring commercial LFP packs and integrating them to a known design is unlikely to be core R&D on its own, no matter how large the installation — although some work may qualify as a supporting activity depending on the facts.
Activity
Likely classification
(self-assess)
Novel cell or electrolyte chemistry development
Candidate core
Thermal and degradation modelling with a genuine unknown outcome
Candidate core
BMS or control-algorithm experiments for an unresolved technical problem
Candidate core
Procuring commercial battery packs
Not core; may be supporting depending on the facts
Civil works, containerisation and grid connection to a standard design
Not core; supporting or depending on the facts
Standard integration and commissioning
Not core; supporting or depending on the facts
A key question remains whether there is a technical outcome that could not be known or determined in advance and can only be determined through systematic experimentation.Degradation modelling may qualify as core R&D where all the applicable requirements are met and the outcome genuinely could not be determined in advance; it will generally not qualify where it merely confirms known vendor performance.
The Feedstock and Saleable-Output Trap
Where R&D activities produce a tangible output with market value — such as hydrogen that is supplied to another entity or applied to the claimant's own use — the feedstock provisions in Subdivision 355-H may become relevant. Electricity exports and other outputs should be assessed separately against the specific tangible-product and feedstock requirements rather than assumed to trigger the adjustment automatically.
The feedstock adjustment does not simply cut the notional deductions. Where the statutory conditions are met, it includes an additional amount in assessable income. Those conditions broadly require a tangible product of the R&D activities, notional deductions for feedstock inputs transformed or processed by those activities, and that output being supplied to another entity or applied to the claimant's own use.
Feedstock adjustment — where the conditions are met, an amount is added to assessable income by reference to the feedstock revenue and related notional deductions. It is not triggered merely because a plant produces something saleable.
Clawback or recoupment on grants — Government support can create a separate clawback interaction that changes the net value of the offset, but what matters is whether what you received is a qualifying government recoupment rather than which agency provided it — ARENA and some state programs may provide grants, while the Clean Energy Finance Corporation provides finance and investment and states that it does not make grants. The relevant question for R&DTI purposes is whether the amount received is a government recoupment relating to expenditure taken into account in calculating the R&D tax offset.
The practical discipline: separate experimental runs from production runs in both the engineering plan and the records. If experimental and production runs are not clearly distinguished in the records, it may be difficult to substantiate the relevant activities and expenditure during a review.
Worked Example: A First-of-a-Kind Electrolyser Demonstration
Consider a hypothetical $40 million green-hydrogen demonstration project. The figures below are illustrative only and are not a promise of any benefit.
Core R&D
A designed programme testing a new membrane and stack configuration whose degradation behaviour under variable solar input is genuinely unknown: instrumentation, experimental runs and analysis. This may represent only a portion of the total project expenditure.
Supporting R&D
Activities directly related to those experiments, such as a purpose-built test rig. Where an activity produces or is directly related to producing goods or services, or supports an excluded core activity, it must satisfy the dominant-purpose test in s 355-30(2).
Non-core
EPC construction, compression, water treatment, commissioning and routine scale-up. These activities are not core R&D, although particular activities may qualify as supporting R&D depending on the facts.
Feedstock-adjusted output
Where the conditions in Subdivision 355-H are met, hydrogen produced and supplied, or applied to the claimant's own use, may bring an amount into assessable income under the feedstock rules rather than reducing the notional deductions directly.
Even in a genuinely novel plant, only the specific activities and associated expenditure that satisfy the applicable requirements should be included. The plant's total capital expenditure does not become eligible merely because the overall project is novel.
Offset Rates and Thresholds
The refundable offset is the company tax rate plus 18.5 percentage points — 43.5% for a 25% base-rate entity — and is available to eligible companies with aggregated turnover under $20 million that are not controlled by one or more income-tax-exempt entities.
The non-refundable offset is the company tax rate plus an intensity premium: an additional 8.5 percentage points on notional deductions within the 2% R&D-intensity threshold and 16.5 percentage points above it. Unused non-refundable amounts are generally carried forward rather than paid as cash.
Important: the $150 million figure is an R&D expenditure threshold, not a cap. Notional deductions above that level generally attract an offset at the company tax rate rather than the intensity premium.
Getting It Right: Registration, Records and Where an RSP Fits
The Department of Industry, Science and Resources (DISR) registers the activities, while the ATO administers the tax offset claimed in the company's tax return. Activities must generally be registered within 10 months after the end of the relevant income year.
Eligible entity — broadly, the claimant must be an eligible company. A company exempt from income tax is not an eligible R&D entity.
Minimum expenditure — an entity generally needs total notional R&D deductions of at least $20,000. Where the total is below that threshold, an offset may still be available for eligible expenditure incurred to a Registered Research Service Provider, subject to the applicable requirements, including that the services fall within a research field for which the RSP is registered.
Contemporaneous evidence — hypotheses should be stated before the experiment, results recorded as work proceeds, and expenditure mapped to specific core activities.
Ignition Research is a Registered Research Service Provider (RSP000047) based at Lot Fourteen in Adelaide. An RSP can supply research capability and help structure and substantiate the experimental core. It does not approve, pre-approve or guarantee a claim. Eligibility remains self-assessed.
Frequently Asked Questions
Q: Does building a green hydrogen demonstration plant qualify for the R&D Tax Incentive?
A: The plant itself generally does not. What may be eligible are the experimental activities inside it — efficiency, chemistry and degradation work whose outcome cannot be known in advance. Standard construction, commissioning and commercial production are generally not core R&D activities. Particular activities may qualify as supporting R&D where the applicable requirements are met.
Q: Is grid-scale battery storage R&D eligible, or just the construction cost?
A: Construction and procuring commercial packs are unlikely to be core R&D on their own. Novel cell chemistry, genuine-unknown thermal or degradation modelling, and control-algorithm experiments may be candidate core activities. Installing cells to a known design is generally not core R&D.
Q: What cleantech activities are excluded, supporting or non-experimental?
A: Standard EPC construction, civil works, balance-of-plant to known specifications, procuring commercial equipment, commissioning, routine scale-up and commercial production. Some may qualify as supporting activities if directly related to core R&D and, where required, undertaken for the dominant purpose of supporting that core activity.
Q: How does selling the hydrogen or electricity affect a claim?
A: Selling hydrogen or another tangible output may trigger a feedstock adjustment, but only where the specific conditions in Subdivision 355-H are met. Electricity exports and other outputs should be assessed separately against the tangible-product and feedstock requirements. Where a feedstock adjustment applies, an amount is included in assessable income rather than the notional deductions being directly reduced. Government grants or reimbursements relating to claimed R&D expenditure may separately give rise to a clawback adjustment.
Sources & Further Reading
Overview of the R&D Tax Incentive — business.gov.au
Apply to register with the R&DTI — business.gov.au
Rates of the R&D tax incentive offset — ato.gov.au
Refundable and non-refundable offsets — ato.gov.au
Proposed reforms to the R&D Tax Incentive — business.gov.au
Income Tax Assessment Act 1997, Division 355 — legislation.gov.au
Related: What does not qualify
Scoping a hydrogen or battery project is a scoping problem before it is a tax problem. The defensible claim is the one where the experimental core is cleanly separated from the commercial plant, on paper, before construction begins. Ignition Research helps structure and substantiate the R&D without over-reaching on the whole capex.
Note: The Australian Government announced reforms to the R&D Tax Incentive in the 2026–27 Budget, intended to apply to income years starting on or after 1 July 2028. Until those changes take effect, the program continues to operate under the current legislation. Readers should check the latest official guidance before relying on the future measures.
This article provides general information only and does not constitute tax, legal or financial advice. Eligibility for the R&D Tax Incentive depends on the specific entity, activities, expenditure and circumstances involved. Businesses should assess their circumstances against the legislation and current official guidance and obtain independent professional advice where appropriate.
Working on a project like this?
Tell us what you're building and the part you're not sure will work. A researcher from our Adelaide team (registered Research Service Provider RSP000047) reads every enquiry and replies within two business days. No documents needed.
