Quick answer: Potentially, yes. The R&DTI asks who each R&D activity was conducted for — not whose hands ran the batch. The question is assessed on the whole of the circumstances, including who receives the major benefit, informed by who effectively owns the results, who controls the activities and who bears the financial risk. Those are factors, not three separate tests: none decides it alone. Your agreement is important evidence of where they sit, but how the programme actually runs counts too. Generally, the same activity cannot be claimed by both entities, although one project can contain activities conducted for different entities. You self-assess.
As at 27 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, and we cover the announced measures separately in the proposed $50,000 Budget measure.
Most Australian food, beverage and supplement brands do not own a factory. The formulation lives in a founder's head and a spreadsheet; the trial batches run on someone else's line. So when the R&D Tax Incentive (R&DTI) comes up, it is framed as an expenditure question: can I claim the co-packer's invoices? That is the second question. The first is whose R&D it was — get that wrong and the invoices are irrelevant, because the activity was never yours to register.
We assume throughout that there is genuine R&D — a real technical unknown resolved by a systematic progression of work. Whether a reformulation crosses that line is a separate question, covered in R&D for food and beverage.
The Test is "Conducted for", Not "Conducted by"
The R&DTI does not ask who held the pipette. An R&D entity can only notionally deduct expenditure on registered R&D activities meeting the conditions in section 355-210 of the Income Tax Assessment Act 1997, and the paragraph covering the ordinary domestic case, s 355-210(1)(a), applies where "the R&D activity is conducted for the R&D entity solely within Australia". Nothing requires you to own the equipment or employ the operator.
Australia is the default, not an absolute: other paragraphs of s 355-210(1) cover activities conducted overseas under a finding made under the Industry Research and Development Act 1986 (ITAA 1997), so if your co-packer is offshore, check the overseas finding pathway first. This article assumes trials in Australia, where the live question is the "conducted for" condition, which the ATO explains this way:
"Working out for whom the R&D activities are conducted involves determining who receives the major benefit from carrying out the activities, for example, who effectively owns the results of the activities, controls the conduct of the R&D activities and bears the financial risk." — ATO, Who R&D activities are conducted for
It can genuinely go either way.
The ATO's own material includes an example where the manufacturer is the claimant: a company contracting to supply a new product meeting a customer's specifications, under no obligation to supply working papers or background research, which alone controls and uses the results, effectively owns them — even where the customer is the only realistic buyer (ATO). A co-packer with an in-house NPD team is not automatically your subcontractor.
One activity, one claimant — and the unit is the activity, not the project.
The ATO describes the requirement as one that "prevents duplication of claims by different entities for the same R&D activities". You and your co-packer cannot both register the same trial. But the rule is about activities, not projects. One programme may routinely contain activities conducted for different entities: the co-packer may be running its own experimental work on line speed, fouling or changeover, at its own cost, while the trials resolving your formulation unknown are conducted for you. So ask the question activity by activity, and scope the registration that way. A related trap sits in the same section: s 355-210(2) takes an activity outside the paragraph where it is "conducted, to a significant extent, for one or more other entities" — which a jointly designed trial conducted to a significant extent for the co-packer may fall outside the condition.
Three Factors, Read Against a Co-Packing Agreement
Effective ownership, control and financial risk are not three statutory tests each of which must be passed. They are factors — indicia — that together inform the single question of whom the activity was conducted for, weighed on the whole of the circumstances. A brand owner can be light on one and still be the entity the activity was conducted for; being strong on one while the others point elsewhere will not carry it.
Effective ownership of the results: This is about the knowledge, not the pallets. The ATO's guidance is to look at the circumstances and at "what practical, as well as formal, rights" you have to the results — the IP, the know-how, or similar output — and you need not be the proprietor of any particular piece of IP. Standard co-packing agreements may be silent on trial results, or may carve out “process improvements” or “manufacturing know-how” to the manufacturer. A brand owner can end up owning the recipe while the co-packer owns the only version of it that works at 2,000 litres.
Appropriate control over how the activities are conducted: The ATO sets out what an appropriate degree of control looks like: you can choose the project of R&D activities, decide on major changes in direction, stop an unproductive line of research, decide whether or not to follow up an unexpected result, and decide to end the project. If the co-packer's technologist decides what changes between runs, which anomaly is worth chasing, and when the next batch fits their production calendar, the honest answer may not be you. The ATO does note that R&D is often carried out under contract by experts and the company may still have an appropriate degree of control — so the fix is not to pretend you are the food technologist. It is to hold the decision rights, on paper and in practice.
Bearing the financial risk: The ATO's examples cut both ways. Activities merely incidental to supplying a saleable product for a fixed price that "bears no relationship to the extent of R&D activities the entity may need to conduct" indicate the supplier is bearing risk. Conversely, where an entity conducts R&D under contract for another entity, does not effectively own the results and is reimbursed regardless of the outcome, the activities may not have been conducted for that entity, and the not-at-risk rule may also limit the available notional deduction. Government grants and other recoupments must be assessed separately, as they may give rise to a clawback adjustment and, in some circumstances, may also interact with the not-at-risk rule. The friendly co-packer who does the development free, or at cost, on the understanding it will win the production contract is making a rational commercial bargain — but it changes who incurred the expenditure and who wore the downside of a failed run. That is a fact the analysis reads, not a defect.
Two Versions of the Same Six Trial Batches
Illustrative only — a hypothetical, not a ruling. An Adelaide beverage brand wants a shelf-stable oat drink that will not separate over a nine-month ambient shelf life, without an emulsifier its retailer rejects. It books six trial runs at a co-packer.
Factor
Version A — standard co-packing agreement
Version B — development agreement signed before run 1
Trial results / know-how
Silent; "process improvements" vest in the manufacturer
Trial data, protocols and results assigned to the brand owner, with rights to use and direct further development
Who designs the protocol
Co-packer's technologist decides what changes between runs
Brand owner approves the protocol and each variation, and may redirect or stop the programme
Cost of failed runs
Co-packer absorbs off-spec runs to win the production contract
Brand owner pays for every run, in-spec or not, plus scrap
Reporting
Pass/fail only
Full batch, process and analytical records
Where the factors point
Away from the brand owner on all three
Materially stronger for the brand owner
Same plant, same technologist, same six batches; what differs is the agreement. The answer is still reached on the whole of the circumstances, as the factors played out in practice, so Version B's terms help only to the extent the programme is run that way — but the agreement is important contemporaneous evidence, and it can be settled before run one rather than reconstructed at registration.
If the activities are eligible and conducted for the brand owner, the mechanics are ordinary: register the activities with the Department of Industry, Science and Resources (DISR) within 10 months after the end of the income year (business.gov.au), then claim the offset in the company tax return. Whether the offset is refundable or non-refundable turns on turnover and control: see refundable vs non-refundable offset.
The Clauses Worth Settling Before the Next Trial
Results, not just the recipe: Deal expressly with ownership of trial data, batch records, analytical results and process know-how — not only the finished formulation — and with an obligation to hand the raw data over.
A right to direct: State who approves the experimental protocol and changes of direction, and who may stop or end the programme.
Separate development from production: A development schedule with its own scope, pricing and deliverables, which also makes the activity boundary visible.
Where the risk of failure sits: Settle who bears the cost of the trial runs, who carries the risk if they fail, and whether either party receives guaranteed or cost-plus compensation regardless of outcome. That allocation is one of the things the "conducted for" analysis reads, so decide it deliberately rather than inheriting it from a production template — but which way you allocate it is a commercial decision for the parties and their advisers.
Who registers what: Record which party registers which activities, so two entities do not lodge over the same activity.
Drafting is only half of it. The contemporaneous file — who approved which protocol change, who stopped which line of work, who paid for the off-spec run — has to show the programme ran as the agreement says.
Three Rules That Sit Next Door
A related-party co-packer
Associate status turns on the relationship between the entities, not on how they transact on a given deal — related entities can negotiate at arm's length and still be associates, so a market-rate trial price does not settle it. Where the manufacturer is an associate, expenditure is notionally deductible only in the year it is actually paid to that associate (ITAA 1997, s 355-205(1)(b)).
Trial output that is sold
A feedstock adjustment can bring an amount back into assessable income (ITAA 1997, Subdiv 355-G, incl. s 355-445), and notional deductions can be reduced where expenditure is not at risk (s 355-405). Both have their own article in our Insights.
A trial run that also makes saleable stock
A supporting activity that produces, or is directly related to producing, goods or services must be undertaken for the dominant purpose of supporting a core R&D activity. An activity producing goods or services must be conducted for the dominant purpose of supporting a core R&D activity (business.gov.au).
Where an RSP Fits — and Where It Does Not
business.gov.au describes Research Service Providers (RSPs) as "scientific or technical service providers that you can engage to conduct R&D activities on your behalf", registered in specific fields of research (business.gov.au). A co-packer may provide production expertise, while an RSP can assist with designing the experimental protocol that the co-packer executes, with the brand owner retaining the relevant decision rights and access to the results.
There is also a threshold point for brands spending on a handful of trial runs. R&D expenditure for the income year must generally be at least $20,000 (business.gov.au), and RSP-conducted eligible R&D activities can be claimed even where the usual $20,000 R&D expenditure threshold is not met. Read that precisely. Where total notional deductions are below A$20,000, the offset base is generally limited to qualifying expenditure incurred to a non-associate RSP for services within a field for which it is registered, together with eligible CRC Program contributions. Other in-house amounts do not automatically form part of that below-threshold offset base. We unpack it in claiming R&D under $20,000.
Two caveats: using an RSP does not guarantee eligibility — you still self-assess, and engaging one does not by itself answer the "conducted for" question. The contract still has to put ownership, control and risk in the right place.
What the 2026-27 Budget Proposed
The 2026-27 Budget announced proposed R&DTI changes for income years starting on or after 1 July 2028. They are not current law; see our dedicated Budget update for the proposed measures and their status.
Frequently Asked Questions
Q: Can I claim the R&D Tax Incentive if a contract manufacturer or co-packer runs the trials?
A: Potentially. The test is whether the R&D activity was conducted for your company, not whether your staff performed it. The ATO asks who receives the major benefit, informed by effective ownership of the results, control of the activities and who bears the financial risk — weighed together, not as separate hurdles. A third party operating the line does not disqualify you. You self-assess.
Q: Who claims the R&D — the brand owner or the contract manufacturer?
A: Whichever entity the activities were conducted for, on the whole of the circumstances. If the brand owner directs the programme, receives the trial results and carries the cost of failed batches, those factors may point towards the activities having been conducted for the brand owner. If the manufacturer develops a product to a specification, keeps its working papers and alone controls and uses the results, the ATO's guidance indicates it may be the manufacturer.
Q: Does my co-packing agreement need to say who owns the trial results?
A: Silence can be a weak point. Effective ownership looks at practical as well as formal rights, so an agreement dealing expressly with trial data, batch records and process know-how is more defensible than one mentioning only the recipe.
Q: Can two companies claim the same R&D activity in Australia?
A: No — the ATO describes the requirement as one that prevents duplication of claims by different entities for the same R&D activities. But that is a rule about activities, not projects: one programme can contain activities conducted for the brand owner alongside others the co-packer conducts for itself. Split the programme into activities, decide who each was conducted for, and record who registers which.
Sources & Further Reading
legislation.gov.au — Income Tax Assessment Act 1997 — Div 355, incl. ss 355-205, 355-210, 355-405, 355-445
Related: R&D for food & beverage · claiming R&D under $20,000 · what an RSP is · refundable vs non-refundable offset · the proposed $50,000 Budget measure
Talk to Ignition Research before you sign the next co-packing agreement. As a Registered Research Service Provider at Lot Fourteen in Adelaide, we help asset-light food and beverage companies define the experimental work and establish contemporaneous evidence before the trial batches begin. We are not a registered tax agent: legal agreements, eligibility, claim positions and lodgement remain matters for the company's advisers. Get in touch.
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.
